Why are users hesitant to pay $5 / mo for software but won't hesitate to spend $5 / day on Starbucks and fast food?

by humanaich. Posted on Sep 12, 2020    49    43


I'm toying with the idea of taking the contrarian stance and ditching the subscription model for our apps. I'm thinking of trying a one time payment approach that gives users access to our app for the whole year or two years.

I can't figure out why users hesitate to pay for software as a subscription even if it's at a low cost. Can someone give me some insight? We have consistent active users on our apps using our Free plans and trying to figure out how to convert them to paid.

Thanks.


Comments

achauv1

Are you seriously comparing yourself to Billion dollars companies ?

  humanaich 2

Unproductive response. Feel free to expand.

achauv1 2

Customers spend their money where they see a clear benefit for them.

Ecossentials 1

I honestly think having consumer software for regular people (B2C) is getting useless unless u can generate it based on third party ads. people are not looking to pay per month for apps on the web or mobile

hey_look_its_shiny 1

I'm not necessarily disagreeing with you, but I'm curious what you're basing that on. I see consumer subscriptions abound for mobile use of Headspace, Pocket, Netflix, Audible, Zoom, O365, G Suite, Spotify, VPN's, etc...

smokeandfog 1

Caffeine is a hell of a profitable drug. It’s the most traded commodity.

joeadewunmi55 1

Because there is so much free software out there.... and there isn’t free coffee out there

ryck007 1

People like to satisfy their want not needs.

Better still, it's the feel food mentality

RumplyThrower09 1

Simple, the coffee has a better value/price ratio than the software for them. It always come down to that.

Entrepreneur-X 1

May be because the dopamine produced by food in our brains is higher then the particular software.

houle 1

Because half of the things users have subscriptions for when they go to cancel them the companies make it a giant hassle if not nearly impossible to cancel. Often I'd rather just find a different solution that deal with the annoyance.

KillaQMoney 2

You should focus on how easy it is to cancel. Offer a month refund on a cancelation. Make the sign up fear as low as possible.

AdviceUnknown 2

$5 a month is a lot if its something I'm only going to use ocassionally/once a month/only once.

I see so many apps turning to subscriptions now and I can understand their reasons but as a user I don't want to signup to a lifetime of paying for something unless it's actually something I'll use often. Netflix => no problem some app to make my photo into "art" => no way. If you're app has long term value a subscription should be no problem - getting the fee points right is the hard part!

omenoracle 2

I am pretty hesitant to spend $5 on an app or at Starbucks.

$5/mo is $60 a year. If I keep it for multiple years it is hundreds of dollars. What kind of amazing functionality are you going to give me for $5/mo? If I bought a bunch of apps the money adds up very quickly and is easy to forget about. Can’t have a bunch of $5 leaks in my bank account. Especially if the app is something I’ll use once a month.

Someone on the iOS App Store is selling screen sharing software for $5-8/mo. That’s crazy. I would spend $100 on a hardware thing that includes the functionality and take a one time expense instead.

  humanaich 1

What you've described is exactly what I've suspected from a lot of SaaS users. I think there's a disdain for subscription software in general, it's just that every vendor has done it and have normalized it.

I had this discussion internally last night and we've come to the same conclusion that people want to pay once and call it a day. We are going to ditch our subscription model.

Thanks for your input!

MaxPast 1

Don't do that! You will definitely regret your decision in the future.

The only reason why people don't pay you is because your product isn't exciting for them. So, it's not a question of price but the question of product/market fit. And, as soon as you make your customers happy, you will get your recurring income. But, until you get to the point, you will struggle both with one-time and subscription pricing models.

If you stick to one-time pricing, you will never grow, never. Especially in the market where all your competitors get bigger and bigger product development and marketing budgets.

A little proof about subscription pricing: in my previous business I was able to make people pay $50/mo for a desktop(!) software product, not even for an online SaaS. Literally: people downloaded Windows software once and paid me each month for using it. Why? Because it was pretty good and they really enjoyed using it!

Yes, there was a huge churn rate because of the nature of the niche (traders usually don't last long, you know) but still... I can also compare final numbers: only when I introduced subscriptions my business started to grow. Before that it was a horizontal line because it's hard grow the speed of getting new customers. But, if you get the same number of customers month over month who continue to pay you, that's where real grows happens!

omenoracle 1

I would pay a smaller amount per month, $1-3, for something I would use regularly.

aimeemaco 2

Why did you choose the freemium model instead of the free trial? Without knowing what your app does, and based solely on your pain point - converting free users to paid ones - I would think free trial is a better option.

