3 Subscription Pricing Best Practices

Pioneered by book publishers in the 17th century, the subscription business model has since become standard practice across many industries. For decades, consumers have subscribed to phone and television providers, health clubs, financial services, and more.

The latest trend in the subscription economy is among mobile-first digital services and it’s gaining some serious traction. Last year, the top 100 subscription apps saw a record 34% increase in revenue to a whopping $13 billion.

app revenue growth

However, as Nico Wittenborn says, “something bigger is happening here and we are only at the beginning of a massive opportunity.”

💡 More subscription business trends and tips from thought leaders here 👉 App Promotion Summit: 5 Key Takeaways

The race is on for subscription businesses as they compete for world domination…er market dominance. 😉 So what’s the secret to making it to the top with a subscription business model? All signs point to retention. But to get there, subscription pricing needs to be structured in a way that effectively aligns a customer’s willingness to pay to the value-driven experience they expect. Here are three tips for setting up a subscription pricing strategy that helps grow and retain subscribers.

#1 Analyze cohorts to optimize subscription pricing

The customer experience is everything. A seamless, connected experience that creates valuable engagement is an ongoing process. Every touchpoint across the customer lifecycle is an opportunity to impress customers and requires continued cycles of testing and reiterating.

Customizing the experience will inevitably have an impact on retention, so it’s important to drill down into cohort data. From acquisition cohorts to behavioral cohorts, run regular analyses to understand what works and what doesn’t when it comes to driving engagement — and ultimately, renewals. Map the findings to pricing to understand the impact on a customer’s willingness to pay.

Users may convert into paying customers, but end up churning after a week, month, or further down the line. Figure out why; at what point did they drop off and how can you improve? Find opportunities to add value to the customer experience that influences their willingness to pay.

#2 Use scaled pricing as part of a retention strategy

Scaled pricing is part of a big picture strategy that enables businesses to build long-term enterprise value. “Focusing on acquisition or a single, high-value pricing tier will hurt your company’s ability to grow,” according to research by Profitwell on subscription-based economy trends. Rather, subscription businesses need to focus more on the bigger picture — retention.

Focusing on acquisition or a single, high-value pricing tier will hurt your company’s ability to grow.

There are two important considerations when it comes to setting up scaled subscription pricing.

  • Make it easy to say yes
    When it comes to tiered subscription pricing, set a low barrier to entry (e.g., freemium) backed by a robust experience that goes beyond customer expectations. This opens up opportunities to get more customers on your app. And with segmented experiences that users deem valuable, it’s easier to get them hooked on your offering and moving up payment tiers.
  • Define your core value metric
    Creating pricing tiers comes down to defining your core value metric. What are customers willing to pay for? How does it connect to your offerings? Adjustments in subscription pricing directly correlate to the customer experience. The two go hand-in-hand, so if you are testing new pricing and experiences, be sure to track any testing accordingly to find the sweet spot.

#3 Keep a close eye on competitors

Subscribers ultimately dictate the value of a product or service. They’ll either renew their subscription or not and much of it is based on the perceived value they get for the price they pay. Outside of the direct feedback you get within your business, make sure to keep a pulse on competitors. Any changes in pricing should be evaluated. What caused the changes? Have they made changes to the customer experience? Compare competitive findings to your offering and make any necessary changes to remain a competitive contender.

The next step: Turn future subscription renewals into upfront capital

Subscribers are the secret sauce to accelerating growth and not just around the obvious impact of revenue. Less obvious is that subscribers are an asset waiting to be unlocked when it comes to securing additional capital. Businesses can get future renewal revenue upfront to accelerate investments that support long-term business goals.

If you’re interested in turning future renewal revenue into capital you can use today, let’s chat!

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