Tag Archives: pricing plans

Swimming in SKUs? Keep Agile with Subscription Pricing

Swimming in SKUsDealing with changes in pricing is a significant challenge in any business. The rise of subscription based retailing magnifies the complexity – pricing plans and paradigms proliferate, while individual customers require specific charges and adjustments to their accounts. The result? Vast lists of SKUs, ordering complexity, and confusion.

To understand the value of agility in a subscription billing environment, let’s examine a billing lifecycle from two perspectives. First, we’ll look at the lifecycle of a pricing plan – initiated by a marketing program, introduced for sale, and eventually retired. Then we’ll look at the typical customer lifecycle events that create their own pricing challenges.

As a specific example that is easy to relate to, we’ll use a fictional men’s hygiene subscription box with some a la carte options:

  • Razor Blade service $10/month
  • Shaving Cream service $10 / month
  • Premium Skin Creams $20/month
  • Razor handle: $20 one time
  • Premium Razor Set: $50 one time

Now, the marketing team goes to work:

  • Let’s bundle Blades and Shaving Cream together and give a discount to $15
  • Can we sell Skin Creams at a lower price to encourage people to try? Just for those with the bundles?
  • There should be more incentive to sign up for an annual contract. Let’s make Razor 1 free with an annual subscription.
  • What about the Premium Razor – ok, it should be $30 for an annual plan.
  • We should test the bundle at $18 as well.

There are now 96 separate variations of what is, all-in-all, a reasonably simple packaging idea. A customer can order the blade service, or not; the shaving cream service, or not; the extra premium creams, or not; choose one, both or neither razor; commit to an annual plan. Some customers will see one price test, some will be at a higher price point. Over time, more variations are created for further promotions; some are retired; some are grandfathered.

A traditional approach is to translate each one of these variations into a separately identifiable ‘part number’ or SKU. This makes it: difficult to order, track results, and analyze what is working. While it’s easy to tell which individual variant is performing well, even simple questions like “how many customers chose Razor 2” requires aggregating data from multiple SKUs.

Now consider a typical customer experience as seen through the eyes of a CSR (Customer Service Rep)

Typical Customer/CSR experience

In coming weeks, a typical customer might upgrade their package; change razors; upgrade to an annual plan, and receive a free month of service to compensate for a service problem. Each transaction involves removing and replacing SKUs, generating a string of confusing entries on the bill that may generate more questions. Manual attempts to pro rate charges to align with the billing cycle are error prone.

This simple example illustrates how complex it can be to implement even straightforward bundles of products and service. This complexity complicates ordering, customer service and reporting. Further on, accounting groups must also decipher events to apply appropriate revenue recognition policies.

A subscription billing system provides agility by structuring pricing catalogs to minimize the proliferation of products, plans and variations, and automated tools for dealing with common customer service issues.

This article is a taste of what Fusebill CEO Steve Adams will be covering in a new, live webcast on March 20th. If you’d like to know more about this topic, register today:

usebill Webinar RegistrationSwimming in SKUs? Keeping Agile with Subscription Pricing
When: 2:00 PM, March 20th, 2014
Cost: Free
Presenter: Steve Adams, CEO Fusebill

Please Note: This webcast is being presented in partnership with CPA academy and is worth 1.0 CPA credits.
Bonus: As a thanks for attending you’ll get a copy of our popular whitepaper The Impact of Billing on a Subscription World absolutely free!
REGISTER NOW!

Twelve Days of Fusebill Christmas

1

On the first day of Christmas, Fusebill gave to me online invoicing.

2

On the second day of Christmas, Fusebill gave to me 2 mobile swipers and online invoicing.

 

 

3On the third day of Christmas, Fusebill gave to me 3 checkout pages, 2 mobile swipers and online invoicing.

 

 

4

On the fourth day of Christmas, Fusebill gave to me 4 product bundles, 3 checkout pages, 2 mobile swipers and online invoicing.

5

On the fifth day of Christmas, Fusebill gave to me 5 helping hands.

6On the sixth day of Christmas, Fusebill gave to me 6 self-serve portals, 5 helping hands  4 product bundles,  3 checkout pages, 2 mobile swipers and online invoicing.

