Why do companies charge monthly?

By Amber Jalink | Online Business

Mar 13

When you are looking at programs, products and services, one thing you will often find is the option to buy a membership of some sort on a monthly basis. Perhaps it’s a training site, or more features for the plugin, theme or software you are using.

And, they ask for a monthly commitment. Why?

This is something we are often asked, and we’re sometimes told that the person really wanted our product or service, but they were disappointed we were “going with the monthly pricing model”.

In fact, I had this question over the weekend, and since it’s happened on occasion, I felt that this is the time we need to clarify exactly WHY this is typically an option out there.

It IS a valid question – but there is also a very valid explanation for it (in most cases).

Some people think it’s a money grab… and I can understand that. Let’s face it, many people today are struggling to make ends meet, and to add a monthly payment into their budget can be difficult.

So let’s go over the reasons for actually doing this – but from both sides.

When it’s an infoproduct:

Typically info products (like ebooks, reports etc) are a one time purchase. But have you ever logged into one you’ve bought and found it completely overwhelming… it’s fantastic – there could be as much as 40 hours of content to get through! And… that’s exactly the point. 40 hours to get through… how many people have that much time to tackle right off the bat?

I’ve seen it time and time again, and I admit – I’m just as bad for this. Sure you might get through the first 5, maybe even 10 hours (if you’re lucky) of the training. Then you get busy, sidetracked, or attempting to implement some part of the course… and then you get sidetracked again… or busy again… and you don’t get back to it to finish it.

If you’ve been working online for any amount of time beyond a few months and have bought different courses, you’re likely nodding your head right now in agreement.

Life is too busy to get through it all in one sitting in most cases, and distractions, life, and work get in our way to get back and finish something. (And this by the way, is a reason why many people say “it doesn’t work” – things DO work if you actually finish and implement!)

I’ve been in a few courses where it’s in stages – you literally cannot just jump ahead to the section you want until you finish it step by step. I’ll admit this can sometimes be annoying if you’re someone like me who has a lot of the experience behind and doesn’t need to know how to install WordPress for example, in order to learn how to use the plugin.

But, to be “drip fed” the content in a situation like this where there is anything over 10 hours – it makes absolute sense!  It’s fantastic if you can continue a section and move to the next when you’ve finished, so those who CAN get through it faster can do so, but those who are slower, can also go on their time frames.

The problem (and biggest reasoning) with “one time” vs “monthly”, is usually how long a product is supported and responded to.

So think about it, what would you rather have that course above on a one time payment, knowing that if it takes you 2-3 months to get through… by the time you’re done, you’re starting to hear crickets in their Facebook group, or pitches for other products, or your support ticket response times are getting slower and slower?

This is exactly the reason why, even with an info product (course, report, ebook etc) – that a monthly option is completely practical.

Typically monthly means that the product is being constantly updated, and you are able to get ongoing support (sometimes coaching built in!), and that’s awesome, and why it’s so important.

What about services or software?

This is one we get questioned on all the time.  While this should answer itself, I’m going to put it here.

When the software is a one time download, runs on your computer, and perhaps includes 1 year of support/updates, that makes sense to be a 1 time payment. (Be aware though, that just because they “say” 1 year of support/updates… doesn’t necessarily mean there will be any, I’ve seen this often.)

When software is an online service, such as an app builder (like ours), then if it has a “one time payment” with the INTENTION of staying that way? Run away as fast as you can!

Why? Because I can almost guarantee that a few things will happen:

  1. The software will be obsolete and will likely NOT work after a certain period of time (OR the owner will NOT pay his hosting bill and the site will be shut down).
  2. The software WILL NOT be supported endlessly.
  3. The creator will suddenly have “new software” and “new upgrades” to sell you later… because they aren’t earning enough to support the system.
  4. Their support “might” last the first month, then it will likely disappear or be slow at best. And any bug fixes will probably not get fixed.

The simple reason is because it costs money to keep support going – especially updates to software.

What most people do NOT realize is the costs involved in software as a service (or any service online).

So let’s take a look, shall we of example costs per month to run software (this isn’t off the cuff, these are real costs that we ourselves have incurred on our projects).

  • Software powering the system in the first place: $200-$600/mo
  • Server / website hosting costs to support the site AND with enough bandwidth so it doesn’t crawl: $50++/mo (if you have a dedicated server, this cost is typically closer to $3-500/mo)
  • Qualified Support staff (within North America – NOT outsourced to some other country): $700-$1,200/mo depending on how many hours the support staff works
  • Further enhancements, bug fixes, development: $300-3/000/mo.

Now, totaling up those costs, the monthly MINIMUM is about $950 – excluding further enhancements/development.

And if you didn’t notice, I completely did NOT account for the “pre-launch / development” costs to create the product/service in the first place.

Sure, you might say if you have a dedicated server, it doesn’t cost you any “more” per month and that’s true. But that server cost is STILL there, and it still has to be paid for, just like support staff. “IF” you wish to do the support yourself, that’s all fine and dandy – except if you have too much time spent on support, YOUR time is not available for other important things (like marketing!)

And isn’t YOUR time worth money? Absolutely it is! You don’t eat for free. You don’t live for free. You have monthly expenses of a mortgage or rent – and even if not – you still have to pay for wherever you reside (even if it’s just in property taxes and utilities). It all costs money.

And if you work for free – you’ll have NOTHING to pay those bills on an ongoing basis.

Yes, in some instances people will offer a “lifetime” membership to a service or software as a service at the start… that is usually simply to help (a) get people trying and testing the system and (b) to kick off a launch. Usually that software flips to monthly after – so if you can get in when there’s a lifetime option that’s fantastic, and I say go for it. But read the sales page closely – if it doesn’t say anything about firmly switching to a monthly cost as of a set date, use caution and logic as to how long it will likely be around.

Proof: our app builder is a monthly cost – but it’s been running since August 2012 with updates and new templates added, and ongoing support that typically answers within a few hours. Many of our competitors have done the “one time” thing – and most of them aren’t around any longer, leaving customers in the lurch! THAT is not acceptable to me.

So let me now ask you this… would you still rather have a “one time purchase” that loses its support in a matter of a few months (or continuously sells you add ons, upgrades, or other software products just to keep themselves afloat), or would you rather pay a small/reasonable monthly fee to help support the system, and in turn, be able to know that the system is in fact fully supported and upgraded on a regular basis with either enhancements or new features?

I’d say the latter.

But does that mean a product creator should be forced to “only” have that one product/service, and not be able to create other complimentary products or services? That’s for another post….

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About the Author

I've been working online full time for 20 years... yep, I know a little about doing business on internet ;)