How Startups Convert Customers With Subscription Pricing

Pay-as-you-go is the new normal from software to retail

The lure of subscription pricing is the guarantee of recurring revenue for your business. Once a customer flips the switch to turn on your subscription, it’s easy money:

• Easy to recognize your revenue.
• Easy to determine your margins and profits.
• Easy to enhance your product and extend that revenue out for months, even years.

While that’s true, converting a subscription customer isn’t as simple as flipping a switch. You can build a platform, launch with fanfare, offer all sorts of incentives and trials to attract potential customers — and watch as they disengage and lapse into limbo.

That’s the actual guarantee that comes with subscription pricing, and this will happen unless you cultivate a funnel that catches potential subscribers as soon as they learn about your product and follows them until their very last sign in.

I built my first subscription-model product in 1999. I’m currently in early-access on my latest, and I’ve launched a bunch more along the way.

While the customer dynamic has changed over the last 20 years, the conversion process has not. In fact, it’s actually gotten easier to convert and retain customers through the subscription funnel.

Here’s what I’ve learned.

Why subscription pricing works

Subscription pricing is a hot trend in just about every business in every industry. Pay-as-you-go is the new normal from software to retail to service.

In my mind, the major shift occurred when mobile phones started pricing unlimited usage per period instead of fixed or cost per minute. Once usage limits were removed, use cases exploded and the promise of a truly mobile computer was finally realized.

Makers of all stripes learned that lesson: From razors to video streaming to accounting software, pricing models have emerged that focus on time periods instead of units.

But contrary to popular belief, subscription pricing doesn’t work because of the lower price point that a monthly…