My name is Amir Helzer, founder of OnTheGoSystems (makers of WPML and Toolset). In this article, I’m going to lay out the reasoning behind our recent move from Lifetime licenses to annual automatic renewals for our products. I’ll also explain why I warmly recommend you consider doing the same for your WordPress products. We need to get paid for our work. Clients need peace of mind. Automatic renewals offer exactly what both developers and clients need.
Since 2010, we’ve been making a living developing, selling and supporting WordPress plugins. Our plugins, WPML and Toolset power around 1 million WordPress sites and our team is made of around 90 members. Every decision that we take about pricing has serious implications and we make these decisions only after careful considerations.
I believe that there is no “right way” to price and sell things. It all depends on what you’re selling and the relationship that you expect to have with your customers.
WPML and Toolset are both ‘infrastructure’ plugins. Once you build a site with them, it’s hard to switch over to alternatives. Of course, this is nice for us, but it also means that the level of support that we need to prepare for is very high. Since clients are locked-in, if they have a problem, there’s only one option. We need to help them out of it, and we need to do it quickly.
This is why our support teams for WPML and Toolset are always growing. More clients with active licenses mean that we will always need to hire more support representatives. We constantly improve the efficiency of our support, but it’s a mathematical certainty that our support needs to grow constantly. We’ll get to the significance of this fact in a minute.
Why We Started Selling Lifetime Licenses
A couple of years after we started selling WPML, we noticed that no matter what we do, most clients don’t renew. We had a renewal rate of around 30%. When we talked with our clients, they said that they’re happy with the product. They just don’t see a need to download the most recent versions. They’re happy with what they downloaded while their licenses were valid. They explained:
When it breaks, we’ll renew our license and get a new version. If it’s not broken, why fix it?
There are many reasons for people to hold off updates. Maybe they’re not getting paid to update their clients’ sites. Maybe they’re afraid that updates will cause problems. Maybe they’ve gone out of business.
Bottom line, if you wait for clients to take manual action and renew their licenses, you’re always going to have many expirations.
If you wait for clients to take manual action and renew their licenses, you’re always going to have many expirations.Tweet
Additionally, some clients explained to us that it’s a hassle. They use over 50 paid themes and plugins. If they need to manually renew each of them at a different date, it means logging-in to different sites once a week to take care of renewals. We had to agree. It’s a lot of hassle.
These clients told us:
Tell me how much you plan to make from me over the lifetime of using your product and I’ll gladly pay for it upfront. Just release me from the hassle of renewing my account every year.
To do this math, we checked for how long our most loyal clients remained with us. We saw that 3 years is a good number. So, we set the Lifetime license cost as a bit over 3 years (initial cost plus yearly renewals).
A license in WPML for one year had cost $79. Yearly renewals had cost $39. So we asked for $195 for the Lifetime licenses.
This was a brilliant business decision. Our renewal rate jumped from 30% to over 60% and the revenue from each renewal was up from $39 to $116. High-fives for everyone involved.
The Toxic Nature of Lifetime Licenses
Remember the “introduction” part of this story? Our support team needs to grow in proportion to the number of clients with active licenses. Revenue stays constant because clients pay once when they join and then stay active forever.
No matter how much we’ll charge for Lifetime licenses, eventually support will cost more. We were fortunate to catch this on time when revenue is still ahead of costs.
Basically, Lifetime licenses are the same as free accounts. If you’re building a business for the long-term and your product usually requires support, you simply cannot afford to offer Lifetime licenses. No matter how lucrative and bright that idea looks today, don’t do it. It’s just not sustainable.
Lifetime licenses are perfect when you’re selling “one-off” products. If you expect that the client will not need your ongoing support and updates, then a Lifetime license is a great idea. However, it may also mean that you have a problematic business model (with no returning clients).
Automatic Renewals Solve Everything for Everyone
We need to get paid for our work. Clients need peace of mind. Automatic renewals offer exactly what both developers and clients need.
The client doesn’t need to bother and renew their licenses with many vendors.
Developers get revenue that’s proportional to the number of clients that they need to actively support.
We need to get paid for our work. Clients need peace of mind. Automatic renewals offer exactly what both developers and clients need.Tweet
The only downside of automatic renewals is that some people are flat-out against them. As the vendor, it’s important to understand these concerns and respond to them.
I think that automatic billing gets its bad reputation from vendors that abuse it. The cable and phone companies are great examples. It’s much easier to subscribe than to disconnect. We fear that once we give away our credit card number, we’ll have to chase the vendor in case we want to stop using that service. It’s a very legitimate concern and we can clear it.
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To avoid entrapping our clients, we make it very easy to stop automatic renewals. Right inside the account main page, we show the details of upcoming payments and we offer to modify (or cancel) them. We also send reminder emails 30 days and 3 days before we charge for the renewals. So if you no longer want to keep your account with us, we don’t force you.
We make this very clear on our checkout page, and as a result, we received very few questions about our renewals and no complaints.
