One-time vs. recurring payments: Key differences and how to choose

Last week we talked about how important it is to price your product or service correctly. But that’s not all you need to know about pricing. Now you have to decide between charging your users on a regular basis, or laying your cards on the table and going with a one-time payment. There’s an easy answer, right? Nope, but I’ll try to make it less painful for you.

What are one-time payments?

A one-time payment is exactly what it sounds like: the user pays once, and that’s it. No strings, no follow-up charges, no ticking subscription clock in the background. They buy your product, and you get a nice influx of cash.

Pros and cons of one-time payments

Advantages of one-time payments

The upside? You get more money upfront. That’s cash you can immediately reinvest into development, marketing, or just keeping the lights on. Users also like the simplicity: they know exactly what they’re paying and don’t have to worry about forgetting to cancel a subscription.

Faster Cash Influx

One of the big pros of one-time payments is the fact that this method will boost your bank account in considerably less time than recurring payments.

Lower Churn Concerns

If you opt for one-time payments, your users will usually opt to keep using your tool. You’ll feel like a vendor, rather than a supplier, and your software is something they own, and they’ll want to get their money’s worth.

Drawbacks of one-time payments

The downside? Once that payment is in, your relationship with the customer is mostly over, at least from a revenue perspective. Unless you’re selling upgrades or add-ons later, that user might never pay you again. Meanwhile, your costs (servers, support, new features, etc.) keep running month after month.

Limited Predictable Revenue

That lump sum is all that you’ll get from your customers unless you manage to sell them upgrades or new features down the road. With no built-in recurring income, your revenue forecast can be shaky at best.

Harder to Reach Breakeven

Reaching the break even point of your business is essential: the sooner you get your benefits covering your costs, the better. But with one-time payments, this heavily depends on continuously acquiring new customers since the revenue doesn’t accumulate over time from a single user.

What are recurring payments?

Recurring payments, on the other hand, mean your users are charged on a regular basis—monthly, quarterly, or yearly. This is your typical SaaS model: users pay for ongoing access, and in return, they expect you to keep improving the product and supporting them.

Pros and cons of recurring payments

Advantages of Recurring Payments

The beauty of this model is predictability. You can forecast revenue, plan hires, and make longer-term decisions with more confidence. Also, from a behavioral point of view, recurring payments tend to feel “lighter” to the user, especially if it’s a monthly charge. This often leads to higher conversion rates compared to a big upfront payment.

Predictable Revenue Streams

Recurring payments have intrinsically higher conversion rates and provide steady revenue. Since the upfront cost feels lower to users (especially with monthly billing), they’re more likely to sign up, making it easier to acquire customers.

No matter what periodicity you choose, you will have to test out everything: from the packages and tiers you are going to list, to discounts and ways of presenting your offers to make them more appealing to your customers.

You won’t come up with the perfect pricing in the first attempt. Instead, expect a process of test and learn, test and learn, eliminating mistakes with each iteration until you arrive at a strategy that works for you. This isn’t blind trial and error, but neither is it an exact science.

Higher Customer Lifetime Value

While each monthly payment may seem small, the total value from a customer over time often ends up being much greater than a one-time purchase. For example, someone paying $10/month for two years contributes $240 in total, without needing to resell to them.

More Opportunities for Customer Engagement

Because you're in constant contact through billing cycles, you have more touchpoints to engage users, upsell features, and collect feedback. This makes it easier to evolve your product in a way that keeps users satisfied and loyal.

Drawbacks of recurring payments

There is often pressure to retain customers. If your product stops delivering value, or if you get complacent with updates and support, you’ll see churn rates rise and revenue dip. It’s not just about getting users through the door—it’s about keeping them inside.

Churn Rate

Recurring payments make you feel like a service, and customers might feel like going somewhere else. The nature of your software has an effect on this, but if you choose recurring billing you’ll need to pay a lot more attention to retention and remarketing to retain customers. After the first month, you’ll typically begin to face escalating churn rates. Marketing in particular (acquisition, retention, and remarketing), will be a cornerstone of your business.

