Pricing seems like it should be a fairly straightforward decision. You look at your costs, the market and what your competitors are charging, and then you zoom in on what’s fair.
While that would be ultra-convenient and save us all a lot of time and heartache, it’s just not that simple.
Pricing is and always should be a fluid thing for your product. It is never a “set it and forget it” decision based on some spreadsheet calculation you did. The largest subscription companies in the world change their pricing models often and use new strategies in their sales process to flex to new buying trends.
If you don’t have a lot of experience studying your market and how customers react to certain tactics, setting your pricing strategy can be a daunting task.
There is no easy answer here, but we can highlight four strategies worth exploring and what the pros and cons are for each. We chose these based on the trends that we’ve seen over the last year, as well as what has moved the needle for our clients.
- User’s Choice
- Forced Free Trial
- Upgrades on Long-term Commitments
- Expansion Pricing
(P.S. For an in-depth look at pricing, download the full chapter on pricing from our upcoming book, Member Up.)
1. User’s Choice
It’s nice to provide options. People like to find what fits them just right, and when your customers have very specific needs, cookie cutter plans and “one-size-fits-all” aren’t going to cut it. On the other hand, putting 5-10 options on your pricing page is overwhelming and demands too much comparison from your audience.
To tailor your offerings more specifically to the variable needs of your customers, the user’s choice strategy will create a clean a simple display.
On Clinked’s pricing page, the subscription price dynamically changes as the customer increases or decreases the number of users they need. The discounted rates then apply automatically for the different tiers of users. Can you imagine asking your customers to figure that out on their own?
Offering usage tiers within a plan helps VWO provide a closer fit to their small-business customers.
Multi-axis pricing can make customers’ heads spin (which hurts conversions), but Bow Truss makes it a simple decision with their plan selection process.
Even a simple upsell can give a more tailored product for customers. I love the simplicity of Jukely’s one click to upgrade here.
- Simplifies the display of more complex options, making it easier to digest and quickly find the best fit
- Brings an interactive element where visitors will self-identify as being a good fit for one of your plans (“I have 30,000 visitors per month, this one is the right one for me”)
- Provides a closer fit when you have a customer base with a wide variety of needs (they don’t have to buy more than they need)
- Gives a choice of yeses – “which one should I buy?” instead of “should I buy or not?“
- More complex/nuanced offerings may give your membership platform more than it was built to handle and so custom development would be needed
- Don’t give lots of options when people don’t want options. Sometimes simplicity is what is needed
- Adds a little more friction to the buying process – may not be intuitive enough for customers with little technical experience
- Harder to give a perfect experience on smaller screens
2. Forced Free Trial
This has quickly become one of the biggest trends in subscription pricing, mainly because of people’s resistance to jumping in with both feet on subscription products. It’s not just that you offer a free trial, but that the free trial is your only option to get started. There’s not a public way for a visitor to sign up and pay you right away.
Your business assumes that the product meets a certain need, so you say “let us go ahead and show you how we meet that need. We’ll worry about payment later.”
Most sites will require credit card info to sign up for the trial and autobill the card once the trial is over. Note: this is not exactly the Freemium model, since the customer knows up front that they will be charged at the end of their trial period.
The only way to create your Prime account is to start with a 30-day trial. Side note: 30 days is a good length here, because of how varied their members use the features. It gives people enough time to make the jump of storing gigs of personal photos and get hooked on TV shows.
Audible starts you off by having you pick out your free audiobook (which really is just what you would do whether you started a trial or were signed on as a paid member). I particularly like finding other ways to say “start a free trial”, because that’s becoming more and more expected and overlooked. Using language that hits on what customers want is a great way to do that (find your free book > create an account).
Basecamp removed this signup form at one point and it cost them millions of dollars in sales. Needless to say, it got put back. Very interesting write-up of that discovery here.
