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Lots of subscription businesses struggle with pricing. How much to charge? or Which pricing model will work best for my subscription business?. The right model can make the difference between capturing customers or losing them. Setting your subscription pricing model helps you to structure how you’ll be charging your customers.
The subscription pricing strategy will help you set the pricing model to charge your customers while subscribed for your product. Products can be anything you sell on a recurring basis, such as coffee, software, a washing machine, or even furniture that customers pay monthly. Pricing your product may vary depending on various factors.
In this blog, we'll look at some the most common subscription pricing models, metrics to consider when setting your pricing strategy and how to keep your pricing table looking great.
Think of; What is our customer segment?; Our competitors?; What makes our business unique?. This is important when it comes to selecting your price range as you'll be making sure you are offering the value you are promising to customers.
If you are working on a highly competitive market, you should differentiate on other factors than pricing alone, while niche markets have fewer customers and tend to have higher subscription prices with stronger customer relationships.
What is our unfair advantage? What is our value proposition? Why would customers care for our product or service? Having a clear understanding of these questions is crucial before setting your pricing strategy as you can differentiate better from other competitors.
Most of the time, companies tend to set benefits with price ranges that don't match their customer segment. Put your customers at the center and understand what they need; this will allow your company to better serve your customers.
How much is our company incurring every month? All costs should be taken into consideration. We have a business calculator totally free to use, that can help you when defining your cost structure.
Fixed costs: Office rent, payroll, software and tools, services, taxes, etc.
Variable costs: Travel, business expenses, etc.
Make sure you are setting a sustainable price that is high enough to maintain healthy margins. You can also get in contact with one of our sales experts if you need any extra help.
This is the traditional pricing option, especially for SaaS companies. It's a straightforward option, with a single product offering, fixed price per month, and a set of features.
Regardless of how many units are purchased, the unitary costs remain the same.
With a tiered pricing model, you will have different pricing levels. These are products within a particular price range. With the tiered pricing model, you can offer multiple packages with various features, product combinations, and different pricing.
Your product price will go up accordingly to the number of users, purchases, or features needed. Let's say; your customer would pay the same price for the first tier, say, 1 to 100 units, then the price would be lower for the second tier and even lower if they reach a third tier.
Once customers fill up a tier, they move to the next level. Customers will be charged accordingly to the number of purchases they make in each tier.
The average number of packages can vary, but companies in the subscription space usually have three tiers to differentiate the price points while some others have even more options.
The idea behind a tiered pricing strategy is that your prices and features are tailored according to your customers' needs and use cases.
Similar to tiered pricing, there are different pricing levels to encourage larger (volume) orders. ALL product(s) have the same price when a customer purchases. The price of all the units you're selling is within the set price range.
If your companies' key differentiator is volume, then this is the right option for you.
Pay per User is a popular volume measurement, especially when it comes to corporate or enterprise licensed software. Prices scales along with the number of users.
As typically seen in SaaS companies pricing strategies, pay per feature allows customers to pay for the features they consider important or those that they need the most.
Often we see three tiers because it creates a reference for the pricing. The goal is to optimize the pricing for the middle levels, and leave the edges to capture prospects slightly deviated from your customer segment.
People perceive value in different ways. Many of your customers will buy the tier higher than the one they actually need because it's perceived to be a better deal for them.
Spend some time understanding which features are more important to which customers and set the packages based on that and also based on your costs.
Until now, we have explained what is; flat-rate pricing, tiered pricing, volume pricing, pay per use and pay per feature. Now, let's take a look into which metrics you should have in mind when deciding your pricing model.
If you are just getting started, you should make an in-depth analysis of what is your customer lifecycle value. If your business is already up and running, you can examine historical data to determine what factors come into value for your customers when setting your pricing.
Either way, these metrics will help you determine the most suitable pricing strategy for your subscription businesses over its lifetime:
Your pricing strategy should help you to increase the win-rate and/or shorten your acquisition cycle. You should make sure you offer value for your product and the extra service it comes with.
Setting the right pricing strategy model can be difficult. We know that. Every day we help companies to set out their price strategy model. Our sales experts are ready to help you if you have any questions regarding how to set your product-as-a-service subscription pricing strategy.
Contact our team today for a free demo or subscribe to our newsletter to receive valuable information for your product-as-a-service business.
