Pricing a subscription service: Key pricing considerations in the subscription business model

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Factors to take into account when pricing your subscription service

The costs involved in providing your subscription

Part of the consideration when calculating a price for your subscription service must be the costs involved in providing the service. For some operations, the underlying costs may be relatively negligible – potentially a small amount of computer server time. For others though the costs may be much more substantial.

It is important to consider not only the direct cost, but also the indirect overhead, including support that you may need to provide your users. While you may opt to price substantially above these costs, it is important to know the underlying costs, so that you do not price below this floor, in-turn making a loss on every customer that subscribes. 

The value that your service brings

The next key dimension that will influence what price makes sense to charge is how much value your service brings to your customers. Is your product something that will make their operations substantially easier, potentially saving them time or money?

The prices that your competitors are charging

Another key component likely to influence your pricing is the amount that competitors are charging for their service. Even if your offerings bring huge value for customers if competitors are pricing much lower than this, your ability to capture the value that you create will be constrained. PArticularly if the service that you provide is relatively similar to that of other firms, your offerings will need to be comparably priced. 

What are the alternatives - are there any free options?

Another dimension to be aware of when pricing your subscription service is whether there are free alternatives available that customers can turn to – potentially offered by firms pursuing a freemium business model. Even if the features of these offerings are substantially less than your paid service, they can influence the likelihood that customers will be willing to pay (and how much of a premium you are able to achieve). 

Final thought: Are you able to offer different price points to suit different customer needs

A final consideration when establishing prices for subscription services is whether it is possible to have multiple price points to suit different customer needs. Offering a tiered pricing model allows you to charge more to customers that are willing to pay a higher price while offering a discount to customers needing only a more limited feature set. A tiered pricing model can thus help reduce the tension of trying to build a single price and feature set to meet all customer needs.