Retention in Pay-Per-Use Online Services

While much of the online SAAS world is focusing on subscription-based services, there are a few standout services that really succeed in the pay-per-use (PPU) model. The PPU model has its benefits and its risks, but no more than the subscription-based models. As we look at retention in a PPU service, we have to understand how it differs from subscriptions-based services.

PPU Subscription
Value-matched pricing Amortized pricing
Come-and-go commitment Access control model
Open LTV Capped LTV

In retention, PPU has a very important advantage over subscription based services. PPU services offer psychological and financial freedom in exchange for pricing that meets the value the service provides. The reason that more systems and services don’t use it is that they either don’t have the infrastructure to capitalize on the data, or do not know how to put the right tolls in place to make it work for the consumer and company. Granted, some services make sense to be averaged or stable fees, but some miss some potential revenue that could be hit from exclusive access or additional features.

Critical to the success of retention in the PPU environment is the on-boarding process. Setting up stored credit cards for charge acceptance and profile creation for community features is just as important as it is in subscription-based services. In addition to the on-boarding process, there should be a welcome kit workflow that details the complete offering. On-boarding your customer quickly and easily creates a positive experience. Once you set them free and let them walk away after their first use, they will be excited to return.

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With the PPU model you also retain the option for promotions, specials, and discounts that are lost on a subscription model. This is a huge tool for PPU services to increase revenue from existing customers as well as continue in the dialog with customers over time. One of the biggest problems with subscription services is that dialog goes stale. Once you are in, you are in, and very few services have the ability to entice users to a different level or additional spending. They involuntarily put a cap on the lifetime value (LTV) of a customer using subscription models that you can avoid with PPU models. This open and flexible pricing is a core advantage of PPU services for retention, which allows you to open up more opportunities for revenue and retention.

Overall, both models share the challenges of customer retention, but given the two systems, PPU offers more options due to the lack of limitations of the revenue model. PPU is also successful in tandem with a subscription service, where there is a low price of access, but content or services have individual value beyond the base inclusion. This will be the ultimate success of a service like Amazon Instant Video™, over Netflix™ in revenue.

Retention still has its challenges, but PPU can give you a deeper toolbox and better relationship from the start that can greatly increase customer retention over time.

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