Several digital publishers are now evaluating one-off payment models as a complement to their subscription revenue stream. The idea is to complement subscriptions by allowing readers to access specific pieces of content for a one-off fee.
This is particularly common for more mature publishers, where they might have exhausted their audience’s willingness to pay for subscriptions and now look for more ways to monetize.
But what are the maths behind this and how can a publisher know if it’s a successful venture – or something that just cannibalises from their existing business?
Let’s do some simple maths. I reason we have to consider three factors:
- Lost subscription revenue from users choosing one-offs instead
- Gained one-off revenue from those who did not chose subscriptions (in A)
- Gained one-off revenue from new users who would never buy subscriptions
Lost revenue due to cannibalization
Likely, some users will pick the one-off payment instead of going straight to paying subscription.
To understand the negative effect of this, one must understand the lifetime revenue of a lost subscriber and how many subscribers are likely to consider a one-off instead. Mathematically we can state:
- Negative effect of lost subscribers = Lifetime value of subscribers * Number of subscribers who chose one-off instead of subscriptions.
Gained revenue from one-offs
Here, we have two positive sub-parameters to consider: Revenue from those who did not pick a subscription, plus new revenue from users who would never have picked subscriptions in the first place.
- Positive effect of lost subscribers = One-off average revenue * Number of subscribers who chose one-off instead of subscriptions.
- Positive effect from new one-off users = One-off average revenue * New one-off users gained.
Putting it together
If A < B+C then one-offs is a good option which increases the total revenue for the publisher.
If A > B+C then the cannibalization effect outweighs the new revenue gained, and therefore the publisher will gain more revenue from focusing on subscriptions alone.
What we’ve described so far is quite theoretical. The understanding of which subscribers opt-out of subscriptions to buy one-offs instead and the number of new one-off users gained, is difficult to attribute in practice.
One might evaluate this in practice by simply looking at the past volume of subscribers vs past volume of one-offs. Let’s say that the historical number of new subscriptions is 10 on average per day. When launching a one-off payment solution, you might see new subscribers go down to 8, while you might gain 5 one-offs per day.
From this simple example, you might draw the conclusion that you’ve lost 2 new subscribers to one-offs (which resulted in 2 new one-offs), and gained 3 new one-offs per day (which would never have subscribed). With this data, you can again look at the formulas stated above.
Finally, let’s highlight that there are other benefits of lowering the barrier for entry of new paying users. By converting some users with one-off you might increase the pool of subscription prospects and be able to upsell these to subscriptions in time.
What’s the long-term effect of such benefits? Time will tell. If you like to discuss this topic further we are always up for a chat – please book a meeting with me here!