 

 

7On the seventh day of Christmas, Fusebill gave to me 7 credit card payments,  6 self-serve portals,  5 helping hands, 4 product bundles,  3 checkout pages, 2 mobile swipers and online invoicing.

8On the eighth day of Christmas, Fusebill gave to me 8 robust reports,  7 credit card payments,  6 self-serve portals,  5 helping hands 4 product bundles,  3 checkout pages, 2 mobile swipers and online invoicing.

9On the ninth day of Christmas, Fusebill gave to me 9 coupons & discounts, 8 robust reports,  7 credit card payments,  6 self-serve portals, 5 helping hands,  4 product bundles,  3 checkout pages, 2 mobile swipers and online invoicing.

10On the tenth day of Christmas, Fusebill gave to me 10 pricing plans,  9 coupons & discounts, 8 robust reports,  7 credit card payments,  6 self-serve portals, 5 helping hands,  4 product bundles,  3 checkout pages, 2 mobile swipers and online invoicing.

11On the eleventh day of Christmas, Fusebill gave to me 11 product components, 10 pricing plans,  9 coupons & discounts, 8 robust reports,  7 credit card payments, 5 helping hands,  6 self-serve portals,  4 product bundles,  3 checkout pages, 2 mobile swipers and online invoicing.

12

On the twelfth day of Christmas Fusebill gave to me… FUSEBILL 2014!

Getting to the Price is Right

Assessing Pricing Models in a Subscription World

Fusebill January WebinarsThis Thursday, (January 31st) Fusebill CEO, Steve Adams will be presenting a live webinar that will cover pricing models, client economics, A/B testing, and other topics subscription, or cloud based business need to increase focus on in order to succeed in this new economy.

Registration is filling up fast. Sign up now to guarantee your spot.

Date: Thursday January 31, 2:00 PM Eastern Time

Overview:
In this presentation Fusebill CEO Steve Adams will discuss how to evaluate price models as opposed to price points, review churn and its impacts, what to consider when selecting a price strategy and review some of the most popular strategies for subscription based businesses .

What you’ll learn:
-          How to measure customer lifetime value
-          Pricing and A/B Testing
-          Client economics
-          Pricing considerations

Featured Speaker:  Steve Adams has over 20 years of experience in leading high-technology and software companies, most recently as VP and General Manager with j2 Global, which acquired Ottawa-based Protus. Steve helped propel Protus into one of the fastest growing companies in Canada, with over 555,000 subscribers, before it was acquired in 2010. CLICK TO REGISTER

Fusebill January Webinars

Fusebill January WebinarsThis month we are holding two new, free webinars, An Introduction to Recurring Billing and Getting to The Price is Right: Assessing pricing models in a subscription world both are free of charge, will be about an hour in length, and will end with a question and answer session where participants will be encouraged to ask any questions they may have on recurring billing, Fusebill, and the subscription economy. Please sign up for one of both!

Introduction to Recurring Billing

Date: Thursday January 24, 2:00 PM Eastern Time

Overview:
If your business deals with products or services billed on a recurring basis and you’re considering moving to an automated billing and payment platform, this presentation will provide you with the information you need to gain a solid understanding of what a billing service is and the benefits it can provide.

What you’ll learn:
-          What a Billing service is and how it works.
-          Differences between payment gateways and payment platforms
-          Benefits of Billing Automation
-          Features to look for in a recurring billing services
-          An overview of Fusebill  – both the company and the service

Featured Speaker:  Donna McPhee is Fusebill’s Customer Success Manager. Donna possesses a great talent for relationship management and spends her days striving to empower customers with the tools necessary to solve internal issues, improve workflows, and drive efficiencies.  She has over 15 years’ experience in addressing customer requirements and ensuring a seamless on-board process. CLICK TO REGISTER

Getting to The Price is Right: Assessing Pricing Models in a Subscription World

Date: Thursday January 31, 2:00 PM Eastern Time

Overview:
In this presentation Fusebill CEO Steve Adams will discuss how to evaluate price models as opposed to price points, review churn and its impacts, what to consider when selecting a price strategy and review some of the most popular strategies for subscription based businesses .

