Currently sell annual memberships for £89 which gives unlimited use to the platform. Considering moving to pushing consumers to transact on a per usage basis (price point tbc). Would doing this help meet our objectives to:
Probably not enough information to answer this question here, but...
1. the new pricing models sounds like the monthly charge will be variable and unknown. Some buyers won't like this (eg if you're B2B, they won't be able to budget for your costs)
2. Have customers asked for this? Therein, may lie the answer to your conversion rate question
3. There is no rule that says you have to have one pricing model. Launch a secondary model and let the customer choose. You could even consider framing one as a decoy?
Have to chat further if you're interested
Jon Manning
Hi,
interesting problem for sure. As Jon eluded to in his response, you probably want to ask yourself the following question: "How well do I really know our customers". I would recommend that you think about your ideal customers and answer the following questions:
- what value they're looking to gain
- what features they think are most important
- what they're most willing to pay
Without knowing what your ideal buyer needs and wants, it is difficult to set the right pricing strategy or understand their willingness to pay for your product. You may find different buyer segment by doing this research, and that's ok. This data will help you create a tiered approach to your pricing where you package the features that are the most important to our buyer personas (and that they would be willing to pay for)
Once you know this, one thing you may consider is doing a small user testing experiment on your new packaging, then A/B test it on your website.
This whole process is called 'value-based pricing' and this how you get to increase your average ARR per client.
Happy to talk to you more about this.
- Loic
This is a question that many SaaS platforms and other subscription businesses face.
There are several very meaningful reasons to consider a switch, and when done well you can end up with considerably enhanced profitability. However, you may have to think one step further from "annual revenue p/member", and consider the larger picture of customer lifetime value (i.e. include average customer tenure in your metrics). Would you rather have all users spend 10% more this year but cancel at year end, or have them spend 10% less, but stick around for multiple years?
The temptation of the annual fee is the "bird in hand" argument ... a paying customer commits to at least GBP 89 of revenue, you only have to worry about her once / year, etc. Interestingly, in many businesses an annual fee also results in LESS usage, so if you have even a small variable cost that may feel appealing.
The downside (besides the much higher initial outlay) is that, by "insulating" the "pain of payment" to a once/year event, this customer tends to end up using (on average) the platform less, which makes the retention likelihood go down at renewal time. Counterintuitive though it may seem, the more frequent MONTHLY charge model, creates consistent smaller moments of "pain of payment", which then prompt the user to "remember to use" that which they are paying for. Further, by making each incremental month of failing to cancel a relatively smaller incremental expense, that small pain is less likely to outweigh the user's belief they will "use it next month." This is the model (and part of the rationale) for gyms worldwide NOT to ask for an annual fee. Clearly, lowering the initial payment amount is also of great psychological value, especially in services where the user starts with no idea how much they'll be utilizing the service.
In your case, the further removed from the annual pain, depending on what the platform actually provides, the user may get less likely to use it, which lowers renewal rates and customer lifetime value.
Whether the monthly model or the usage model is better for your business is impossible to determine with the information given. But know that both have been used successfully, though the usage model is an infinitesimal % of cases in the overall market. How about (if technically and administratively feasible), offering both and letting users self-segment?
Feel free to call if interested in further information exchange.