Another thing is to analyze the features that they use the most. Can you move any of those features under the paid version, to force the upgrade? If yes, keep the features that they absolutely need and expect in the core package and move the nice-to-haves to the upgrade.

If you share a link I can probably give more suggestions.

  humanaich 2

Good points. After discussing this topic with my team last night, we've decided to remove our Free plan. We do have a Free Trial but also a Free plan. Someone else on this thread made a good point about free users having no intention to actually pay. We've seen this in our behavior data. Some users sign up and immediately select the Free plan within minutes of signing up.

Thanks for your feedback. Great point on feature analysis and we will do that.

dashader 2

I think it's because it's hard work against of mental model of software = copy a file. Brain goes like $5 to get a copy of a file???

Another is the fear of not knowing what you are getting. With Starbucks you know exactly what you are paying for, you had that drink before. With software, even if you tried that app before, you don't really know how to estimate the "joy" of owning it.

ismartbin 3

From my own behavior, I don't like recurring costs that I don't have visibility to.

When they show up on the bill, you are often trying to figure out what that is.

Coffee is not like that.

sir-draknor 3

Here's another consideration - are you developing features that your paying users need, or are you developing features to attract free users?

I don't remember where I read it, but at one point I read some good advice for SaaS/app business that basically said - don't offer a free tier, because you'll get a lot of users that will never pay you anyway but will make feature requests, take up support time, and will just otherwise be a distraction from your REAL customers - the ones who will pay you money.

So my totally unsolicited advice is - instead of focusing on your conversion strategy, reconsider your marketing strategy. Figure out who your existing paying customers are, and figure out how to attract & market to more people like them.

zizi77 3

I see some apps offering lifetime licenses with one time payment in addition to monthly and annual subscriptions: Headspace, Lose It and few others. As I understand their life time license price is calculated as an average user lifetime in months (that they see from in app analytics) * average payment per month minus some discount. for example average user lifetime is 36 months so with $5 per month your lifetime license is $180.

zizi77 6

$5 on fast-food vs $5 on software is clear: food has the highest priority in our brains! you can die without food.

thisbondisaaarated 7

If they won't pay the don't need it that much. If they need it, they'll pay or find alternatives, it's that simple.


Also, 1 payment for 1 or 2 years is still SaaS. You either do a lifetime license or not, IMO.
As a consumer the only thing I use in the SaaS is Gamepass from Microsoft and I no other software has been useful enough for me to pay monthly/yearly to use it outside of professional needs.

  humanaich 3

Thanks for the feedback. For a lifetime license, do you think that users should expect to then pay for major enhancements or is that expected to be included with a lifetime license?

thisbondisaaarated 5

Just look at how everyone did software before SaaS became the new trend. Adobe is a good example because they had yearly upgrade cycles, Autodesk too!

SpaceForceAwakens 5

Lots of good points in here, but I'll add a couple more from my experience.

1) When it comes to software, for many people, they're used to "free". One of the things about the marketplace today is a hangover from the early days of the Internet when everything was "free". I put quotes around it because they'd often end up paying in other ways — data, support services, etc. — but for a lot of people the idea of paying for software, especially smaller apps, is an optional one, not a necessity.

In addition, for many apps and services there is also a "free" competitor, or work around, etc. If people can find another way to solve their problem without paying they will, so you need to make sure that your value prop includes something that they can't get for nothing.

2) Subscription build-up is a thing. I pay for a half-dozen streaming video services, Apple Arcade, a couple of apps, etc. etc. It all adds up, and for many people they're already at the point where they've had enough; most of us have a soft figure in our heads for what we're willing to pay out each month for the convenience that these subscriptions give, and if they're getting close to that number then they'll be less and less likely to add another monthly subscription, even if it's just $2.

As far as Starbucks goes, there's a big mental difference between paying for a tangible item — a latte — vs. paying for an intangible, like an SaaS product. People are starting to overcome this bias — younger people are much more amenable to paying for monthly service subscriptions, likely because they grew up with them — but this is where the challenge lies: Getting your intangible to "feel" like a tangible. A person "needs" their daily coffee, but do they "need" a smart contacts sorter, etc.? Maybe they do, but if they don't "feel" that they "need" it then they're not going to pay for it — espeically if there are other "free" options available.

