CFA Level I · CFA Level I Exam · Business Models
A software firm charges business customers a monthly fee for access to hosted software with no up-front licence payment. Compared with a one-time perpetual licence sale, this model will most likely result in:
The subscription model most likely produces more predictable recurring revenue. Customers pay periodically for continued access instead of paying once up front, so revenue is spread over time and is easier to forecast, although less is received at the start.
- Amore predictable recurring revenueCorrect
- Bhigher revenue recognized at the time of sale
- Clower customer switching costs over time
Explanation
Monthly fees produce recurring, more predictable revenue spread over the contract period. A perpetual licence brings revenue up front, so option B describes the licence model. Embedded use usually raises, not lowers, switching costs.
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