If you’re interested to see how churn rates can work out in a case like this, Tomasz has some great research showing annual renewals and monthly renewals with the same churn rate during 3 fictitious years, ending up with around -12% churn rate in the annual method.

Payment Reliability Issues

Failed charges can kill your business. Failed charges are a fact, and you watch out for them. There are products that help you deal with failed charges, but nothing can eliminate them completely and you’ll occasionally end up with users that have not paid you. The shorter your periodicity, the more probability of credit card issues cropping up.

Key differences between one-time and recurring payments

While both payment models are valid ways to monetize software, they fundamentally differ in structure, impact, and business dynamics:

• Payment Structure: A one-time payment is a single transaction with no further charges. Recurring payments charge customers on a scheduled basis—monthly, yearly, or otherwise.

• Revenue Timing: One-time models give you money upfront; recurring models spread it over time. The former helps with short-term cash flow, the latter with long-term stability.

• Customer Relationship: One-time payments treat the user more like a buyer. In recurring models, the relationship is ongoing, and the focus shifts to service delivery and retention.

• Scalability: Recurring payments tend to scale better because they build a base of reliable income. One-time sales require constant new customer acquisition.

• Operational Complexity: Subscriptions bring with them added complexity: failed charges, cancellations, renewals, etc. One-time purchases are simpler to manage administratively.

How to decide between one-time or recurring payments

Business Model Fit

• Do you provide continuous value, updates, or support? → Recurring
• Is your product a single-use or standalone tool? → One-Time

Cash Flow Needs

• Need upfront revenue for early-stage growth? → One-Time
• Can afford gradual revenue accumulation for long-term stability? → Recurring

Customer Preferences

• Do your users prefer simple, up-front pricing? → One-Time
• Are they used to or expect monthly/yearly billing? → Recurring

Industry Standards

• What do similar products in your niche offer?
• Following familiar pricing models often reduces friction during onboarding.

Retention & Marketing Resources

• Do you have the resources to invest in ongoing retention strategies? → Recurring
• Prefer a low-maintenance, sales-driven approach? → One-Time

Flexibility

• Could you offer both? Some users will pay more up front to avoid subscriptions, while others prefer lower monthly costs. → Hybrid Model

What some companies are doing

Not so long ago, Microsoft was selling its star product, Microsoft Office – offering prehistoric but still useful tools such as Word and Excel – based on a one-time payment strategy. You bought the software, as if Microsoft was a vendor. But these days – in 2015 – Office has begun to be available as a service and is free on smaller devices.

Even other big gorillas like Google or Adobe have joined the SaaS models for some of their most valued products. SaaS with recurring revenue models have consolidated themselves in the market, to the extent that it’s now the default, but not all SaaS have to base payments on RP.

Jesse Mecham runs YouNeedaBudget, a tool that helps you to create a budget for your finances without any hassle – and without having to ever touch an Excel sheet. YNB is priced at an OOP of $60 USD. Whether you use it one day, or once a day for the rest of your life, you’re paying the same for it. I emailed Jesse to ask him if he thought that was a good choice, and here’s his answer:

If I were to start over again, I wouldn't do the one-time payment option. I would likely do an annual plan. (...) Why an annual plan? First reason, it would lower the initial price, so more users would give our service a try and see that it really works for them. and 2) It would remove our needing to "gear up" for a big upgrade sale every 18-24 months. I've always found it to be a bit disingenuous that we hold back features that are ready so we can make a bigger splash (...) within the next upgrade (...)I see the annual plan as a way to align the business interest with the customer interest, in that we are required to consistently deliver value (always selling), and the user is required to consistently evaluate the value they’re giving and receiving.

Now it’s your turn. You have to make a decision based on the status of your product, available resources, and the way you expect customers to interact with your product.