Top five pricing strategies for subscription businesses

Choosing the right pricing strategy is critical for any business, but it’s particularly important when you’re operating a subscription-based organization. If you want to attract new customers and convert free users to paid subscribers, you’ll need to ensure you’re using the right pricing strategy.

With so many pricing options to choose from, it’s not always easy to identify which one is right for your business. To ensure you’re using the best pricing strategy for your firm, it’s important to look at your products or services, your brand, and your customer base. By taking a holistic view of your place in the market and your objectives, you can successfully choose the right pricing strategy for your business.

To get an idea of the subscription pricing strategies available, take a look at some of the most popular options now.

1. Freemium model

A freemium model essentially offers your basic product or service free for life. This may not sound like a great way to make a profit, but it can be surprisingly effective. Although your basic model will remain free to the user, you can offer enhanced versions to paid subscribers. With premium elements of the service reserved for paying customers, free users are encouraged to sign up for these additional services.

Although some companies find that the freemium model works well for them, conversion rates are typically fairly low. While you can attract a significant number of users under this model, you’ll need to be able to offer compelling incentives to persuade them to pay for something they could get for free.

2. Multiple edition strategy

If your product or service appeals to different users, having multiple editions can be worthwhile. Making consumer and professional versions of your product is a popular example and one that works particularly well.

An advantage of using a multiple edition pricing strategy is that it can be combined with other pricing options. You may want to offer a freemium subscription for individual consumers, for example, and a paid subscription service to business users.

Alternatively, your product may lend itself to alternative edition options. If users want to use your service five times a month, a basic plan might be appropriate. For users who will rely on the product at least 50 times a month, an intermediate option is more suitable, while heavier users can opt for an advanced plan. A popular example of this is cloud storage providers, who typically charge different rates depending on the amount of storage a user requires.

3. Pay as you go method

Many companies that operate on a subscription model charge users a flat fee, regardless of whether they actually use the product or service. If users don’t use the product as often as expected, they’ll soon conclude that they don’t need a subscription, which means a dip in your sales figures.

By implementing a Pay as You Go pricing strategy, you can reassure users that they’ll only be charged for the services they use. As well as providing a clear framework of your pricing, this also serves to deliver a good level of customer service. When users are only charged for what they use, they often feel it’s a more cost-saving solution than paying a flat fee, which means brand loyalty increases.

If you choose to, you could even combine a Pay as You Go strategy with a flat free subscription service. This takes advantage of the latest changes to the subscription economy and highlights your willingness to meet your customers’ needs. While sporadic users can make savings by only paying for what they use, heavier users can reduce their costs by subscribing for a flat fee and paying less per usage.

4. Base price strategy

Similar to the Pay as You Go strategy, a base price methodology enables users to sign up for a flat fee subscription and simply pay for any additional services they require, as and when they need them.

This gives users the freedom to mix and match between a subscription model and a flexible Pay as You Go approach. As well as delivering great customer service, this model enables you to meet the needs of a variety of different customers. If you’re looking for a simple and straightforward pricing strategy that can attract customers from all demographics, this might be your best option.

5. Promotional strategy

Promotional pricing strategies have been a staple of business marketing for years but they’re still extremely effective. Indeed, it’s because they’re so successful that management-level employees continue to enforce them. Consumers love to get a bargain, so launching a promotion that benefits them can lead to increased sign ups and sales.

When used in a subscription model, a promotional strategy can take many forms. You may choose to slash your prices for users who are switching from a free trial, for example, or offer them a reduced price if they sign up for longer periods of time.

If a user signs up for an annual account, for example, they may pay less overall than if they agree to a monthly subscription. As well as locking the customer in for a longer period of time, this helps your business to bring in turnover now. For companies that want to invest in business growth, promoting long-term subscription offers can be an effective way of increasing short-term turnover.

With a variety of options to choose from, you can implement almost any promotion you like. By catering to your customer base, you’ll find the right mix of promotions to entice them into becoming paid subscribers.

Choosing the best pricing strategy

Although some companies choose to implement just one pricing strategy, there’s no need to stick to just one methodology. In fact, combining pricing strategies can often be the best way to serve your customers and optimize conversion rates. By finding the right mix for your business, you can successfully attract paying subscribers and increase your profits.