CFA Level I · CFA Level I Exam · Company Analysis: Past, Present, and Future
A software firm sells annual subscriptions billed in advance, while a rival sells perpetual licenses with one-time upfront fees. When comparing the two business models, the subscription model will most likely provide:
The subscription model most likely provides more predictable, recurring revenue. Customers renew periodically, so the analyst can forecast sales with greater confidence. A perpetual license brings a large one-time payment and revenue that is lumpier and depends on new sales.
- Amore predictable and recurring revenueCorrect
- Blower customer switching costs by design
- Chigher revenue recognized at the point of sale
Explanation
Subscriptions generate recurring revenue streams, making future sales more predictable. Perpetual licenses tend to recognize more revenue upfront. Subscriptions usually do not lower switching costs by design.
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