Subscription Pricing Models: Which Works Best for Your Business?

If you’re planning to set up your own membership website, which subscription pricing model should you choose? What are the pros and cons? How much should you charge?

All these questions and more will be answered in this post!

Subscriptions provide a significant business opportunity if you have a product or service that could use it.

Here are 5 facts to prove our point:

  • The subscription economy is set to grow to $1.5 trillion by 2025
  • Subscription businesses have grown 4.6x faster than the S&P 500
  • The average monthly spend on subscriptions is $273
  • Millennials lead the way with 17 entertainment subscriptions each
  • 36% Of edupreneur creators plan to start offering memberships

(Source)

If you want to get a piece of the action, you’re going to need to understand subscription pricing models and how to choose one.

What Are Subscription-Based Pricing Models?

The subscription pricing model has been around for much longer than you might think.

Printing press, the first subscription

Ever since the printing press made newspapers accessible in the 17th century, there has been some form of membership or subscription plan to pay for them.

Sewing machine manufacturer Singer used a subscription in 1856 to make its latest model accessible to a much wider audience.

More recently, many areas of life have switched to subscriptions. It works both for the business and for the consumer, which is why it’s so popular.

5 Benefits of Subscription Plans

One of the key reasons subscription pricing models work is because everyone benefits.

They help the business and they help the consumer. When this type of synergy happens, it’s too good an opportunity to ignore.

Here are 5 benefits of subscription plans:

1. Predictable Recurring Revenue

As the subscription pricing model provides recurring income from month to month, a business can predict their income with reasonable accuracy well in advance.

If you’re planning to make investments, borrow to develop your business or want to make informed decisions, few other revenue models work so well.

2. Accessible to a Wider Audience

Times are tight and money is short. It’s much easier for a consumer to justify $9.99 per month on something rather than $120 as a one-off.

As many of us are paid monthly, it’s easier to break down our spending monthly. On a purely psychological level, the smaller number allows us to justify the expense more easily.

3. Enhanced Marketing Opportunities

Subscribers are a captive audience. As long as you treat them with respect and market to them responsibly, you have a readymade readership for your messages.

It’s your opportunity to upsell, cross sell, promote other products, offer affiliate programs and more. As long as you do it responsibly.

4. Better Cash Flow Management

Having a set amount of income per month helps avoid those feast and famine situations where you make many sales one month and fewer the next.

You know roughly how much you’ll have coming in the next month and have steady, recurring income to help pay the bills.

5. Scalability

The subscription model, especially for services and digital items, is almost infinitely scalable. As systems take care of the heavy lifting, all you need to do is continue providing value.

Scaling up or down is largely automatic for many types of membership websites so there’s very little for you to do once the planning is complete.

5 Main Types of Subscription Plans

There are 5 main types of subscription plan. You’ll see more out there but they are mainly variations on these core pricing models.

Types of subscription plans

They are:

  • Fixed price/Flat rate
  • Freemium
  • Tiered subscription model
  • Per seat/Per user
  • Usage-based

Let’s cover each so you can understand their features, benefits and downsides.

You can implement any of these subscription models in minutes by using SureMembers to create the membership and SureCart to handle payments.

Fixed Price/Flat Rate

The fixed price, or flat rate subscription pricing model, is probably the simplest of all. Members pay a set price to access all services or resources per week, month or year.

Businesses that offer fixed price subscriptions typically have one tier of service and the subscription provides unlimited access to all resources.

The main benefit of this model is its simplicity. Everyone pays the same, you only have one price to monitor and you can predict future revenue a lot more accurately.

Example of Fixed Price Subscriptions in Action

A gym subscription is a good example of a fixed price subscription. You pay a fixed amount per month or year for access to all amenities.

Gym fixed price subscription

Other examples of fixed price subscriptions include a car lease, car servicing plans or your mobile phone contract.

Pros and Cons of Fixed Price Subscription Plans

There are pros and cons of fixed pricing:

Pros:

  • Easy to set up and manage
  • More accurately forecast future revenue
  • Account management, tax and accounting are all easier
  • Simpler value message to communicate to the audience
  • One price, one service can be an easy sell

Cons:

  • Limits scope as everything must be included in one plan
  • Not as flexible as the tiered subscription model
  • Fewer opportunities to upsell
  • No opportunity for customers to choose a cheaper plan

Good for…

Fixed priced subscriptions can be good for smaller businesses that have a single product or service that addresses a single pain point or particular challenge.

It can also be useful as your first foray into subscriptions before expanding into other types of strategies.

Freemium

Freemium is something of a hybrid subscription model. It offers something for free so you can try before you buy. Then, once you’re hooked, there are premium options offering more of the same or better.

Freemium is a hybrid because it’s essentially a fixed price or tiered model with a free trial or permanent access to a basic free version. It is used so regularly that it deserves a mention here.

