Pricing models

Subscription Pricing Models

If you’re toying with the idea of incorporating a subscription strategy into your business, you’ll want to understand the four types of subscription pricing models and determine which would be best for you.

These models include:

Flat-Rate - As the name suggests, a flat-rate or fixed pricing model offers customers one price for everything they offer. This works best for businesses with one buyer persona and a product with limited features. This is easy for the company and easy for the customer.

Tiered - A tiered pricing model refers to offering various packages at different price points. This works especially well for companies with a diverse customer base and a variety of levels of service to offer. This type of pricing is very common among SaaS companies. It's flexible, scalable, and increases the lifetime value of a customer because they have the option to upgrade or downgrade service based on their needs.

Usage-Based - Also known as a "consumption" or "pay-as-you-go" model, this approach depends on how often consumers utilize a product or service — and how much of it they use. This works well when customers’ usage varies widely. An example of this model is HP Ink who bases its pricing on how much ink you use each month. This provides a great deal of flexibility to your customers and attracts new customers intrigued by low upfront costs.

Per-Added-Module - With this approach, you have a base product offering and then provide options to upgrade the functionality for an increased price. This works well when your customers know what functionality they need. If multiple users work in a software program, however, not everyone needs the same level of access to complete their responsibilities, this would be a great option. When priced right, there is a strong incentive to upgrade.

Per-User - Companies charge for each user of their product. This is similar to the per-license model we’ve become familiar with through software subscriptions. This model works well for frequently used products and those that assist with collaboration in an organization. It’s simple to understand, helps you scale revenue as the number of users increases, and provides more predictable revenue generation than some of the other models.