Enhancing subscription value

User consumption and engagement models help subscription businesses to better understand how to plan subscription pricing models by using data on existing customer usage to determine the right price to attract, keep and upgrade customers. That data includes:

• Frequency of use
• How much users spend
• How often customers come back
• How long they spend interacting with you
  

This will give you a sense of how much value your customers get from your subscription offering, how to translate that knowledge into an appropriate price point, and where improvements can be made so that you can charge more or provide add-ons.

In creating subscription pricing models, user consumption and engagement information isn't just a guide for what to charge. The information you gather also helps businesses to understand what they need to charge in order to be a financially sustainable success. It gives a sense of how much time and resource is allocated to winning and keeping a customer, versus their lifetime value.

Using this information, subscription pricing models can be adjusted over time and tailored to each customer in order to provide more users with access to services at different price points. The benefit of this to the customer is that they get the best experience possible and consequently the best value. The benefit for the business is a higher likelihood of customer acquisition and retention for sustainable success.

Balancing costs and revenue

With the right data, you’ll be better able to understand how much each customer is worth over time, leading to a more effective subscription pricing model.

Leading on from our previous point, analyzing the potential lifetime value of customers in subscription plans enables subscription businesses to delve deeper into the balance between cost and income. This enables you to determine the viability of the business and whether it's on the right track. 

The customer acquisition cost is one thing to consider, but (assuming you have methods in place for long-term customer retention and recurring revenue), the real metric to track is customer lifetime value (CLV). It looks at how much a customer is likely to spend over the duration of their relationship with your company, and is often the reason subscription pricing models feature lower entry costs, knowing it's a foot in the door to help customers feel comfortable and see if the brand is right for them before they commit further. 

Knowing the customer lifetime value helps you to take a long-term view of subscription pricing models, knowing whether you want people to stay on certain plans for a shorter period of time, allowing you to put plans in place to incentivise upgrades, and appreciating how viable it is for people to stay on lower priced options. This information will support sales targets within your business as well as the development of customer incentives and rewards.

Crafting effective pricing strategy for customer segments

To understand the customer lifetime value:

• Look at the amount per customer in a set time period
• Frequency of purchase
• Type of product purchased
• Costs associated with acquisition and retention

With this information on hand, you’ll be better able to structure and develop subscription pricing models that meet the needs and budgets of your customers while also maximizing profitability. You will also be able to determine appropriate price points for different packages for a complete product catalog offering varying levels of perks or services; this way, your customers will be more inclined to choose the plan that best fits their budget and needs. 

Improving customer engagement to maximize revenue

Effective tier structures are an essential part of creating subscription pricing models that support sustainable business growth. This is because it enables people to find a comfortable entry point whilst also aspiring to upgrade their service and subsequently increase your repeat revenue. 

The type of tier structure you use has to correlate with your different types of customer and market segments. The strategy behind it should be to help customers find and choose an option that suits them, whilst also being inspired by higher level options that are still within reach and offer further benefits that they can see themselves benefiting from. Most people will not engage initially with the highest value subscription offering, but may upgrade down the line once a relationship has developed with your business.

To maximize subscriber engagement and satisfaction, consider creating tiers within your subscription pricing model that are aspirational, whereby each level offers new and attractive benefits or access to additional features. This will enable you to provide value-laden subscriptions with a variety of unique benefits that can be tied to customers’ willingness to spend.

Providing clear and unique benefits in your packages to each subscription level will help create an attractive hierarchy of prices, guide your customers to find the options that they most value (which in turn will support long-term customer relationships and repeat revenue). Overall, this will make opting for a higher-priced plan more desirable for customers, whether it's immediately or over time.