You’ll often see the freemium model used on digital products, games, software, apps and similar. It’s relatively simple to set up and can be largely automated.

Example of the Freemium Model in Action

SureCart uses the freemium model. The free plan offers full access to the capabilities of the eCommerce plugin but limits the number of instances you can use it on.

SureCart freemium subscription

Three premium plans expand those instances so you can add unlimited products and use advanced tools to do more with your store.

The Astra WordPress theme uses the same freemium model. The core Astra theme is 100% free while 3 premium plans expand the features, tools and value-add options.

ChatGPT and many AI platforms also use the freemium model. A basic free plan to tempt you and a premium plan with all the bells and whistles.

Pros and Cons of the Freemium Model

The freemium model has good points and some downsides:

Pros

  • Zero barrier to entry helps encourage uptake
  • Easy to scale by adding features or instances
  • Straightforward to sell as value of premium can be made clear
  • Free resources build goodwill and makes conversion easier
  • Can generate lots of email addresses for marketing

Cons

  • Careful consideration required to offer value over the free option
  • Can be tempting to give too much away for free
  • Requires significant marketing efforts to upsell from a free product

Good for…

The freemium model is particularly useful for digital products or services. The ability to try a product before buying overcomes objections, provides permission marketing opportunities and the opportunity to upsell.

Tiered Subscription Model

The tiered subscription model offers multiple memberships that start basic and gradually increase in features and price. It’s probably the most popular subscription strategy in use today.

This subscription pricing strategy offers advantages to the business as you can build value into each tier. It also offers flexibility to the customer as they can choose the features and price they are most comfortable with.

Tiered memberships also offer the flexibility to deliver for different use cases.

For example, you could offer a simple tier for basic users, a tier with more features for advanced users and an unlimited tier for businesses or groups.

Example of the Tiered Subscription Model in Action

SureMembers uses the tiered subscription model. It offers three different plans, Pro, Business and Agency, at three different price points.

SureMembers tiered subscriptions

Plans have been configured to different use cases and offer features relevant to that industry with pricing that reflects the value provided.

Web hosting is another common use case for tiered hosting. You’ll often see basic shared hosting plans with tiers including WordPress hosting, managed hosting up to dedicated hosting with pricing and features to suit each.

Pros and Cons of the Tiered Subscription Model

There are upsides and downsides to tiered pricing:

Pros

  • Offers flexibility for your business and your customers
  • You can create tiers for use cases, features or resources
  • Lots of opportunities to upsell
  • Can result in less churn as customers can upgrade or downgrade as their situation dictates
  • Customers can upgrade as their requirements change

Cons

  • Setting up the tiers takes more work
  • Careful thought has to be given to value for each tier
  • Accounting and management can be more complicated

Good for…

The tiered subscription model is useful for many types of business, from online course websites to streaming services. Some of the biggest names out there use tiered memberships to great effect.

Per Seat/per User Subscription Model

The per seat subscription model is where you pay a set fee per user, per license or instance.

It’s often used with Software as a Service (SaaS) or other service. It’s more complicated to set up and manage, but if you use the right tools, much of it can be automated.

Per seat licensing is commonly used in technology and services and is becoming increasingly popular among service providers.

Example of the per Seat Subscription Model in Action

Microsoft 365 is an example of per seat subscription. Businesses pay a set fee per user per month or year for access to a range of features.

The company mixes per seat licensing with tiered licensing but the main strategy is charging per user.

Microsoft 365 per seat licensing

Docker, Slack, SAP, Salesforce and Adobe also use the per seat subscription model.

Pros and Cons of the per User Subscription Model

There are benefits and challenges involved with the per user model:

Pros

  • Simple model to understand as a customer
  • Easy to communicate the value proposition
  • Lower headline price is easier to sell
  • Widely accepted by the public for some types of services
  • Allows businesses to scale up and down depending upon demand

Cons

  • Only really viable for volume products and services
  • Requires the infrastructure to support provisioning and deprovisioning of services
  • The sharing of logins can be a challenge

Good for…

The per seat subscription model is good for tech businesses that project high user numbers and have the systems in place to manage everything.

The model can be made to work for a range of industries but other models may work better.

Usage-Based Pricing

Usage-based pricing is often referred to as pay as you go (PAYG). This model will involve a set fee for a set amount of resources with extra fees if you use more. The more you use, the more you pay.

You will often find usage-based subscriptions with phone plans or web hosts that charge depending on the number of visitors or bandwidth used.

Utility companies also tend to use usage-based fees, although they aren’t technically subscriptions.

Of all the subscription plans available, usage-based pricing is the hardest to manage. You need systems in place to monitor use and a billing system that can translate usage into charges each month.

Example of Usage-Based Pricing in Action

A good example of usage-based pricing is Amazon Web Services (AWS). Its pricing plans are pay as you go and depend entirely on how many resources you use each month.

