Ads vs Subscription, Which One is good for your SaaS Software Product ?

The average US consumer has 8.2 subscriptions as of 2024–2025 and spend an average of $90–$118 per month on these subscriptions.

SatendraPal

06 Jun 2025 — 9 min read

How I monetize my Saas products.

The typical U.S. consumer carries over eight recurring services and spends $90–$118 every month.

Over half of subscribers now question whether they really need each plan, and 26% have canceled at least one in the past year.

On average, adults waste $205/year on forgotten subscriptions; Gen Z wastes $272.

Clearly, charging people every month can feel like a heavy commitment — and even unavoidable in a world built on recurring revenue.

“In this article, we’ll explore when you should choose ads, subscriptions, a freemium model, or a hybrid — backed by data, case studies, and real-world pros & cons for both customers and owners.”

Why I’m Writing on This Topic

I’m the founder of LinkVault, a SaaS mobile app where I initially implemented AdMob-based ads. After collecting user feedback, I decided to pursue a dual-monetization model (ads + subscription).

Because I’ve lived through these trade-offs firsthand, I’m sharing my research and lessons learned.

If you’re curious about my broader journey, you can read my essay below.

2. Monetization Models

I like to visualize these models as overlapping circles in a Venn diagram — each with its own sweet spots and shortcomings.

Monetization Models Venn-Diagram Representation. gemini

A. Pure Subscription

What it is: Users pay a regular fee (monthly or annual) to access your product, with no ads anywhere.
Examples: Adobe Creative Cloud, Zoom, Dropbox.
Quick pros/cons (Customer POV):

Pros: Ad‑free, often bundled with advanced tools, predictable cost.
Cons: Barrier to first‑time users, risk of underuse, potential for bill shock.

B. Pure Ad‑Supported

What it is: The core service is free; you earn from display, video, or sponsored ads integrated into the experience.
Examples: YouTube Free, many mobile games, Medium’s ad experiments.
Quick pros/cons (Customer POV):

Pros: Zero upfront cost, seamless signup.
Cons: Intrusive ads can frustrate, privacy concerns, revenue per user is low.

C. Freemium (Feature‑Gated)

What it is: A baseline set of features is free forever; advanced capabilities require a paid upgrade.
Examples: Spotify, Dropbox Basic vs Plus, Slack Free vs Paid workspaces.
Quick pros/cons (Customer POV):

Pros: No paywall; try before you buy.
Cons: Free tier sometimes too limited; perceived nickel‑and‑dime.

D. Dual Monetization (Ads + Subscription)

What it is: Free users see ads; paying customers enjoy an ad‑free, feature‑rich experience.
Examples: YouTube Premium, Hulu (ad vs ad‑free), many mobile games with “No Ads” passes.
Quick pros/cons (Customer POV):

Pros: Maximizes funnel — monetize casual users and power users alike.
Cons: Higher product complexity; must balance ad frequency vs conversion incentives.

Case Studies & Data Points

Now that we’ve seen the basic definitions, let’s dive into how real companies have used each approach — and what outcomes they’ve seen.

Spotify (Freemium → Subscription)

Scale: ~600 million MAUs, 218 million paid (≈36% conversion).
Revenue Split: Paid users pay $10/month; ad users earn $2–$3/month each.
Key Insight: By letting users listen with ads, Spotify accelerated growth; then the ad‑to‑premium funnel has sustained profitability.
My Take: In LinkVault, adding a “remove ads” pass raised our ARPU by 40% among engaged users within two quarters.

2. YouTube (Free with Ads → YouTube Premium)

Scale: Over 2 billion logged‑in viewers; 80 million premium subscribers (~4%).
Revenue: $40 billion ad sales vs $5 billion in subscriptions (2023).
Key Insight: Even a tiny premium slice on massive viewership unlocks hundreds of millions in recurring revenue.
My Take: If your SaaS can foster habitual use, a low‑tier subscription — paired with a free, ad‑supported core — can fund innovation.

3. Medium (Mixed Approaches)

Scale: 300 million readers; 3 million members (~1%).
Revenue Change: Membership grew 60% YoY in 2024, overtaking ad experiments.
Key Insight: Content platforms often find subscription more stable than unpredictable ad markets.
My Take: If your SaaS includes unique editorial or community features, a small membership fee can underwrite high‑quality content without ads.

