What is subscription-based pricing?
A “subscription-based pricing” plan lets customers get goods and services by paying a set fee every month or year. Customers get ongoing value from these payments because they can use the goods for a long time instead of buying them all at once.
Business-to-business (B2B) and business-to-consumer (B2C) subscription methods are used differently.
- B2B: Companies can sell software-as-a-service (SaaS), tools, and services to other companies by setting prices based on subscription. One example is an online market that might charge other businesses a monthly fee to use its site.
- B2C: Subscription-based models can also help consumers because they give them access to things they might not be able to afford if they bought them all at once. For example, monthly subscription boxes can send customers carefully chosen things that would be too expensive to buy simultaneously.
By letting businesses guess how much money they will make in the future, subscription-based pricing gives them more control over their sales and customer relationships. Offering value and ease of use also helps businesses stand out from others in the same field and build customer trust.
But customers like getting things and services for low prices and being able to pay for them over time.
Synonyms
- Subscription Pricing: This pricing type charges customers a recurring fee on a monthly or annual basis.
- Subscription-Based Pricing Model: This pricing model charges users a fixed price per month rather than a one-time fee
Why using subscription pricing is a good idea.
One of the most popular ways to set prices is through subscriptions, which are usually best for buyers and sellers.
They are consistently bringing in money.
Businesses can expect to profit from subscription-based prices because customers always pay on tim . Businesses can make better plans for the future and change their tactics to fit this level of predictability.
When it comes to investing, knowing how much money a company will make in the future makes it more valuable and appealing to investors.
More accurate predictions of income
Businesses need accurate data based on averages and regular payments to guess how much money they might make.
Businesses can determine how much money they can expect from each customer with subscription-based pricin . This makes predicting sales much easier and more accurate.
More money from each user
Businesses can also make more money and close deals by using subscription price . Businesses might be able to get customers to pay more per transaction if they offer membership plans instead of one-time payments.
Businesses can also offer discounts or other benefits to customers who commit to a long-term plan with subscription models, which can help them make more money in the long run.
Better retention of customers
A new customer costs a lot more than an existing one, and increasing customer retention by just 5% can increase earnings by more than 5%.
With the subscription plan, businesses can keep in touch with their current customers, which can help them stay loyal and buy from them agai . Customers also like that the subscription price is clear (there are no hidden costs or surprises) and that they can make regular payments, which makes relationships with customers even better.
A better experience for customers
There are a lot of ways that the subscription price makes the customer experience better:
- Fixed monthly or yearly costs make planning and keeping track of money more accessible. • Customers are happier with subscription models because they are straightforward and easy to use.
- Customers feel more flexible and in charge when they can stop anytime.
Businesses can get new customers and keep old ones by giving them on oing value. This leads to more sales and more revenue growth.
More people knew about the brand.
Companies can sell their goods and services to current customers regularly when they use subscription-ba ed pricing. And when people see a brand’s goods often, they become more familiar with them, which raises brand awareness.
It’s also a lot easier to make marketing materials for a product or service whose price are transparent. This helps businesses get their message across more clearly and boosts sales.
Less time between sales
The sales cycle is shorter with lower upfront costs, easy recurring payments, and transparent prices.
Companies can close deals faster and start getting paid by cutting down on the time needed for internal talks and touchpoints with sales reps. And it’s easier for customers to compare worth and cost, which helps them make decisions faster.
A chance to sell more to customers
When a customer wants to change over time, businesses can use subscription-based pricing models to sell them more expensive goods r services. This lets companies make even more money from each customer without getting new ones.
A better time for sellers
Keeping your best salespeople is just as important as keeping yo r business. The selling experience is a big part of how happy, motivated, and long-term employees are.
When prices are based on subscriptions, it’s easier for salespeople to be transparent and honest with possible customers, which leads to b tter deals. And sales reps will be more likely to stay with the company and help it succeed if they can close new deals faster and keep old ones better.
Different types of pricing models based on subscriptions
There are four different ways to price a subscription:
- Prices that don’t change
- Pricing based on usage
- Prices with Levels
- Pricing based on use or unit
Fixed-Price Deals
The flat-rate pricing plan is the easiest way to set up a subscript on service. It’s a set fee that lets you use a service or product for a month, a year, or some other time.
Flat-rate pricing works best when people use a product or service often and don’t need more than what they pay for.
Here are some examples of price models that use flat rates that work:
- Software subscriptions: With a subscription, users can regularly use the software and its benefits.
- Gym memberships are an annual fee that lets people use the gym for some time.
If you want to use a streaming service like Spotify Premium, you can sign up for a monthly or yearly plan.