(I'm "sorry" for all the "quotes" but I was going for brevity here.)

billymeetssloth 6

I want to add another point.

Perception of scarcity.

The whole reason anything has value is there is a finite amount of anything. Currency only works because there is only a fixed number of it. Software is something that can be infinitely produced and replicated. Coffee can not be. We don’t question it because the base part of our brain knows this.

There is some variance that branding and value also play. You could argue coffee is like toothpicks. It should be practically free because of its abundance, but Starbucks has leveraged brand to communicate that there is a finite amount of quality coffee only available from them.

spicymangoslice 10

The other comments are right about need and pain points, but I also get what your saying, paying $5 for an app feels like a huge deal but I'll spend $10 at sbux for something that will bring me less joy/etc.

There is also a factor of what ppl are used to and comfortable with. With sbux, it's a store (I'm expected to pay for stuff in a store), I get something in my hand (it's physical, I see what I'm paying for), etc. In contrast, I don't pay for any of my phone apps, email, etc. So someone saying hey pay me, feels wrong/odd and requires more mental work to get past that hurdle.

This is something that's hard to change and is more behavioural/cultural. I'm sure it'll change in the future. But, you are better off focusing on what the other comments are saying about making sure your solving a need, etc. rather than trying to change this. But your right, it's not just logical, there's more to this issue than it seems.

AdamKyleWilson 41

If they “need” a coffee everyday then it’s a major pain point. If they don’t “need” the product they won’t pay for it. Same reason people don’t buy $5 socks everyday, it’s not a need to have new socks, their sock needs are likely covered.

So either your free version is covering their needs just fine and they don’t see the premium version as a value add. Or they don’t need your product at all and just use it as a novelty.

travk534 1

Get onto r/thesidehustle for guidance

  humanaich 2

Thanks. In the case of the coffee example, Starbucks must have done something to convince them to buy their coffee there. As opposed to Dunkin' or even just making coffee at home. I'm trying to figure out what that marketing strategy is. There's no shortage of coffee shops local and global brands but customers become loyal somehow. I'm a rookie when it comes to this stuff and just looking to learn.

Where_is_Gabriel 2

Marketing is done right. As my marketing teacher sad, the battlefield it is in the customer's mind.

Is also the brand, people care about the brand, positioning of the products and service and also influencer marketing.

Same thing with a great article. It can be the best but if no one can see that article (because they don't know that it exists) then they will not read it.

Also, just ask your customers or your leads why they don't want to buy your software.

Ask them what they would like your software to do for that monthly subscription fee.

Maybe the price is so low that they will rather pay 10$ for a dinner at a restaurant than to pay for the software so cheap that it will only create problems.

Some customers believe that what they buy is what they get and most of the time is true. Remember that if you increase your price they actually learn more about your software because it will be a big investment that requires more thought.

gravi5 3

I think starbucks made it a point to be available around every corner and street. When I know that I can get that consistent taste whenever I want, I am more likely to go there. I mean why experiment? Also a coffee shop visit in today's world is more than just about coffee. Its the socializing aspect that goes hand in hand with coffee.

Regarding your point about coffee vs paying for an app, it truly is about need. People need coffee every day. In today's busy life you are more than likely to have more than 1 or 2 cups of coffee every day. So sure some might make their morning coffee at home or office but midday or evening they may still end up at a coffee shop. And yes it's not cheap and I am certainly not the demographic that spends on coffee.

I think with so many apps available today, there are handful of these apps that really meet definition of "needs" similar to coffee. I would guess that an average person has 80 to 100 apps on his phone. Out of those how many apps do people open every day?

Coffee is serving ones immediate needs. Instant gratification!

If your app solves a "need" (even just for your targeted audience), they will pay.

IcyBaba 10

Look into the way they position themselves as mass market luxury - having a Starbucks cup says something about a person or at least that’s what they’ve convinced people - have you ever seen a working class person with a Starbucks cup?

simple_mech 16

Yea, they’re usually shaking it for change.

BeavertonBeaverBob

My (hot) gf started charging $99/year instead of $9.99 a month and saw a big increase. People rather spend $100 to get something they really want.

StraightAssociate 1

You can buy a lot of bearded dragons with that kind of money.

tawnyfive4251 2

Isn’t that a discount to 9.99 a month?

BeavertonBeaverBob

Yuah thats how it's advertised. Annual plan vs monthly and it works.

hajimemash012 3

onlyfans? lmao