10 Tips About Subscription Pricing

I probably get more questions on pricing than on anything else relating to building subscription models.

So I thought I’d dedicate this article to some best practices for pricing subscriptions.

Box of 64 crayons
Box of 64 crayons
  1. Keep it simple. There are so many terrific subscription billing platforms and digital tools these days. When it comes to pricing, anything is (from a technical perspective) possible. You can create multiple pricing tiers, but then you can also layer in micropayments, onboarding fees, usage charges, extra services and one-off purchases, just to name a few. But in subscription pricing, restraint is key. When I was a kid, I got a Crayola 64 pack. It became my goal to use every color in every picture. One day, I was drawing with my school art teacher. I noticed that she deliberately pulled a small number of colors from the box, and used that tight palette to great effect. Remember, if your pricing is complex, your customers need to become experts on your pricing in order to ensure they’re buying what’s best for them. And if they have to become experts to get what’s best, they’re going to worry that if they don’t have their wits about them, they might NOT get what’s best for them. And that makes it harder for them to relax and trust that you will take care of them, anticipate their needs and give them the best that you have to deliver on your forever promise.
Red “pause” button
Red “pause” button

Not only do they encourage subscribers to “cancel anytime”, they don’t offer annual subscriptions because it would be too binding. They recently introduced a new policy of automatically cancelling any subscription that hadn’t been accessed in a year or more — that is, if someone wasn’t getting value from their subscription for 12 months, Netflix doesn’t want to take their money. More generally, we’re seeing an increase in the “pause” button feature, which allows subscribers to take a break from a subscription without losing their data or having to go through a complex set up process again.

  1. Evaluate the ROI of free. Some subscriptions offer a free trial. Other subscriptions offer a free subscription alongside a paid premium subscription for a “freemium” model. Sometimes offering a free trial or freemium membership makes sense, and sometimes it doesn’t. It’s a useful tool often enough that I advise every organization to devote at least one brainstorming session to exploring the ways they might strengthen their business model through the use of “free”. This doesn’t mean every organization should have a free trial or free subscription option. Just consider whether there’s a role for free, and if so, what the return on the investment of free might be. For example, if your biggest challenge is that people don’t understand the value you provide, or don’t believe your offering is as good as you say, a small taste might dramatically increase conversion (a free trial). Or if the value to your paid subscribers increases with every new free subscriber, maybe because of content generated by the free subscribers, or access to them, you might have a network effect which justifies that free offering. Especially with digital subscriptions, there is often a place for free in your pricing model. Don’t overlook it.

Subscription pricing should be easy for the buyer. They should be able to relax into a subscription, trusting that the organization is going to continue to evolve the offering to help the subscriber achieve their ongoing goals and solve their ongoing problems.

But that doesn’t mean that it’s easy to develop a subscription pricing model. So be thoughtful and experimental. Label your early offerings “beta” and limit their usage, in case you need to change things as you learn. And above all, always focus on aligning the goals of the organization with the goals of the subscriber. If you do that, you’ll develop both the recurring revenue that makes your organization valuable, and the insights that will help you deepen those trusted customer relationships.

Author of THE FOREVER TRANSACTION & THE MEMBERSHIP ECONOMY; Leading expert on membership models and subscription pricing. http://www.robbiekellmanbaxter.com

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