Ask HN: How to calculate best subscription fee | Hacker News Reader

Ask HN: How to calculate best subscription fee

14 pointsWadeWilliams25 comments

I'm trying to determine which is a better membership pricing structure; $20 / year versus $50 / year.

The lower price will increase the number of subscribers but lower the revenue per customer (obviously). The higher number will do the opposite.

Is there some information somewhere (not many good search engine results) on ways to compare these two pricing structures? Perhaps some graphs and mathematical explanation of what the advantage of the lower price with more members is versus the higher price with fewer members?

Thanks to any responders.

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$50/year is too low. It's less than $5/month. I spend roughly that per day on coffee... and yet I'd still hesitate to sign up for something on the Internet for $5/month, just as much as I'd hesitate if it was $10 or $15 or $30/month.

Don't undervalue your daily coffee. ;)

Charge 9.99$/month instead of 50$/year. You'll likely get more subscribers, and make more money.

If you could find some way to model the price vs demand you could then figure out how elastic the price is (http://en.wikipedia.org/wiki/Price_elasticity_of_demand) then that would tell you which price is better.

I believe a better pricing model in many cases is to offer your product as a monthly subscription with discounts for longer subscriptions, e.g. $5 per month, $10 per quarter, $30 per year. The drawbacks to this model are that managing subscriptions may require more effort, and you need to be sure that your service provides enough value to get people coming back.

I also think your pricing plans are too low. If your service is for businesses (even small businesses) and it provides an obvious value to them, you should be able to charge more; like $10 - $20 per month (or more), again with discounts for longer terms. Even if your service is for individuals, $10 per month is not excessive. People pay $60 - $100 or more per month for cell phone service; $10 - $20 per month is not excessive for a valuable service.

Joel Spolsky wrote about this exact subject (with graphs, etc. as requested). very worthwhile read: http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...

It's a website subscription service that I'm trying to pack as much value as possible into.

I think it's worth $50.

My question is what are the best resources on this topic?

I suppose i need 2.5 as many times the members at the $20 rate to make generate the same revenue. I've got 100 users @ $50, but will I get 250 @ $20 ? If I did get 250 at $20, the revenue hasn't gone up.

$50 seems like the better plan to me. Ofcourse, if I ask the users who haven't subscribed and still use the free model, they think $50 is too much and they would be more likely to pay $20.

I'm sure there's lots of discussion on this topic out there, but as soon as you type in "membership subscription" at google you get garbage like pay pal and netflix, and not any nerdy discussion on the topic.

$50 seems like the better plan to me. Ofcourse, if I ask the users who haven't subscribed and still use the free model, they think $50 is too much and they would be more likely to pay $20

Of course they would rather pay less! But you also have to consider that when people start paying, they usually expect a higher level of service. If you can keep the number of people with high expectations to a minimum and still turn a profit, you'll be in better shape.

Start with the higher price, and see how it goes. If you aren't getting enough customers, you can always offer limited-time discounts (e.g. "Regularly $50/yr, but sign up during December and get your account at $40/yr for life!").

wicked good idea on the limited time discount. Thanks.

Danger: This has been the polar opposite of Patrick McKenzie's experience. Charge people one shiny nickel and they'll come to you with high expectations. In fact, lowering your prices pessimizes your customer base with the most high-drama customers.

I meant that when they start paying vs being free customers they start to have expectations. You're right, when they pay less, they seem to expect more. The lower price just attracts that kind of customer. I saw this at Kaplan Test Prep. The most demanding students were the NCLEX students who only paid $400-600, while the USMLE students who paid $6000-10000 never asked for anything.

So you gave them two offers and they chose the cheaper one? Of course they did.

Here's what you should do. Find more prospective users. Tell them that you're considering $50/year and $100/year (Btw, these would sound cheaper if they were $5/mo and $10/mo, plus it wouldn't require as much of a commitment.) and ask which they prefer.

If they all say that they wouldn't pay for either, you know that $50/year is actually too expensive. If they say that they prefer $50/year and that $100/year is too expensive, you know that $50/year is probably ok.

Then again, remember that your users will lie to you about what they want and what they're willing to pay for. So you don't really know until they're actually paying for it.

If you think it's worth $50/y, you could price it there, and then offer a $5/m package as well. If the $50/y scares them off and they go with the $5/m package, then you're making an extra $10/y off them. If it doesn't scare them off, then you're making your $50/y.

I would hesitate to pay $50/y, but not so much $5/m.

Pricing is more art than science. It is based on many factors such as:

- perceived value

- competitor pricing

- your target market

- how directly your service let's people save mone or generate income (ie if your service does either it is more easily justifiable than a pure luxury)

- customer loyalty (eg some people are paying Dropbox when they don't need the space just because they love the service and want to support the company)

- supply (including the illusion of scarcity)

- cost structure

- luck

- etc

There is some theory and psychology around this but like all the social sciencesnit isn't exact.

Please don't just do yearly subscriptions, I will rarely (if ever) sign up for a yearly subscription at first. If you do offer only yearly, make sure you also have some sort of trial.

Also StavrosK talked about subscription fees here: http://blog.historio.us/

For me, there isn't much difference in friction between a <$5/month subscription and a <$20/year subscription. Both fall below the impulse-buy threshold for an interesting-looking service.