What you’ll learn:
-          How to measure customer lifetime value
-          Pricing and A/B Testing
-          Client economics
-          Pricing considerations

Featured Speaker:  Steve Adams, CEO Fusebill Steve has over 20 years of experience in leading high-technology and software companies, most recently as VP and General Manager with j2 Global, which acquired Ottawa-based Protus. Steve helped propel Protus into one of the fastest growing companies in Canada, with over 555,000 subscribers, before it was acquired in 2010. CLICK TO REGISTER

 

Pricing Strategy #7 Segmentation

pricingstrategy-segmentationOur final post in this particular pricing strategy series is on price segmentation. This is where you offer the same product or services but at different (or unique) prices to different types of customers. This pricing strategy has proven to increase overall profit and revenues especially in industries with high fixed cost structures.

How it works

Imagine you have a product priced at $10. Some potential customers may see this price as way too high and never convert. Other potential customers may be willing to pay $15. If you only have the $10 price you lose $10 from the people who won’t buy and at the same time lose $5 from the people who would have paid more, for a total loss of $15.

But if you have 3 prices, $5, $10, and $15 you get the $15 from the higher price segment, plus the $5 from the lower price segment you end up with $20.

At first glance it may seem there is no way this can work. But think about the airline industry. Using segmentation they offer a wide variety of prices for the same seat on a flight, the seat is the same, but the price varies based on the type of customer making the purchase. This is pricing based on customer segment and its impact on the bottom line can be huge.

Ways to segment

Here are some of the popular ways to use segmentation as a pricing strategy:

  • Channel Purchase channel – For example, online vs. in-store. Customers who purchase on line can be offered a lower price because the cost to serve is lower.
  • Time used – For example, many resorts  charge more for their vacation packages depending on the time of year. Frugal travelers will travel to sun destinations in late March for better deals while other travelers will pay more to get away from the January deep freeze.
  • Time of purchase – For example, may items are priced higher before the holidays and drop in price after. Or in the Fashion industry, fashionistas will pay a premium to where the latest styles while those on a budget will wait for the end of season clearances.
  • Location – For example, theaters and concert venues charge based on how close you are to the stage.
  • Volume – this one is very common, the large the order you place, the smaller price per unit you pay.
  • Attribute or feature – For example first class vs coach or hardwood vs laminate.
  • Service offering – For example, a plane ticket that is non-refundable is usually less expensive than one that is fully refundable.

As I said, this is not meant to be an exhaustive list, if you have other example, please add them in the comments field.

How it can go wrong / considerations

While this pricing strategy can be very powerful there are difficulties with segmentation that can reduce the impact. Here are some things to watch out for:

  • Dilution: It’s possible customer who would pay your higher price will find ways to buy at your lower prices.
  • Backlash: If you’re not careful, higher paying customers may not see the value they are receiving from the premium price they are paying and will feel taken advantage of. Make sure to keep perceived value in mind when creating and promoting your segmented prices.
  • Stagnation: Don’t make the mistake of implementing your pricing strategy and forgetting it. You should always be researching and exploring new ways to add value to your product or service.

Used properly, the segmentation pricing strategy can be very beneficial, but it’s not right for every business, so make sure it’s right for yours before implementing.

 

Pricing Strategy 5 – Tiered/Volume Pricing

This is a very popular pricing model in the SaaS and subscription based world. Basically, a company offers different price packages where volume is the key differentiator. What constitutes volume varies of course. In the world of email marketing for example, volume or tiered pricing is based on the number of unique email addresses you have in your database.

In this exImageample you pay one price until you have 500 contacts and once you hit 501 you are in a different tier and the price goes up.

Tiered Regular Plan ExampleNumber of users is a another popular volume measurement, especially when it comes to corporate or enterprise licensed software. As you can see in this example there is one price for 5 users, a higher price for 10 uses and one for 50.

ImageNumber of features is can also be a volume metric. As you can see in these examples, the main benefit of offering tiered pricing is that you can accommodate different prospects who are interested in your product to varying degrees.

You’ll often see three tiers because it creates a frame of reference for the pricing. The goal is usually to sell the middle tier and the edges are included to make the pricing seem reasonable. i.e. when just a single price point is shown, people don’t know what to make of it – is it a good price for the value of the service? – and don’t make a decision. When it is bracketed by two other prices, conversion goes up.

Two other things make this pricing strategy attractive to subscription businesses.

