5 Questions to Ask When Determining Pricing Strategy for Subscription Business

Determining how to price subscriptions for you product or service can often feel like more of an art than a science. You need to charge enough to cover your overhead and also make profit, but there’s a fine line between too low and too high. Charging too low may leave the prospects with an impression that your product/service is lacking value. Charging too high will scare them away.

Here are a five questions you need to answer before you create your pricing strategy for your subscription business:

1. Do you have a clear picture of what it costs to create and deliver your product/service?

Production cost is crucial. You can’t determine the price for your product/service if don’t have a crystal clear view of what it costs you to create and deliver it in the first place.

2. Do you understand what your competitors are charging?

Competition analysis give you understanding of prevailing market. Look at competitors at different levels – not just those who compete directly. There could be other companies with similar product/service who cater to a different size client than you do. Make sure you understand their pricing structure as well. To take it a step further, do research to find out how your competitors prospects and customers feel about their pricing. Forums and discuss groups can be a great resource for this type of information.

3. Do you offer your customers something your competitors can not?

If you have a differentiating offering or an USP (Unique Selling Point), be sure to take that into consideration while determining the pricing. This gives you an advantage to set higher price of your product / service, but you will also have to justify that to your prospects.

4. Is there an opportunity to offer different pricing levels or to offer bundle pricing?

Prospects like to have options and pricing flexibility gives them that. Plus it provides your sales team with negotiation tool when it comes time to make a deal. Consider "pay as you grow" pricing over "fixed price" models. For example, tiered pricing, volume based discounts, or metered billing. Bundled pricing can be as simple as breaking up your product or service into components and charging separately for each module – with discounts typically kicking in as your customers buy multiple modules. When you combine component pricing with tiered/metered pricing, now you're really broadening your customer base. "Telefonica”[1] has calculated that if you bundle and target offers effectively, you can increase your revenues by 25 times not 25 percent, 25 times!

5. What kind of customer base do you want to target?

Targeting a smaller market that values your product more will allow you to charge a higher price. This often means specialised industry solutions. Targeting a mass market with a lower priced product will allow you to sell more.

Determining the price for your product/service is an important first step in your go-to-market strategy. Its not just a question of ensuring sales, but is also a direct reflection of your brand. Get it right and you are sure to thrive. Get it wrong and you may never be able to overcome it.

Read more about How to Use Pricing and Value to Sustain Business

[1]: "Telefonica" – http://www.billingviews.com/customer-lifetime-part-culture-remember-basics/