More than $20/year, however, and there has to be a compelling discount or a solid trial before I'll shell out for a whole year.

The price isn't really the issue, if I can spend $20 I can spend $50, it's the perceived value. To me spending $50 upfront without any guarantee I'll use the product is bad, whereas $5/m seems much better even if it works out more in the long run.

I'd have no problem spending $20/m on a good product I like but I would have a problem spending $20/year on something I haven't tried, because I "feel" like I'm spending more and committing to a longer term with the product.

Maybe that doesn't make sense, but the issue for me isn't the money but how I see the value.

I would also recommend not doing yearly subscriptions too, but as someone who was forced into doing such..

It's easier to bill and can result in more up-front revenue for your growing service BUT the psychological angle means billing monthly can make you more money (e.g. how $5/mo "feels" vs $50/year.. yet the former makes you more money), plus the angles `citricsquid` mentions.

Pricing without knowing what you are selling is hard, but I guess you are charging too little.

There's a lot of history for so-called term subscription license (TSL's) in the business literature. I agree with the general comments about offering 3- or 6-month TSL's but price your fees around a 12-month TSL and charge more for shorter commitment periods. The 12-month TSL price calculation is as much a feature of your estimated churn and resulting life time contract value as market forces. In our market, salesforce.com is the benchmark and we price accordingly. Hopefully you can find a public TSL rate to compare, too.

read this: http://www.neildavidson.com/dontjustrollthedice.html

on the flip side of that coin, i've read that and i'm still struggling to come up with a good pricing structure.

Here's a good search that may help you: http://www.google.com/search?q=site:ycombinator.com+customer...

don't guess. split test.

i.e. for me at $50, I sold X. at $40, I sold 2X, at $30 I sold 2X and at $20 I sold X.

Placing value on your product is important, if you charge too little, people will think you are selling crap and won't buy as much.

Your price is pretty much the single most important thing you can split test.

So how would one go about split testing a subscription service on a website without alienating some users? In my case I'm selling to a small (about 5k-15k people). Inevitably someone would realize that they were paying as much as half price as some others ?

No matter what you do, I recommend you have a clear grandfathering policy in place.

I am particularly generous in that department "Should you decide to return, we will reactivate your account at last billing tier even if that tier is no longer published on our site."

There are some conditions to that, such as material change of control events (all bets are off if you have been acquired).

Failure to do so results in upset customers and negative press coverage. Competitors love that. If you decide to lower prices, be sure to apply decreases to your existing customers. That's positive press.

I am experimenting with pricing as well and prefer my customers to be protected from effects of such experiments.

Annual subscriptions work great when they are a discount over monthly billing. The pattern tends to be that the user subscribes for a few months of month-to-month billing, realizes she is in love, and renews at annual level to save money.

I haven't seen the research, but I think you will find more annual subscriptions tend to be renewals rather than initial purchases. An annual subscription for $50 is below my pain threshold.

Let me illustrate my point. I pay some small amount for http://eventid.net. I don't ever remember what it is, but I pay it annually. It's $29 and I had to look that up. It's just not material to bother with quarterly $12 payments when I can simply pay $29 and ignore this for the rest of the year.

Eventid is a useful service and all my subscription does is speed up Microsoft knowledge base searches. When I am billing my client for time spent figuring out the problem, the speed of research matters and so I pay for this service.

Another example: I pay for http://usaip.eu on a monthly basis $9. This actually just got lowered to $7.99. I primarily use the service to watch Formula 1 on BBC live and without commercials, but it also comes in handy for on-demand VPN connectivity that ALWAYS works when dealing with insecure WiFi networks (have you heard of firesheep? :)). I used to pay by the day, then by the week, now I pay by the month, and pretty soon I'll just pay for it once a year ($74.99) and again be done with it. That service also happens to bill me for European Union VAT, which I am technically not subject to, but again the cost is just not material enough for me to bother with.

I personally do not have free accounts at all. I have plenty of competitors who have free option. The fact is that should the customer decide to pay my competitor, they will likely re-evaluate the market anyway. My software integrates with too many things and simply delivers too much value. You get either 100 transactions or 14 days, whichever comes first. For most people, it pays for itself in one extra transaction as what my software does is maximize revenue per staff member. I do not yet have transaction-based pricing unlike say Recurly, but I will likely add that after we sign up enough customers.

I am guessing this is in regards to your water skiing log site? Determine the value and price accordingly. From what I know, water skiing is not a sport for poor people, so you may have price elasticity due to customer affluence. My snow ski equipment is quite expensive.

I'd probably keep the site free with a limit on how many entries can be made in a year and make a paid mobile interface as a subscription. As a skier, I would probably want to enter my data, complete with picture attachments, right after I am done with my run instead of when I get home. In essence, charge for usability. :)

One last thing - check out Wepay for subscription billing. Much cheaper than Paypal. They do not advertise that feature yet, but I spent some time with the team at the hackathon and was pleasantly surprised it was there. :)

Then again, I am just beginning with offering a SaaS solution. I could very well be wrong. I am easy enough to find on Twitter if you want to chat more. :)

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