Flat-rate pricing works best when it comes to simple goods with clear use cases. Use-based, tiered, and per-use/per-unit price models might work better if the product or service is more complicated.
Pricing based on usage
Customers are charged differently depending on how much or little they use a good or service.
For example, software-as-a-service (SaaS), cloud storage, and online services need to be customized more, so the usage-based approach works best for those.
Here are some examples of pricing methods based on usage:
- Subscriptions to cloud storage: Customers are charged based on how much pace they use. They can also spend more to get more space.
- Internet Plans: Sometimes, you pay for internet and phone data plans based on how much data you use.
When businesses buy utilities, they pay for them based on how much energy they use each month.
Price-based usage works best for companies with many different users with different needs.
It also helps businesses make the most money by charging customers based on how much they use instead of hav ng a flat fee. Some types of businesses would give away too much of their service for free if they didn’t have a pricing plan based on consumption.
Different Prices
Businesses that use a tiered pricing plan divide their customers into groups based n their needs. These groups are called pricing tiers.
The tiered pricing approach works well for services and goods that have different levels of features, like streaming services or software subscriptions.
Here are some examples of tiered price models:
- Streaming Services: Streaming companies like Netflix offer different plan levels with different levels of content access, such as free, standard, and premium.
- Plans with a lot of features: Software companies offer different amounts of features at d fferent prices. Calendly, for instance, has a basic plan and an enterprise plan with more advanced tools. It also comes with various prices for its different features and connections.
- Tools that can be changed: CRM software and other powerful tools usually give users a choice of different levels of features.
Businesses can give customers the right amount of value—neither too much nor too little—wit tiered prices. It also helps businesses make the most money possible by letting them charge more for more advanced features.
When businesses use tiered pricing, sales reps must be consultative and help prospects find the best answer for their budget, business size, and specific needs.
Pricing based on users or units
If a person uses a certain number of users or units, they will be charged a ertain amount. It’s like usage-based pricing in that the customer is charged based on ho much they use. But it’s not the same because the prices are set and depend on the number of users or units, not how much each person uses the product.
Setting prices works best for goods and services with user accounts or separate units, like business software and managed IT services.
Here are some examples of pricing plans based on “per-user/per-unit”:
- Software licensing: The price of software licensing is usually based on how many people use the ser ice or product. Microsoft Office 365 and Adobe Creative Cloud are two examples.
- Managed IT Services: Companies that offer managed services usually charge clients based on how many people or devices they need to support.
Pricing based on “per-user/per-unit” gives companies more power over their prices and helps them ensure they’re not giving away too much for free. A business can add people or devices as needed, making growing their service easier.
How to Choose the Right Pricing Model for Subscriptions
Which subscription-based pricing model to use relies on the business strategy, the type of product or service being sold, and the customers that are most likely to buy it.
Fixed pricing works best for companies that sell goods or services with few features and where customers tend to value them the same way.
Pricing based on usage works best for companies with many users with different needs and use the service at different levels.
Tiered pricing, also known as per-user or per-unit pricing, works best for goods or services that have different amounts of features that can be grouped into different tiers. It will also work best if it needs to be scaled up or down based on the company’s size.
In the end, companies should pick the pricing model that meets the wants of their customers and gives them the most value. Generally, you should start with a set model and make changes as needed.
Software to handle pricing based on Subscription-Based Pricing
Businesses can handle their subscription-based pricing models with several different software programs.
CRM stands for customer relationship management.
Tools for managing customer relationships, such as Salesforce, Pipedrive, and Zoho CRM, can help companies keep track of subscription prices and handle customer relationships.
With CRM, salespeople can move leads through the pipeline and track where they are. Marketing teams can also make customized campaigns and deals based on which prospects would benefit most from which membership.
Making sales possible
Tools for sales enablement, such as Highspot, Showpad, and Seismic, help sales reps give leads and customers more personalized experiences.
Software that helps with sales enables workers to screen leads, keep track of customer information, make personalized presentations, and see how engaged customers are.
Many sales managers (71%) say their salespeople miss sales chances because they don’t connect their solutions with customers’ needs. Sales enablement gives workers the data they need to customize the customer experience and boost sales by matching customers with the best subscription level or solution for their needs.
Set up, price, and quote (CPQ)
Configure, price, and quote (CPQ) software helps companies quickly set prices on complicated goods in many different styles. It can also instantly make quotes, contracts, invoices, and other documents. It can also handle the whole sales process, from beginning to end.
Companies selling their goods through subscriptions can use CPQ software to speed up sales and ensure customers get the most for their money.
