27 Mar The Best Recurring Billing Pricing Strategies for Your Company
If your company offers recurring products and/or services, you probably already know that there are many types of billing options at your disposal. It’s important to note, however, that some are better suited for specific industries than others.
In this guide, we’ve put together 7 different recurring billing pricing strategies for you to mull over. When evaluating each of them, please remember that your primary goals are to ensure (A) your billing is appealing for as many of your customers as possible and (B) that your billing provider can handle all the strategies you might employ.
STRATEGY 1: The Freemium Plus Upsell
The freemium option is, as the name suggests, a free version of your product and/or service that is available to all newcomers. Once people have signed up for the free version, they are then shown the upsell, which is something that’s bigger and even better.
A great example of this strategy is LinkedIn. When users first sign up for an account on LinkedIn, they are granted access to a variety of different resources, including the ability to request up to five introductions at once, receive InMail messages, and save up to three searches at a time. But when they upgrade, they are granted access to information regarding who has viewed their profiles, as well as advanced search features. Depending on the type of upgrade, they can even use the sales navigator to find sales opportunities, find jobs with the recruiter lite package, and enjoy LinkedIn Learning for skill creation.
- Pro: Reel in new customers with free offerings, then make your upsell.
- Con: You might get a lot of customers who stick with the free version if they don’t see the value in your upsell.
STRATEGY 2: Multiple Price Points
When you offer multiple price points, your customers are able to select options that best fit their budgets and their needs, which leaves them feeling more in control. How you set your prices will be contingent upon what features you want to offer, the usage, or even how many customers you have.
A great example of this type of pricing strategy is cell phone companies that offer different services based on data usage.
- Pro: Customers feel more in control.
- Con: Limited usage might limit your profits.
STRATEGY 3: Pay-As-You-Go
Pay-as-you-go is another usage-based pricing strategy. As the name suggests, customers only pay for the things that they use on a transactional basis. Some companies like to allow their customers to pay ahead of time, while others just pay after the fact.
Since saving money is oftentimes a powerful motivator for customers, the pay-as-you-go option could very well be the reason that a customer or business chooses you over your competition.
- Pro: Reel in new customers who only want to pay for what they use.
- Con: Your customers might not use a lot.
STRATEGY 4: Base Plus Overage
This particular strategy is ideal for things like data storage and communications. Wireless companies, for example, often charge a base monthly fee for say, 4 GB of data. If people go over that allotment, they are then charged an additional fee for each GB used. It’s important to note that this option does require a fair amount of details regarding the pricing arrangement. Otherwise you’re going to end up with some very, VERY unhappy customers.
- Pro: Charge customers for what they use.
- Con: You have to set up your pricing arrangements very well, or face the wrath of customers.
STRATEGY 5: Tiered or Volume
In a subscription-based world, the tiered or volume pricing model is very popular because it allows you to charge based on different packages.
Using this strategy, you typically set up three tiers because this creates a frame of reference for your pricing models and for your consumers. Your company wants to charge a specific subscription rate. So, you make that the “middle” tier, adding a lower priced but less appealing option, as well as one that carries a price point that most would consider “too expensive.” If customers just look at your goal rate, they might scoff at its cost. But if you put it next to other options, there’s a higher likelihood of a conversion. All you’re doing is changing perception.
- Pro: You get to charge your goal recurring rate without customers knowing.
- Con: You might get customers who stick with the bottom tier option.
STRATEGY 6: Bundling
Bundling is another way to change the perception of your company. Just bundling products or prices can make the price you want to charge seem more reasonable. You can take, for example, two separate products you offer and increase their individual prices by 10%. This costs your customers $50 for each product. Then, offer a bundle for both products together at only $90. Customers happily pay $90 for both because it is cheaper than buying each individual product for $50. They don’t need to know that originally, your cost was only $40 per product.
- Pro: Get the rate you want from your customer and double your sales.
- Con: Some customers might just buy one thing and not want to bundle, despite how much money it saves.
STRATEGY 7: Segmentation
Segmentation is the opposite of the bundling concept. With segmentation, you just offer the same product or service but with different prices for different types of customers.
- Pro: Increase profits just by putting a time limit, extra features, etc.
- Con: This really only works well in an industry with high fixed cost structures
Overall, with so many options out there, it’s important that you take the time to properly evaluate each before making a final decision. Consider introducing one or two methods for new or loyal customers, then test the field with a handful of clients, and use the subsequent results to improve the strategies you use next.