4. Dropbox (Subscription-First)

Scale: 700 million accounts, 90 million active users; ~16% paid.
Revenue: $120 ARPU/year, no ads ever.
Key Insight: A generous free tier (2 GB) fueled viral growth; no need to clutter the UI with ads.
My Take: If your free offering delights — like free storage — subscription alone might be enough to power word‑of‑mouth adoption.

4. Reddit (Ads + Premium)

Scale: 450 million MAUs; 5 million Premium (≈1%).
Revenue: $900 million from ads vs $50 million from Premium (2024).
Key Insight: Native and sponsored posts let Reddit monetize casual scrollers, while Premium unlocks an ad‑free experience for power users.
My Take: Community‑driven SaaS can charge a small fee for an unbroken, ad‑free zone — and loyal fans often pay just for the privilege.

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Data/Benchmarks For These Models.

1. Subscription Metrics

1. Monthly Churn Rate

Typical Range: 5–7 percent per month for a mature SaaS offering.
Source: SaaS Capital’s 2024 Index reports a median churn of 5.8 percent among SaaS businesses¹.

If 100 customers pay $50/month today, a 6 percent churn means you lose about 6 of them each month. Lowering churn by just one point (to 5 percent) can boost annual recurring revenue by several percentage points.

2. Average Revenue Per User (ARPU)

Consumer‐Focused SaaS: $10–$25 per user per month.
Small & Mid-Market B2B Tools: $25–$75 per user per month.
Enterprise/Specialized SaaS: $75–$200+ per user per month.
Source: Bessemer Venture Partners’ Cloud Index (2024) shows median ARPU around $45/mo for B2B subscriptions².

ARPU tells you how much revenue you can expect from each paying seat or account. If ARPU is $50/mo but CAC (customer acquisition cost) is $600, your payback period is at least 12 months — so you must plan for long‐term retention.

3. CAC (Customer Acquisition Cost) & Payback Period

CAC Range:
• Small‐Business/Consumer SaaS: $100–$300 per new paid user.
• Mid-Market B2B: $300–$800 per new account.
• Enterprise: $1,000–$5,000+ per deal.
Payback Goal: Many SaaS investors and founders aim for a CAC payback period under 12 months. That means if you spend $240 to acquire a user who pays $20/mo (ARPU), you recoup acquisition costs in about a year (12 months × $20 = $240).
Source: Pacific Crest SaaS Survey (2023) notes that top‐performing SaaS companies often hit an 11–12 month payback³.

4. Annual Contract Value (ACV)

Definition: The average revenue you receive per customer per year. For a user paying $50/mo, ACV = $600.
B2B Benchmarks:
• Small‐business SaaS: ACV $1,500–$5,000
• Mid-market SaaS: ACV $15,000–$50,000
• Enterprise SaaS: ACV $100,000+

Larger ACVs often mean lower customer volume but more predictable revenue per account.

2. Advertising Metrics

1. Average CPM (Cost/1000 impressions)

Display Ads (Desktop/Web):
Most publishers see CPMs between $2 and $8.
Premium networks like Mediavine or AdThrive often pay $10 to $30 or more for high-quality, U.S.-based traffic.
Video Ads (Desktop/Web):
Standard CPMs usually range from $10 to $25.
On premium networks, video CPMs can reach $20 to $50+.
Mobile Display Ads:
Average CPMs are lower, typically $1 to $4.
Premium networks can push this up to $6 to $15+ for top-tier mobile inventory.
Native/In-Feed Ads:
Expect CPMs between $3 and $12 in most cases.
Premium placements can command $15 to $40+.
Source: eMarketer’s 2024 report indicates an average display CPM of $5.40 for U.S. desktop inventory; mobile display sits around $2.8⁰⁴.

2. ARPU from Ads (ARPU_ad)

Range for Web/Content Sites: $0.50–$2 per active user per month.
Mobile‐App Average: $0.30–$1 per MAU.
Source: Statista’s 2024 analysis shows content websites averaging $1.20 ARPU_ad per user per month, while smaller mobile‐only apps average $0.4⁵⁵.

