How to Choose the Right Subscription-Based Pricing Model for Your Product or Service

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More and more businesses are seeing the value of marketing their products and services through a subscription-based pricing model. There are many benefits. The buyer always has access to the newest version of a product, and the seller has a steady stream of revenue. However, the seller’s choice of subscription model will have a large impact on the success and acceptance of the product; thus, it is not a decision to be made lightly.

You need to choose carefully, but that doesn’t mean is has to be a difficult choice to make. By reviewing the answers to a few key questions, you’ll find that the right model will become the obvious choice.

Question 1: Who are Your Current Customers?

Choosing the right subscription model starts with a thorough understanding of your target market, along with their needs and wants. Which groups within your customer base prefer certain features or functionalities? Are there some with greater usage rates than others? Are your core clients small and medium-sized businesses, or enterprise customers? This latter factor may determine their capacity to afford your product in an annual sum, revealing a need for a monthly subscription.

Not only must the frequency of the subscription be analyzed but the breadth of options too. For example, will your customers prefer a simple choice, or the ability to customize your product to their liking? These questions will help you tailor your subscription offerings to best suits your customers’ needs.

Question 2: Does the Subscription Suit the Product You Provide?

As was mentioned in the last article, the subscription pricing model you choose relies on both the nature of your product and the business model you’re working with.

If your product is built to serve just one clearly-defined need, then a complex pricing model will likely inhibit your target audience from subscribing. However, if your offering is broad and complex, having a tiered pricing structure will help you meet the needs of a wider spectrum of customers while maximizing revenue potential. Develop a product roadmap, and try to foresee what pricing model will best meet your product and business goals over the long term.

Having foresight is essential. If your product and revenue models are not aligned, you’ll most likely leave money lying on the table. Your pricing model should grow and evolve along with the product, allowing you to deepen your relationship with the customer the longer they continue with you – new feature updates, additional users, increased consumption, and the like. Choosing the right pricing model will help you increase revenue as well as customer lifetime value.

Question 3: What is Your Competition Doing?

Competing offerings are a valuable source of information to consider as you plan your product’s roadmap. Take a good look at the most successful ones; see what they’re doing that works – and what doesn’t. Doing so will give you valuable insight and possibly reveal weaknesses in their offerings that you could leverage to your advantage.

As an example, a competitor may focus their efforts on enterprise-level clients. You could tap into other market segments by offering tiered pricing, allowing access to your product via more limited feature sets geared toward smaller companies, while still preserving the full offering for large customers. This allows you to capture the revenue that your competitor is letting slip through the cracks.

Question 4: Does the Subscription Model Align with Your Operating Costs?

Defining your pricing model goes beyond features and monthly recurrence. To achieve profitability, you need to have a clear view of the costs involved in bringing your product to market. That includes operating costs, fixed costs, and variable costs. Using those costs as a basis, you’ll then be able to define sales margins and come to a viable price for your clients.

Taking all these factors into account will help you choose the right model that maximizes your subscription revenue while meeting your customers’ needs.

Manage Subscription Revenue Easily with the Right Software

The trend toward subscription pricing is not without good reason: Many moving to these pricing models are seeing increased recurring revenue, healthier profit margins, as well as being able to forecast revenue growth better.

Keep in mind that ass your customer base scales up, billing those customers can become a more challenging process. While a reported 75% of businesses earn a large portion of their proceeds from subscriptions, only 24% of those use subscription management software. To be on the leading edge of the market, you’ll need a proper software solution to streamline the subscription billing process.

DealHub’s subscription management software addresses the challenges inherent in subscription-based businesses today. It automates many common activities, such as renewals and contracts, while helping your sales representatives identify up-sell / cross-sell opportunities to offer your customers. Such automation eliminates human error and frees your representatives up to focus on revenue-generating actions.

Contact DealHub today to learn more about managing subscriptions, growing your monthly recurring revenue, and achieving your goals for long-term growth.

By DealHub | dealhub.io

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