Jacques Mattheij

Technology, Coding and Business

Recurring vs One shot sales, ISPS

Most of the parties in the freemium business sell subscriptions, aka as recurring billing.

This means that you will sign up for a payment on a regular basis until you cancel. There is a number of good reasons why you want to use this model as opposed to ‘one shot’ sales:

  • it lowers the price point to what a user will pay every month instead of what they will pay over time. If your retention is 90 days and the product price is $20 then the ‘sticker price’ will be $20 so a higher conversion rate will result

  • it gives the user a pay-as-you-go feeling, worst case they risk one payment

  • it reduces the relative cost of acquisition because the total income per user is higher (if you only do one shot sales every sale is a new acquisition so has the total cost of acquisition associated with it, with recurring billing you can amortize that cost over a larger amount of income)

  • it makes your business considerably more resilient to market fluctuations because the total active subscriber number will not vary nearly as fast as the sales from month to month. January for instance (right after Christmas) is historically a slaughterhouse sales-wise, everybody is broke. But the subscriptions will continue for the most part uninterrupted.

The downside of the subscription business is that you will need an IPSP (internet payment service provider) that can do recurring billing, that is PCI compliant and, most importantly that will stay in business. The last item is where the trouble lies, plenty of IPSPs have gone out of business over the years and have taken large numbers of their customers with them.

When shopping around for an IPSP at a minimum look for one where you have a direct contract with VISA, MC and any other card companies that you wish to process charges for, and if you can afford it set up accounts with two IPSPs so in case one goes under you still have at least half your company left.

If you think that’s paranoid google ‘IBill’ and ‘DMR’. Both of those were considered ‘rock solid’ at some point in time and both failed spectacularly killing a large number of merchants.

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