setting subscription pricing
DESCRIPTION
In this presentation Fusebill CEO Steve Adams discusses 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 .TRANSCRIPT
April 10, 2023 1
Pricing in a Subscription WorldSteve Adams – CEO
Monday, April 10, 2023 2
Speaker Introduction
Steve Adams, CEO
www.fusebill.comCall Us at: 1-888-519-1425 Copyright Fusebill Inc. 2013. All rights reserved
3April 10, 2023
Agenda
• Evaluating Subscription pricing is different than 1-time sales
• Key Points– Lifetime value– Churn– Impact of billing practices
• Fusebill Introduction
4April 10, 2023
Key Takeaways
• Measure customer lifetime value. Segment!
• Pricing impacts churn, not just customer acquisition
• Billing itself triggers churn
April 10, 2023 5
EVALUATING PRICE MODELS IN A SUBSCRIPTION WORLD
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Price Testing in a Transactional World
Sales volumes drop as price increases
Sales volumes increase as price
drops
Choose the option that maximizes revenueRevenue = Unit Volume * Price_per_unit
$
$
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A/B Testing
• Split traffic between pages with different price points and compare
Price: $10Visits: 100Sales: 25Conversion rate: 25%
Expected Revenue: $250
Price: $20Visits: 100Sales: 15Conversion rate: 15%
Expected Revenue: $300
A B
• Conclusion:– B > A so set price at $20
8April 10, 2023
But…Subscriptions behave differently
January
Febru
aryMarc
hApril
MayJune
July
August
Septem
ber
October
November
December
$0
$5
$10
$15
$20
$25
AB
Price: $10 / monthVisits: 100Sales: 25Conversion rate: 25%Lifetime revenue: $120
Annual Revenue: $3000
Price: $20 /monthVisits: 100Sales: 15Conversion rate: 15%Lifetime revenue: $80
Annual Revenue: $1200
A B
9April 10, 2023
A/B Testing
• Split traffic between two pages and see what works best– Assumes cost of acquisition is constant– Assumes revenue (and margin) is the same
• Works well for one-time sales – revenue is known at time of purchase
• Fails for subscription sales – using initial revenue is not accurate
• Does help measure price/demand tradeoffs
10April 10, 2023
Model Lifetime Value
• (Lifetime revenue) – (Cost of acquisition)
• Segment:– Acquisition channel– Price plans
• Use margin
• Don’t ignore churn
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(200)
(150)
(100)
(50)
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50
100
150
Client Economics
Customer Acquisition Cost Cumulative Contribution
ProfitBreakeven
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Client Economics - Considerations
• Cost of Acquisition– Marketing Programs and Promotions– Sales (salaries, commissions)– Channels (commissions)
• Contribution– Revenue – Costs
• Costs– Cost of Goods– Customer Support– Data Center, Bandwidth…– Sales costs (incentives for upgrades, renewals)
12April 10, 2023
Impact of churn
• Churn (% customers lost per time period) drives customer lifetime (and CLV)
• Beware of averages – timing of churn impacts revenues
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 360
10
20
30
40
50
60
70
80
90
100
3% churn 3% churn after 3 months
3 year revenue = $2200
3 year revenue = $1320
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Typical Impact of Billing on Churn
Free Trial Ends
Annual Plans
Monthly Plans
14April 10, 2023
Billing & Churn
• Card failures on initial signup– And/or no capture of client information for follow-up
• Card failures on recurring billing– Typically 25-30% of cards will fail but succeed on retries
• Expiring cards– Cards last 3 years – 3% expire EVERY month
• Passive churn– Card expiry, subscription expiry
• Surprise charges – especially for annual subscriptions• Oh! Am I still paying for that?
Mechanical
Behavioral
15April 10, 2023
Recurring Billing Systems Help!
• Automate intelligent retries
• Communicate:– renewal notices, – failure notices– Receipts?
• Evergreen vs. term based subscriptions
• Manage cards – online update of payment methods
• Implement account status – not paying needs to have an impact
16April 10, 2023
Implementation Issues
• “Changing the billing system” is often the hardest part of price testing– Restricts flexibility of sales and marketing teams
• Access to Information: revenues often buried in backend systems
• Need for Automation– Manual processes don’t scale – leads to revenue leakage and unhappy
clients
Flat rate pricing is often used ONLY because it is easy.
April 10, 2023 17
Fusebill Executive Dashboard
April 10, 2023 18
Track Lifetime Value, Churn
April 10, 2023 19
Fusebill Platform Overview
Scalable Multi-Tenant PCI Compliant Security
API Layer – Customers, Subscriptions, Transactions
PricingProducts
Price PlansUsage TiersDiscountsCoupons
AccountsSubscriptions
InvoicesLedgersReseller Tracking
PaymentsAdjustments
BillingRating
Usage VolumesPro-ratingTaxationCouponsCurrency
Adjustments
PaymentsCredit Card
ACHStorage Vault
GatewaysDunningRetries
Online Checkout
Self-Service Portal
Agent Interface Analytics
External Payment Processing
InvoicingPayment
Terms Date Control
Review, Edit Aging
Adjustments
Swipe & Subscribe
Lifecycle Management
20April 10, 2023
Implementation Issues
• “Changing the billing system” is often the hardest part of price testing– Restricts flexibility of sales and marketing teams
• Access to Information: revenues often buried in backend systems
• Need for Automation– Manual processes don’t scale – leads to revenue leakage and unhappy
clients
Flat rate pricing is often used ONLY because it is easy.
21
The Fusebill Difference
Experience
www.fusebill.comCall Us at: 1-888-519-1425 Copyright Fusebill Inc. 2013. All rights reserved
Product
Commitment to service
22
Try Fusebill Free for 30 days. No contracts, credit card, or surprises.
Sign up at www.fusebill.com
Thank [email protected]: @fusebill