- Low friction and gives people a chance to experience the value and “sticky features” of the product that will keep them coming back
- Gives you a better chance to differentiate your product over competitors without much risk to your customers
- More likely that you convert the visitors that were not ready to buy when they came to your site and otherwise would have left
- Lowers risk for customers and softens cost objections
- Requires more heavy lifting on automating and optimizing that trial period so that people convert to paid members
- Less people could end up buying because they didn’t take the free trial seriously. If they started out as a paid account (instead of trial), they may have had more incentive to get value out of the product and be more likely to stay on longer
3. Upgrades on Long-term Commitments
Any business with a recurring model should be pushing customers toward the 6-month or 12-month term. Customer retention for those long-term commitments is much higher than month-to-month. They aren’t evaluating whether to stay on every time they get billed.
Plus, a customer who pays a higher up front cost is more likely to spend more time and effort getting value out of the product, since they have more skin in the game.
This strategy takes the annual discount a step further. In most cases, the price cut is the only incentive to opt-in at the 6-month or 12-month plans. However, given how valuable those members are to subscription businesses, there’s no reason not to add more value to help nudge them over the edge.
The Art of Coaching Volleyball have limited the additional live stream feature to their long-term plans.
Here’s an example of where partnering with another vendor in your industry would work well. The monthly discount (-$2/month) offered by The Coloring Book Club is not quite significant enough for people to jump over to the annual plan, especially if they haven’t used the product before. Rather than increase the discount and drop their profits, they could add a discount on another vendor’s products (coloring supplies, related subscriptions, etc.).
Mutual partnerships like this are a great way to add value without adding more cost or effort on your business.
Since this would only be offered for the long-term plan, there’s not as much of a concern for people to take advantage of it.
TypeForm doesn’t offer any incentives beyond a price discount, but I do like how they show you the discounted annual plans by default. This puts it on you to switch over to monthly, which toggles the price to a higher amount and makes that decision a little tougher.
- Incentivizes more people to commit to long-term plans, which will help increase retention and lifetime value (LTV)
- Partnering with a vendor opens you up to a new audience and provides more value to your members without adding more cost to your business
- Not much to list here, but make sure that you are adding a feature to the long-term plan and not taking away a feature from the monthly. Don’t punish your monthly members.
4. Expansion Pricing
The expansion pricing model uses a variable axis for your customers (the number of visitors tracked, the number of accounts needed, etc.). As your customers expand their usage of your product, they pay you more.
Here Freckle uses the expansion model by setting a base price for each plan, and an additional cost per extra user over the plan limit. Discounts are offered on the overage fees depending on what size organization you are.
HubSpot uses a similar expansion model. Notice the features for each plan become more complex as the business size increases. Interesting CTA used here as well (“Customize Price”). I’d expect that they get more people clicking on that than “Start your free trial”. The further they can get leads through the account creation process, the better for HubSpot.
- This improves profits (a lot) by creating a natural expansion of your revenue. As your customers become more successful, the value you bring them goes up. You should be paid accordingly!
- You’re able to taylor fit your offering to your customer and be able serve a wider variety of needs.
- Likewise, customers feel they are getting a product that is custom fit to them, which makes it easier to see the value.
- This is an advanced model that most membership plugins are not built to handle out of the box. Custom development will be needed, so weigh the return on your investment.
- This model does not lend itself well to B2C (business-to-consumer) companies, where there’s not an obvious variable axis. In most cases, the customers will end up frustrated with prices getting raised.
Guess what? A lot of these example sites have already changed their strategy
Yep. Just in the time it has taken me to write up this article, several of the businesses that I drew examples from have altered their approach (and even changed it entirely).
That so perfectly illustrates our philosophy on pricing: it should be a fluid thing. What works for some may not work for others. What has worked well for you may not work as well as another strategy that you have yet to try. Be flexible with your approach and test often.
Remember, even the experts started out knowing very little about pricing a subscription product. It takes the willingness to try new approaches and observe what works and what doesn’t. Don’t let the fear of “not knowing” hold you back from getting that experience.
A free lesson on pricing
If you’re wanting to go even deeper on pricing strategies, our book, Member Up, has an entire chapter devoted to the subject.
We are more than happy to let you sample that chapter.
- How to decide on your pricing
- Best practices for pricing your offering
- Avoiding support vampires and keeping your pricing sustainable
- A rough formula to get you started