Ask HN: How to calculate best subscription fee
I'm trying to determine which is a better membership pricing structure; $20 / year versus $50 / year.
The lower price will increase the number of subscribers but lower the revenue per customer (obviously). The higher number will do the opposite.
Is there some information somewhere (not many good search engine results) on ways to compare these two pricing structures? Perhaps some graphs and mathematical explanation of what the advantage of the lower price with more members is versus the higher price with fewer members?
Thanks to any responders.
26 comments
[ 3.1 ms ] story [ 64.3 ms ] threadI think it's worth $50.
My question is what are the best resources on this topic?
I suppose i need 2.5 as many times the members at the $20 rate to make generate the same revenue. I've got 100 users @ $50, but will I get 250 @ $20 ? If I did get 250 at $20, the revenue hasn't gone up.
$50 seems like the better plan to me. Ofcourse, if I ask the users who haven't subscribed and still use the free model, they think $50 is too much and they would be more likely to pay $20.
I'm sure there's lots of discussion on this topic out there, but as soon as you type in "membership subscription" at google you get garbage like pay pal and netflix, and not any nerdy discussion on the topic.
Of course they would rather pay less! But you also have to consider that when people start paying, they usually expect a higher level of service. If you can keep the number of people with high expectations to a minimum and still turn a profit, you'll be in better shape.
Start with the higher price, and see how it goes. If you aren't getting enough customers, you can always offer limited-time discounts (e.g. "Regularly $50/yr, but sign up during December and get your account at $40/yr for life!").
Here's what you should do. Find more prospective users. Tell them that you're considering $50/year and $100/year (Btw, these would sound cheaper if they were $5/mo and $10/mo, plus it wouldn't require as much of a commitment.) and ask which they prefer.
If they all say that they wouldn't pay for either, you know that $50/year is actually too expensive. If they say that they prefer $50/year and that $100/year is too expensive, you know that $50/year is probably ok.
Then again, remember that your users will lie to you about what they want and what they're willing to pay for. So you don't really know until they're actually paying for it.
I would hesitate to pay $50/y, but not so much $5/m.
I also think your pricing plans are too low. If your service is for businesses (even small businesses) and it provides an obvious value to them, you should be able to charge more; like $10 - $20 per month (or more), again with discounts for longer terms. Even if your service is for individuals, $10 per month is not excessive. People pay $60 - $100 or more per month for cell phone service; $10 - $20 per month is not excessive for a valuable service.
on the flip side of that coin, i've read that and i'm still struggling to come up with a good pricing structure.
Also StavrosK talked about subscription fees here: http://blog.historio.us/
More than $20/year, however, and there has to be a compelling discount or a solid trial before I'll shell out for a whole year.
I'd have no problem spending $20/m on a good product I like but I would have a problem spending $20/year on something I haven't tried, because I "feel" like I'm spending more and committing to a longer term with the product.
Maybe that doesn't make sense, but the issue for me isn't the money but how I see the value.
It's easier to bill and can result in more up-front revenue for your growing service BUT the psychological angle means billing monthly can make you more money (e.g. how $5/mo "feels" vs $50/year.. yet the former makes you more money), plus the angles `citricsquid` mentions.
- perceived value
- competitor pricing
- your target market
- how directly your service let's people save mone or generate income (ie if your service does either it is more easily justifiable than a pure luxury)
- customer loyalty (eg some people are paying Dropbox when they don't need the space just because they love the service and want to support the company)
- supply (including the illusion of scarcity)
- cost structure
- luck
- etc
There is some theory and psychology around this but like all the social sciencesnit isn't exact.
i.e. for me at $50, I sold X. at $40, I sold 2X, at $30 I sold 2X and at $20 I sold X.
Placing value on your product is important, if you charge too little, people will think you are selling crap and won't buy as much.
Your price is pretty much the single most important thing you can split test.
I am particularly generous in that department "Should you decide to return, we will reactivate your account at last billing tier even if that tier is no longer published on our site."
There are some conditions to that, such as material change of control events (all bets are off if you have been acquired).
Failure to do so results in upset customers and negative press coverage. Competitors love that. If you decide to lower prices, be sure to apply decreases to your existing customers. That's positive press.
I am experimenting with pricing as well and prefer my customers to be protected from effects of such experiments.
Annual subscriptions work great when they are a discount over monthly billing. The pattern tends to be that the user subscribes for a few months of month-to-month billing, realizes she is in love, and renews at annual level to save money.
I haven't seen the research, but I think you will find more annual subscriptions tend to be renewals rather than initial purchases. An annual subscription for $50 is below my pain threshold.
Let me illustrate my point. I pay some small amount for http://eventid.net. I don't ever remember what it is, but I pay it annually. It's $29 and I had to look that up. It's just not material to bother with quarterly $12 payments when I can simply pay $29 and ignore this for the rest of the year.
Eventid is a useful service and all my subscription does is speed up Microsoft knowledge base searches. When I am billing my client for time spent figuring out the problem, the speed of research matters and so I pay for this service.
Another example: I pay for http://usaip.eu on a monthly basis $9. This actually just got lowered to $7.99. I primarily use the service to watch Formula 1 on BBC live and without commercials, but it also comes in handy for on-demand VPN connectivity that ALWAYS works when dealing with insecure WiFi networks (have you heard of firesheep? :)). I used to pay by the day, then by the week, now I pay by the month, and pretty soon I'll just pay for it once a year ($74.99) and again be done with it. That service also happens to bill me for European Union VAT, which I am technically not subject to, but again the cost is just not material enough for me to bother with.
I personally do not have free accounts at all. I have plenty of competitors who have free option. The fact is that should the customer decide to pay my competitor, they will likely re-evaluate the market anyway. My software integrates with too many things and simply delivers too much value. You get either 100 transactions or 14 days, whichever comes first. For most people, it pays for itself in one extra transaction as what my software does is maximize revenue per staff member. I do not yet have transaction-based pricing unlike say Recurly, but I will likely add that after we sign up enough customers.
I am guessing this is in regards to your water skiing log site? Determine the value and price accordingly. From what I know, water skiing is not a sport for poor people, so you may have price elasticity due to customer affluence. My snow ski equipment is quite expensive.
I'd probably keep the site free with a limit on how many entries can be made in a year and make a paid mobile interface as a subscription. As a skier, I would probably want to enter my data, complete with picture attachments, right after I am done with my run instead of when I get home. In essence, charge for usability. :)
One last thing - check out Wepay for subscription billing. Much cheaper than Paypal. They do not advertise that feature yet, but I spent some time with the team at the hackathon and was pleasantly surprised it was there. :)
Then again, I am just beginning with offering a SaaS solution. I could very well be wrong. I am easy enough to find on Twitter if you want to chat more. :)