  1. Most contracts include the caveat that if your customer goes over the tier they are in, they are bumped up automatically. Which means the upsell takes care of itself. Of course, it’s a good idea to let your customers know their next bill is going to be higher to avoid angry calls to your support lines.
  2. Perceived value is an intrinsic part of human nature. Many people will buy the tier higher than the one they actually need because it’s perceived to be a better deal. The first and third examples in this post do a great job of playing to this.

In the first example you can up to 500 contacts for $15 but for only double the price of $30 you get 5 times as many contacts. Even though this company will probably bump the customer up when they hit 501 automatically, if they can get the customer to but the higher tier before they need it, they get an extra $15 a month.

The third example does an even better job, they charge less than double the price for more than double the number of projects. Even if the customer only has 15 projects the perceived value will entice many to pay a larger price for more than they need.

If you using or are thinking of implementing a tiered/volume based pricing strategy, it’s very important that you do a market analysis where your goal is to adequately address each segment. You’ll see much better results than if you just pull your prices out of the air.

An Essential Guide to Pricing Strategy – Part 1

Today’s post is the first in a two part series by guest blogger Erik Grueter. Watch for part two which will be posted next week.

Pricing is the most important aspect of your business. Period. Don’t believe me? Well, we went through a pretty thorough analysis of this in a previous pricing strategy post, but to summarize: a 1% improvement in your pricing strategy equates to an average increase in profits of 11.1%. It’s that important.

Beyond the numbers though, think about it this way: every economic transaction is a trade between two parties with price being the exchange rate for the value each of the individuals is receiving. If I run a moving company and charge someone $50 for an hour of work, then the “exchange rate” is $50 for one hour of moving. As such, that price justifies that my hour of work is worth that much. Similarly, your prices and pricing pages must boost and justify the value you’re providing for the amount of money you’re charging.
What’s interesting though is that you can’t validate your value, only the customer can, because they’re the one putting down money to purchase what you’re selling. As such, you must utilize customer value to establish value based pricing. This is what distinguishes companies that price their products correctly, and those that lose revenue by pricing incorrectly.

In order to put you on the right track to pricing correctly through value based pricing, let’s explore more about setting up your revenue model, as well as finding a customer’s willingness to pay or in other words, the value they place in your product.

You must charge customers along your value metric

A value metric is the value your customer receives out of your product or service. If you’re selling eggs, then your value metric is one egg. If you’re selling productivity software, then your value metric is time saved. With that in mind, not only must your price and your customers’ willingness to pay for the value you’re providing be equal, but you also need to charge your customers in the appropriate manner. You wouldn’t charge someone for a months worth of coffee if they only wanted one cup.

Likewise, remember that your customer is trying to exchange his money for the unit of value he wants. It is your job as an entrepreneur to determine what exactly he finds valuable and what his perceived exchange rate is for that value. Furthermore, you should think of this willingness to pay as a sliding scale, the more of that fundamental value you provide, the higher your price goes and the value metric you’re pricing on should be easy to understand.

For example, look at Rejoiner.com’s pricing page (below). They capture abandoned carts for e-commerce sites through email remarketing. The value they’re providing is the number of carts captured, but that’s difficult to understand and track. As such, they’re charging based on the amount of traffic they’re customer receives, as they can reasonably assume that the more traffic a site receives, the more abandoned carts they’ll be able to capture. As the traffic goes up, the price goes up, because Rejoiner is providing more value.

Price Strategy #4 Base +Overage Pricing

The fourth in our pricing strategy series, this post examines Base+overage, also referred to as two part, or tiered+overage pricing.

In the offline world this type of pricing is most common in car leases or rentals where there is a base to a certain mileage and then a price per extra mile. For example, the base price of the car rental is $25 a day with 100 free miles, then 35 cents per each additional mile. Your total cost varies depending on how many miles over the mileage allowance you exceed.

Online, this is the pricing strategy of choice for communications and data storage, and depending on how these companies set up their pricing, it can be very confusing for the consumer.

In this example the base price for 250mb of data is $14.99. But if you look in the small print, you see there is an overage charge for exceeding 2GB in a billing cycle. What this example doesn’t say is what that overage fee is.

 

Online fax is another example of a business that commonly uses this pricing strategy. The difference between this image and the one above is that the overage fee is clearly stated.