Amazon Web Services (AWS)

Use more, pay more. Use less, pay less.

Hubspot and Brevo (formerly Sendinblue) are other examples of usage-based pricing as each charges depending on how many resources you use.

Pros and Cons of Usage-Based Pricing

Usage-based subscriptions have good points and not-so good points:

Pros

  • Low barrier to entry helps attract customers
  • Usage-based pricing is perceived as fair by the majority of consumers
  • Users can control spending by controlling use
  • Widely accepted thanks to mobile phones and utilities
  • Modest headline price is easy to promote

Cons

  • Billing requires significant resources to accurately track usage
  • Billing will be in arrears rather than in advance
  • Provision must be made for overspending and collecting arrears

Good for…

Usage-based pricing is good for businesses that have the systems in place to accurately record usage. Of all these subscription pricing strategies, this is the hardest to set up and use.

How To Choose a Subscription Pricing Strategy

Now you have a good idea of the different subscription pricing models, how do you choose which pricing strategy would work best for you?

If you’re lucky, you could immediately identify the perfect model from our descriptions above.

If you’re not so lucky, here are some tips that might help.

Costco membership pricing strategy

Consider:

What Works Best for the Product/Service

Different models work ideally for different types of business or different products or services.

If you have a fixed type of service that isn’t going to grow or develop significantly, fixed price might work best.

If the service has scope for growth and development, or can offer varying levels of value, a tiered subscription might work better.

What Works Best for the Audience

Who is your target audience? Are they residential users with limited means? Early adopters that want to use everything you offer? Small businesses that plan to start small and grow?

Your subscription pricing strategy should include the needs of your target audience as well as your product so you give them what they want in the form they want it.

Price may also be a factor for some audiences than others, which may also dictate the model you choose.

What’s the Competition Doing?

While we don’t recommend using what your competition does as your guide, it should influence what you do.

If your main competition offers overly complex subscription plans or you read reviews complaining how difficult they are to understand, there’s a weakness you can exploit.

Alternatively, if all your competitors offer tiered subscriptions, there’s probably a reason for that.

Your Costs

How much does it cost to create resources for subscriptions? How much does web hosting cost or the platform that provides the service? Do you pay for those monthly or annually?

Covering your costs isn’t just about how much you charge, but how you charge.

If it costs you more to offer more features, a tiered subscription model would better help you cover those expenses. If the costs don’t vary, you have more flexibility to decide what subscription pricing strategy to choose.

Covering your costs with subscriptions

Tips for Setting Subscription Pricing

Pricing your subscriptions is one of the toughest aspects of running a business. It’s also something that’s going to be unique to your products and services and the value they offer.

We cannot advise you on pricing here but we can provide a few tips that might help.

Use Data To Drive Pricing

Use your membership data and competitor data to influence your pricing decisions.

If the vast majority of your members are choosing the cheapest membership tier, you may want to look at how those tiers are divided and the price of each.

If competitors are more expensive than you, it may be worth assessing your own pricing to make a little extra profit.

Whatever decisions you make, don’t just go on gut feel, use evidence and data.

Be Prepared To Adapt

Setting prices for any product or service isn’t fire and forget. You should ideally monitor the market, your competitors and consumer habits and never be afraid to adapt.

Prices go up and down all the time and while predictability is a selling point, not adapting to the current financial climate is not.

Take Netflix ad-supported plans as an example. Netflix knew the economic reality meant people were scaling back on subscriptions, so introduced a cheaper ad-supported tier.

This helps maintain accounts the company may otherwise have lost.

Don’t Forget Upsells and Cross Sells

Your subscription pricing isn’t your only opportunity to sell something. You could also sell merchandise, ad space, sponsorships or something else.

You can also upsell membership tiers. Place carefully curated ads on cheaper plans extolling the virtues of more expensive plans. Keep it subtle and not intrusive, and over time, you could convert subscribers up a tier or two.

Monitor the Competition

Keep an eye on what your competition is doing and don’t be afraid to copy or try to outperform them.

If a competitor lowers their prices, see if you can outperform them in value. Try to identify areas where they fall short and offer features they are missing.

Also monitor feedback and review websites for comments complaining about a feature, reliability or something else. If there’s a common thread, use that in your marketing, highlighting the fact your service doesn’t suffer the same challenges.

Conclusion

As we hope we have made clear in this post, there is no ‘best’ subscription payment model. There is only the model that works best for your business.

Each has its pros and cons and ideal use case.

Some models will work for any product while others lend themselves firmly towards specific industries.

Whatever model you choose, SureMembers and SureCart make it easy to build, manage and grow your subscription website.

Disclosure: This blog may contain affiliate links. If you make a purchase through one of these links, we may receive a small commission. Read disclosure. Rest assured that we only recommend products that we have personally used and believe will add value to our readers. Thanks for your support!

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