If you have 10,000 monthly active users and $1 ARPU_ad, that’s $10,000 revenue per month — or $120,000 per year — before you subtract ad‐tech fees.

3. Click-Through Rate (CTR) Benchmarks

Display Ads: 0.05–0.5 percent CTR.
Native Ads / In-Feed Ads: 0.5–2 percent CTR.
Search Ads (if you include search in app): 2–5 percent CTR.
Source: WordStream 2024 data shows average Google Display Network CTR around 0.35 percent; Facebook Ads around 0.9 percent in-feed⁶.

4. Viewability & Fill Rate

Viewability (the percentage of ad impressions actually seen): 50–60 percent on average.
Fill Rate (percentage of ad requests that result in a paid impression): 80–95 percent for premium publishers, but can dip to 50–70 percent for smaller sites.

Low viewability means advertisers pay less (or skip your inventory). Low fill rate means you’ll often show “house ads” or earn $0 for unsold impressions.

Choosing Your Model: Six Key Questions

Answer these to find your best fit:

1. How often do users engage?

Daily/high engagement: Ads frustrate — subscription or dual is ideal.
Monthly/occasional: Ads alone may suffice.

2. What’s your audience’s budget tolerance?

Gen Z & casual users: Lightly‑paid or ad‑supported models work.
Corporate/enterprise: Subscription is expected and accepted.

3. Who are your competitors?

All subscription? A freemium with ads can steal price‑sensitive users.
All ad‑supported? An ad‑free subscription tier can differentiate your brand.

4. Can you forecast LTV vs CAC?

Build simple formulas:
• LTV_sub = ARPU_sub × avg. lifetime — CAC
• LTV_ad = ARPU_ad × avg. lifetime — CAC
Whichever model yields a higher LTV/CAC ratio (>3× is a good target) usually wins.

5. What are your legal & technical constraints?

GDPR/CCPA can slash ad revenue by up to 30%.
Subscription requires payment infrastructure, tax compliance, and dunning workflows.

6. How complex is your roadmap?

Freemium/hybrid adds product‑tier management and telemetry.
Ads alone or subscription alone keep implementation simpler at the cost of funnel flexibility.

Below are concrete use-case scenarios that help illustrate which model often fits best. Remember: you can also mix elements (e.g., freemium with minimal ads).

Future Trends & Emerging Models

Micro-Subscriptions & À la Carte Purchases

Netflix’s ad-supported tier (share price usually sells out within minutes of launch).
YouTube’s micro-transactions (e.g., pay $0.49 to watch a single premium video).
Walled Gardens experimenting with “micro-pay-per-article” (e.g., $0.10/article on certain news sites).

Sponsored Content & Branded Partnerships

Some SaaS content platforms (e.g., niche blogs) sell “sponsored newsletters” instead of traditional display ads, which can command $20–$50 CPM
Twitch streamers often integrate brand reads — ads blend into content, yielding higher engagement and CPM.

Creator-Economy Models

Patreon, Substack, and Ko-fi let individual creators charge $3–$10/mo for exclusive content — no ads required.
A new wave of “SaaS for Creators” charges creators a subscription to host their content, taking a cut of their subscriber base.

Tokenized Access & Web3 Subscriptions

Some blockchain-based communities experiment with NFT memberships that grant lifetime or time-limited access — effectively a one-time fee “subscription.”
Still emerging, but worth watching for niche, high-value communities.

Monetization continues evolving. Even if you choose a subscription or ad model today, be prepared to iterate — your users’ willingness to pay (or to view ads) may shift as new models arise.

Final Advice

There’s no one-size-fits-all answer. The “right” model depends on product type, audience, scale, and cost structure. Start with the simplest approach that lets you test how users respond:

If you prioritize rapid user growth and have low hosting costs, start with a free/ad model.
If you have a clear ROI story (e.g., “our CRM saves $500/mo in admin time”), start with a subscription.
If you have both content and an engaged community, consider freemium — offer light content for free (with ads), and sell a $5–$10/mo membership for premium stories or features.

Iterate quickly. Choose a model, instrument your app to track key metrics (CAC, churn, ARPU, engagement), run a 3-month pilot, then adjust if you see underperformance.

Be ready to pivot. Many successful SaaS businesses started ad-first then added subscriptions (or vice versa). What matters is listening to your data and your customers.