Key decisions in the subscription business model

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Decision 1: Different pricing plans and features

One of the first key decisions in the subscription business model is the pricing plans and features that you plan on offering. This includes the number of plans that you plan on offering, different price points, and which features to include at each price point. When considering which features to include on which plans, it is important to look at competitor offerings, as well as the underlying costs that each feature adds to your operations. 

Decision 2: Whether there is a specific plan you want to steer customers towards

While having varying price points can help meet different customer needs, it is not unusual for firms to have a particular plan that they steer customers towards – potentially putting the plan more prominently, or with phrases such as “best value”, or “most popular”.

There are several benefits from steering customers. The first it can help customers choose – if there are lots of options it can be overwhelming. Having a more limited selection of products prominently displayed can help make it easier for customers to find the plan that is most likely to meet their needs.

Steering customers can also help highlight the benefits of a particular plan above the more basic ‘starter’ offerings while avoiding turning customers off by the highest price plan. For certain software subscriptions, for example, the highest plans – with dedicated 24×7 support and custom integrations may be more intended for very large corporate clients (unlikely to be registering via a standard signup link, but rather a more personal sales approach). Such prices may be many times higher than the standard offerings to allow customization. Steering customers towards a more affordable option that better meets the needs of a majority of customers while helping avoid deterring people who see the most expensive offering. 

Decision 3: Whether there is a discount for paying for longer periods

Another key decision is whether to offer discounts for paying for longer periods – potentially a year in advance rather than monthly. Part of the calculation of the best approach to consider whether offering a discount will gain commitment for a longer period than would otherwise be likely (i.e. if the customer is likely to cancel their subscription after only a few months). Getting customers to subscribe for a longer period upfront can also help reduce cash-flow issues, helping you gain the money upfront rather than having to wait for it to be paid over a longer period. 

Decision 4: Whether to use recurring payments

Another key decision is whether to have recurring payments automatically established – where a user is charged automatically at the point of which their current period ends – or whether a user must manually pay for an additional period. 

The advantage of recurrent payments is that you don’t have to worry about ‘losing’ customers at the end of the period. Without auto-payments, the service may end for customers, and in the time between this and getting around to renewing, they may discover that they are able to survive fine without your product.

The advantage of requiring customers to pay each period manually is that it may reduce their concern about continual payment requirements. Some customers may be reluctant to sign-up if there is a recurring payment – only charging from one period can help alleviate these concerns. 

Decision 5: Will you offer a free or discounted trial

A final consideration with subscription services is whether to offer a discounted or free trial. Free trials can reduce the resistance that customers would have in using your service. Both consumers and businesses can be reluctant at handing over money for a service that they have not used before.

A limitation of free or discounted trials though is when it could allow customers to gain access to, and view or download all the material that they need, within the trial window. Or, customers could open accounts multiple times, circling through different email addresses to stack up multiple trials.

Given the possibility that customers may take advantage of trials, it is important to determine whether the benefits outweigh the costs associated with such promotions.