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Subscriptions vs one-time payments: pros and cons for your business

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Last editedJuly 20233 min read

In 2019, Gartner predicted that 75% of Australian businesses would sell a subscription by 2023. With the rise of the digital economy the number of subscription services has indeed grown significantly over the past few years. From software to grocery staples, there are many products and services that lend themselves well to the recurring subscription payment model. Yet others benefit from a one-time payment to mark a single, one-time sale.

When comparing subscriptions vs one-time payments, you’ll need to think not only about your business’s services, but your cash flow needs and churn. Here’s a breakdown of the pros and cons for each model.

Pros and cons of subscription payment

Let’s start with the positives. There’s a reason why more businesses are offering subscriptions than ever:

1. Predictable income

One of the major benefits of taking subscription payments is that it provides a stream of predictable income. Customers sign up for a recurring payment plan, where they agree to pay a sum at regular intervals. This makes it easier for your business to calculate customer lifetime value, which helps with long-term financial planning.

2. High conversion rates

Subscription payments let customers spread the cost of purchase out over time, breaking it down into a series of smaller instalments. This can sway buyers who were on the fence about making a purchase.

3. Cross-selling opportunities

By serving your customers over time, you’ll understand more about their needs and buying habits. This lets your business create more accurate buyer personas for the purposes of upselling and cross-selling. Target customers with upgrades they’ll want.

Of course, there are a few downsides to subscription payment models as well. In an ideal world, you’d retain every customer for unlimited growth. Unfortunately, customer churn can be high for subscription businesses. You need to find concrete ways to reduce churn and keep customers for the long-term. This includes involuntary churn – oftentimes subscriptions are cancelled due to changes in payment details that simply don’t get updated in the system. You’ll also need to spend significantly on customer support to make sure they’re getting continued value from your products or services.

Pros and cons of one-time payment

While subscriptions are popular, there’s also a strong case to be made for the one-time payment model. Here are a few of the key benefits:

1. Immediate revenue

With subscriptions, it can take some time to see a return on the cost of customer acquisition. A major pro of one-time sales is the fact that you’ll recoup the cost of production as soon as your customer makes a payment. Profit is locked into the price which gives you more freedom for new product development and innovation.

2. Reduced churn

Customer churn is a consistent worry for subscription businesses, but less so with a one-time payment model. Instead of retention and churn, you can focus more on customer acquisition. You need to land that first purchase to increase revenue and cash flow. At the same time, there’s less need to spend resources on customer support and aftercare. Customers might have initial questions about the product, but they’re less likely to reach out for future support. This saves time and money.

The flip side of these benefits is less predictability. Customers may or may not return for another purchase, and you won’t have the security of recurring payments to predict your income. Conversion rates are lower too, though you can improve this metric with targeted marketing and a well-planned sales funnel.

Subscription model vs one-time payment: which is best for your business?

Ultimately, it’s best to weigh the pros and cons carefully while also considering the type of product you sell. Subscription models offer the benefit of a steady, predictable revenue stream provided you keep on top of customer service needs. For some businesses, a hybrid model between subscriptions and one-time payments could be a good option. Peloton is a prime example – once you’ve purchased the exercise bike with a one-time payment, you sign up for a subscription membership to access fitness classes.

Whether you opt for one-time or recurring payments, GoCardless can help. Our global bank pay network helps your business collect bank-to-bank payments from customers across the globe, whether you’re taking variable or fixed amounts. Flexible recurring plans and one-off invoices let you manage a hybrid model successfully from one platform. And with our Success+ intelligent retries tool, you can reduce involuntary churn by optimizing the billing process.

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GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.

Over 85,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

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