Recurring Revenue Pricing Strategies for Growth

By Aarthi Rayapura July 15, 2014

JoeandrewsJoe Andrews

Sr. Director, Product Marketing

Looking back on a tremendous Subscribed 2014 conference, some of the best attended sessions were on pricing and packaging. That’s because everything is different in a subscription model and pricing is no longer an afterthought – it’s now a strategic lever to drive growth.

Last week, we published a new eBook that encapsulates the learning from our customers:

Mastering your Subscription Pricing Game Plan.

At Zuora, we have the privilege of talking with hundreds of companies about their pricing models and want to share best practices with every business that’s in the process of becoming a subscription business. It’s one of the 9 Keys to Success in building a recurring revenue business and is always one of the first areas of discussion for a company launching a new service or pivoting to a subscription business model.

 

Pricing and packaging in the Subscription Economy is a journey, not a one-time event. There are many different pricing levers to choose from; in fact, there are many more ways to price than in a one-time transaction (perpetual ownership) model, since you’re adding the dimensions of usage and time.

 

But many questions arise from business leaders and marketers: What model do I start with? How do I do test and iterate over time? Should I use a freemium or free trial model to acquire new customers? Should I use editions, tiers, bundles? How do I add international pricing?

 

Here are five basic secrets to get you started and well down the path of mastering your subscription pricing game plan —

 

1. Start simply with a low-friction recurring pricing model.

Think simply when you launch – i.e. a flat fee per month for your service. You can quickly change it and evolve your model as you learn and grow.

 

2. Test and iterate before releasing new pricing.

Sounds basic, but many companies stumble over this part – think Netflix a few years ago when it first raised its prices. The key is to test often and improve over time. Another key is communicating changes well to current customers.

 

3. Ramp new customer acquisition with a repeatable, low-touch sales model.

One of the key growth levers is to rapidly acquire new customers. One of the best ways to do this is lower the purchase barrier. Freemium and free trials are two ways to do this – one likely suits your business better than the other.

 

4. Use a multiple edition strategy to serve different segments and stay competitive.

Think Gold, Silver, Bronze – it will take time to determine the right features for each but in the end you’ll attract a broader set of customers and better serve them.

 

5. Focus on upsells and add-ons to deliver more value to existing customers.

The subscription model is built around creating valuable customer relationships. Use a pricing model that makes it easy to sell more and increase your customer value over time.

 

Want to dive in and learn more? Check out the new eBook: Mastering your Subscription Pricing Game Plan.

What do you think? Please comment and share your thoughts.