You went into business because you wanted to make a profit. Achieving that goal relies on a couple of key elements. Firstly, that you provide a high quality service your customers will want to use continuously. Secondly, that your subscription service is priced so you are able to make a profit.
Profit is very important because it allows you to enjoy your lifestyle as you like and fuels growth within your business. If you do not charge enough, then you may not have enough income to cover your costs. On the other hand, if you charge too much, your customers may not see the value in your product and leave your business. It will therefore be harder to maintain your income and profits.
So what can you use to help determine your pricing strategy?
1. Your Business Model
The number of clients you are hoping to have at any one time is an important factor. If you plan for a significant number, then you can charge less per customer but you will be limiting the amount of time you can afford each for troubleshooting, customer service, etc.
In contrast, if you want to have a more exclusive club and have few customers, you need to increase your prices but can afford more time per customer. This may be the best option if you have a very niche product or want to create an elite group of clients where you have very close relationships.
2. The Cost-Plus Method
This is a standard way to price services. The first step is to determine the cost of delivering the service to your market. This should include the fixed costs and the variable costs. The fixed costs should be spread out over the number of customers that you are looking to attract and manage in your subscription business.
The most common mistake to make with this method is that while you may pay someone $12 per hour, the costs are more than that. For instance, you may have rent, utilities, insurance, website, taxes, etc to consider.
3. How Much Your Competitors Are Charging
You might also want to look at how much your competitors are charging. There are various ways in which you can determine if their prices are related to yours, and we have covered this previously.
To find out their costs, have a look on their website, speak to their sales team and talk to associates who have dealt with them. This will give you an indication of how the market is reacting to pricing, especially if you have a significant amount of competition whose prices are very similar.
However, you shouldn’t base your prices on just your competitor’s price points. Your product may have a greater value or you could have different costs.
4. The Perceived Value Of Your Service To The Customer
Your customers aren’t going to pay for a service they don’t think is value for money. Therefore, you should ask your customers what they believe the value for your subscription service is. It is likely they will slightly underestimate what you could charge, but it can be a good starting point.
An alternative way of achieving this is to A/B test several price points and see which has the higher conversion rate. At the same time you should look at the customer lifespan; if you find that a higher price has a lower customer conversion rate but higher customer lifetime value – it is obviously the better choice.
Pricing your subscription correctly is an important factor in running your business. Charging too high or too low may cause your business to fail as you will not make enough profit to run your business effectively. Ensure you are charging the right amount to earn enough profit to live comfortably, grow your business and provide a high quality service.
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