With so many pricing strategies available today, it can be challenging for subscription businesses to select the best option to suit their offerings and their customers. Sometimes the best option is a combination or hybrid of multiple strategies, which can further complicate the decision.
The following will help your subscription business on its journey toward selecting and maintaining the best pricing strategy to ensure successful growth and a scalable future.
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The term “freemium”—a portmanteau combining “free” and “premium”—has long been a popular strategy used by start-ups, app developers, SaaS companies of all size, and more.
The freemium + upsell strategy enables users to access the basic features of a business’s service at no cost and unlock access to greater functionality and features—or a premium version—for a subscription fee. Migration to paid usage can sometimes also mean access to the service without advertisements.
The freemium strategy is appealing to many businesses because free services are an incredibly strong marketing tool. Additionally, once users find value in a service and adopt it into their routine, they are more likely to be receptive to upsell efforts and migrate to a paid plan.
With the multiple editions pricing strategy, businesses create multiple different packages or plan levels, and then let each customer choose the one that is right for them.
The price of each plan can be based on many factors, such as the number of users, the level of usage, or the features available. These factors are usually dictated by the type of service the business is offering.
Download the Definitive Guide for more examples that clarify the multiple editions pricing strategy.
The pay-as-you-go or usage-based strategy centers on charging customers for what they use on a transaction basis only. Customers pay either in advance or in arrears.
This pricing offering has been shown to lower consumption—as opposed to when a flat rate is charged—and saving money can be a powerful motivator. In some cases, offering this payment option to your customers may be the reason they choose your business over the competition.
Base + overage is the pricing strategy of choice for many communications and data storage companies. This model involves a set fee for a specific usage allowance, and then users pay additional fees for any usage overage.
Download the guide to learn how effective communication can go a long way if base + overage is your pricing strategy of choice.
There are two terms commonly confused in pricing strategies: tiered pricing and volume pricing. The following will break down each term.
Tiered pricing model
A price PER unit within a range
In this model, pricing is discounted when customers purchase a certain number of units. If there are multiple tiers, the customer will gradually receive more discounted pricing, paying less per unit as they move up.
Volume pricing model
A price for ALL units within the range
Like with tiered pricing, this model involves different pricing levels to encourage larger orders. However, in volume pricing, every unit is assigned the same price depending on the level the purchase reaches.
Tiered pricing differs from volume pricing in that a customer still pays the higher cost in the first tier, then pays a slightly lower cost for units in the second tier, and so forth. In volume pricing, a discount is applied to all units in a purchase.
With stairstep pricing, different tiers are again predefined, but the user pays one set price for any number of units within that tier.
The final level would be a higher value and, depending on the product, there might be a purchase cap.
Sometimes called price bundling, product bundling, a compilation, or a package deal, this pricing strategy is when a customer buys two or more products or services together for one price instead of buying the items separately for individual prices.
Aside from being a popular tier pricing strategy, bundling is a game of perception. There are many people who argue it is not a pricing strategy at all, but rather a marketing strategy. Regardless, the strategies are related.
With price segmentation, your business offers the same product or services but at different—or unique—prices to different types of customers.
This pricing strategy has been proven to increase overall profit and revenues, especially in industries with high fixed-cost structures.
Segmentation can be based on volume, attribute or feature, service offering, time of purchase, time used, or something else entirely. While segmentation can be powerful there are difficulties with this pricing strategy that can reduce its impact.
While this guide detailed the many different pricing strategies available to subscription businesses, there is still so much more to know!
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Uberflip’s customer invoicing requirements are high volume and steadily growing. With over 1600 subscription customers and multiple subscription packages for them to choose from, their subscription management and billing requirements were becoming unmanageable with their manual process.
ClearPathGPS’ customer billing requirements are highly customized and high volume. They are a no-contract provider which means they need to prorate subscriptions to the day and there can be hundreds of plan adjustments daily. Not only is this a cumbersome process but it is a complex one that required a flexible solution.
instream has reduced their registration and billing process time by 80%. See how Fusebill saves them time and money allowing them to focus on other strategic areas of the business.
NonProfit Technologies (NPT) had experienced tremendous growth at an early stage, scaling their customer base by 500% within the first 2 years of business. Fusebill helped to fuel that growth by automating their billing, allowing NPT to focus on other important areas of their business.