At some point, your subscription business is likely to have to increase prices. Whether you apply these higher prices to your existing customers, in addition to new customers, can be a difficult decision for you and your management team. Some businesses (like Amazon Prime) do change the subscription charges for their existing customers. Others, do not unless the customer is coming up to a renewable period.
Whether you increase the charges for your current subscribers is a decision that is very specific to your business. There are several different factors that can impact your decision, here are three of them:
1. Why Are You Increasing The Price?
The first consideration should always be to identify why you are increasing your subscription prices. If it is because you are finding demand extremely high and you would like to increase your revenue, then there is no necessary reason why you need to increase prices for your existing customers. That isn’t to say that you shouldn’t – just you should have another rationale.
On the other hand, if you are increasing prices because the costs to deliver your service have risen, you might need to. You first need to look at your profit margin on providing your service. In your cost analysis, include the customer acquisition cost as well as the expense to maintain and deliver your service.
If the profit margin is too small you’ll need to increase your subscription prices.
2. Have You Added New Features / Changed Package Deals
Sometimes you have to increase prices because you have made changes to your packages. If you’ve added new features to existing packages, and you’ll be offering those same features to your existing customers, you should increase the price for your current customers. Otherwise new customers might be upset that your current customers are getting the same deal for less money.
Therefore, you need to consider either raising the price or keeping them the same for new and old customers the same.
If you’ve changed the package deals so that they are completely new, rather than attached a new feature to current packages, then you have a different scenario. You could keep your current subscribers on their old pricing plans while moving new customers to the new pricing plan. Then as renewals come up or customers want to upgrade / downgrade their plans, you can move them onto the new pricing structure.
3. How Will Your Customers React
Another consideration is whether your customers will abandon your product if you raise the price. This might be the case if you have done several price increases in recent months or you have made promises not to increase the price.
However, there is limited evidence to suggest that rising prices will force long term customers to find alternatives. In fact, many long term customers often retain their membership because they know the benefits and value of the service you provide.
You should also be careful as to whether new customers will be annoyed that old customers are getting the same deal but with lower prices. If they found out, perhaps because they were referred by a friend, they might abandon their subscription.
When you need to increase the price of your subscription service you need to think very carefully as to whether you need to raise the charge for your current customers. There are some factors to consider such as why are you increasing the price, what is your profit margin and how will they react. The answer to these questions will tell you if increasing the price is right for your business.