Planning The Move from Lifetime Licenses to Automatic Renewals
Both WPML and Toolset had a Lifetime payment option. We decided that we’re going to stop selling new Lifetime licenses, but keep honoring clients with existing Lifetime licenses. Meaning, these clients will continue getting updates and support for life, as this was what they paid for.
We made this clear from the first time we wrote to our clients about the licensing system changes.
Our dilemma was how to discontinue selling new Lifetime licenses and upgrades from the old Yearly licenses to Lifetime.
When WPML and Toolset clients bought yearly licenses, they assumed that they would be able to later upgrade to a Lifetime license. This means that they will be able to pay once and get updates and support forever.
Switching ‘Toolset’ to Yearly Renewals
WPML sells more than Toolset, so we decided to go with Toolset first. If we make any mistake, we preferred to do it where it’s less costly.
We mentioned the planned move to yearly subscriptions in our blog, Facebook page and as part of an email newsletter (a newsletter about a different subject).
Then, we updated our licensing system and announced it in a separate blog post and newsletter. The response wasn’t very positive. Turns out that many clients did not notice the previous announcements about the upcoming changes. They were upset about no longer being able to get Toolset for life with a single payment (what we now realize is similar to getting it for free).
We didn’t see many existing clients signing up for automatic renewals. Basically, it meant starting to build our subscription base from zero, which is not a good thing for any business.
Switching WPML to Yearly Automatic Renewals
Fortunately, we first switched Toolset and only then WPML. We could apply what we learned to make a better change in WPML.
For WPML, we did three important things:
- Announced the upcoming change way in advance in a blog post and newsletter
- Announced it again in another blog post and newsletter
This time, since we announced the change well in advance, the response was all positive. Many clients took advantage of the opportunity and upgraded their accounts to Lifetime. We would much rather see them setting up yearly renewals, but it’s their right. When they bought WPML they assumed that they would be able to upgrade to a Lifetime license and we kept this promise, even though it hurts us.
- Then, finally, when we changed the licensing system, we created a one-time incentive for existing clients to set-up automatic renewals. Together with the move to yearly renewals, we also increased the price of the license for unlimited sites. We offered existing clients to stay with unlimited sites at a lower rate if they set-up yearly renewals now. This encouraged many existing clients (and even many clients with expired licenses) to sign up for automatic renewal (which is a very good thing).
How It All Worked Out
Today we are 4 months after the licensing change in Toolset and a month after the change in WPML. We have pretty good data for Toolset and partial data for WPML.
For Toolset, the number of new clients buying every month remained the same as before. Actually, it increased a bit, but we’re also doing different marketing activities, which may account for that.
For WPML, we have mostly the same results.
It seems that nobody really cared about the yearly renewals. In retrospect, I think that most clients assume that this will be the case in the first place. They’re getting updates and support every year, so why not pay for it?
Our challenge is to see how many yearly renewals actually happen next year.
Having yearly renewals forces authors to be a lot more sensitive to client needs. When you’re getting paid once for life, you can relax a bit. After all, you already got paid in advance. When you’re getting paid again every year, you need to please your clients again every year. It’s like having to court your spouse again for every anniversary. Some can say it’s exhausting, but it’s good to stay on your toes when running a business.
When you’re getting paid once for life, you can relax a bit. When you’re getting paid again every year, you need to please your clients again every year. It’s like having to court your spouse again for every anniversary. It’s good to stay on your toes when running a business.Tweet
Today our revenue is about 30% lower than what it was at the same time last year. That’s because yearly subscriptions cost a lot less than Lifetime purchases. However, we expect to see the renewals coming from these accounts year after year, so after this first year, revenue should be back up and then keep going up, together with the number of active clients.
My Recommendation for Other Sellers
If you’re just starting to sell your digital products, unless you can be confident that your product is usually not used for longer than five years, or due to the nature of the product you don’t anticipate a high support load (e.g., themes), then stay far away from Lifetime licenses. If you already offer Lifetime licenses – realize their toxic nature and analyze the potential impact it could have on your business in five years (if you keep selling them). If you can foresee that today’s customers will be initiating support tickets in three, four, even five years – plan to move away from Lifetime licenses as fast as you can. The longer you wait, the more expensive it may become.
Implementing Automatic Renewals
Implementing a complete eCommerce system for automatic payment renewals was a huge project for us. We implemented it in-house because we could and because we thought that we needed a list of unique features. If you can, avoid this development. Use an existing system that you can just pay for. Freemius would be a great option.
It’s easy to underestimate the amount of development required. It’s a complex system that takes a lot to set-up and maintenance. If your company has fewer than 2 developers working exclusively on your eCommerce system or if you don’t have a person that focuses on conversion rate optimization, this project is not for you. Of course, if you’re Amazon or eBay, it makes sense to develop your own system.
I hope this helps. Ask me whatever you need to know in the comments and I’ll reply.