Despite the potential this pricing strategy has to possibly cause some customer confusion, there are  several situations where its use is advantageous. For example:

      • When you want to create a ‘teaser’ package, often with relatively low included usage, the usage charges encourage an upgrade.
      • When there is a true incremental usage cost, and flat rate or unlimited plans create the opportunity for customers to become unprofitable.
      • When you want to establish a minimum spend with customers: for example, clients negotiate a lower rate based on a committed level of volumes – then the ‘base rate’ includes the commitment and the usage is as negotiated.

If you are thinking about using base+overage pricing  for your business, there are some best practices to keep in mind.

      1. Let customers know upfront what the overage prices are. Spending the day after your billing period on the phone with angry customers  is no one’s idea of a good time. And with social media making it extremely easy for people to voice their complaints over a large network, it just isn’t worth the hit to your brand.
      2. While it’s probably not feasible in every case, where it is, let your customers know when they are getting close to their limit. You can send automated emails, or texts or if you have a customer portal, include a meter that shows their usage, like this one:
      3. Offering a tiered usage pricing system is effective for bumping customers up to the next level, especially if they get charged for going over their limit. However, make sure the price of the next tier isn’t more that then your overage fees, especially if you bump them automatically.

Remember, happy customers are long term customers and effective communication can go a long way, especially if base+overage is your pricing strategy of choice.

Fusebill Adds Billing Intelligence

Payment gateways with recurring billing configured will charge a customer’s card a specified amount on a defined schedule. This is sufficient if all customers are indeed charged the same amount on the same schedule (e.g., $10 per month).

Most real-world applications are more complex. The specific charge for a customer is determined by many factors, including:

  • Price plans

    Fusebill Usage Based Pricing - Volume Metering determines the unit priced based on defined tiers.

    Fusebill Usage Based Pricing – Volume Metering

  • Volumes and usage
  • Discounts
  • Coupons
  • Taxes
  • Pro-rating
  • Add-on purchases
  • Currency
  • Free trials.

For example, a customer might purchase a $10 basic subscription, with the first month free and a 10% discount, and then upgrade mid-month to a $20 plan without the discount. Their actual charges might then look like:

  • Start: $0
  • Month 1: $9
  • Mid-month: $10
  • Month 2: $20

Changing price plans for existing customers is also a challenge with payment gateways, as each customer record needs to be updated. Fusebill allows wholesale changes to be readily implemented by defining and updating price plans.

Pricing Strategy #3 – Pay as You Go

This is the third in our series of pricing strategy posts. If you missed them, read Freemium+Upsell and Multiple Editions.

The third pricing strategy we’re going to look at is Pay-As-You-Go, Usage Based, or Network Based pricing where customers only pay for what they use on a transaction basis.

There are two different ways this pricing strategy can work:
1. Fusebill Paygo Sample  You can put down a sum of money in advance and this sum is decreased as you use the service.

In this example, a number of credits were purchased for a fee. As those credits are used the number of credits left counts down. Once the credits get to zero, you can no longer use the service until you purchase more credits. In this version of the pay as you go model, the company you are purchasing the service from, (or your company if you are providing the service) can choose if there is also a time limit associated with the purchase. For example, many telephone companies offer a pay as you go option, but you have to use your ‘credits’ in a certain number of days.

2.  The more traditional pay as you go model works in the opposite way (“Pay in arrears”). Think of your utility bills, which you pay at the end of a pay period (usually 60 or 90 days) for the amount of water, hydroelectricity , gas, you used during that time.

Fusebill PAYG Sample 2You receive an invoice that shows how much you used, and then you send in payment.

In a web based business, the Pay-As-You-Go model is usually connected with a Software-as-a-Service provider or (SaaS). This model bills for outsourced services by transaction, time in use, peak period, or some other subscription metric and is delivered over the Internet. Some models are entirely usage based – users will pay a minimal set up charge, the usage fee, and for service and support. – while others combine a monthly recurring fee along with usage charges.

Pay as you go has been shown to lower over consumption compared to when a flat rate is charged. Now, many cities are now charging a higher price for electricity during peak periods to encourage consumers to change their habits. There are even insurance companies that charge people less if they use their car less. Saving money can be a powerful motivator and in some cases, having a pay as you go option may be the reason someone chooses your business over your competitor.