How Startups Convert Customers With Subscription Pricing

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

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

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.

The customer catch and tracking

A subscription pricing model without the ability to track the steps in the conversion funnel will result in all the headaches of subscription pricing without any of the benefits.

  • Sample: The prospect has done something to show they have interest. This could be reading a content marketing post, joining an email list, watching a tutorial, even using chat or email to ask a question.
  • Trial: The prospect accepts a free trial of your product. The probability of this customer converting goes up significantly at this point.
  • First paid cycle: While this is technically a conversion, it’s not a windfall.
  • Second paid cycle: A lot of models don’t break this out as its own gate, but it’s probably the most critical factor in determining success of the model.

Value exposure in the trial

If you’re going to offer a free trial, you need to think long and hard about what value to expose, how to expose it, and getting to that value completely friction-free.

How to prevent lapsed prospects

There are basically three ways to put limits on a trial, and each has a value issue that you need to overcome.

The first payment cycle is just another trial

Don’t fall for that first payment being the start of a lifetime relationship, because it’s actually just another trial — not a free trial, but certainly not the customer’s acceptance of the full blown cost of the product.

The second payment cycle is a much better signal

In my mind, if you’re using metrics like Cost to Acquire the Customer (CAC) and customer Lifetime Value (LTV), no data is valid until the customer re-ups, or allows a second payment.

I’m a multi-exit, multi-failure entrepreneur. Sold ExitEvent. Building TeachingStartup.com & GetSpiffy. Former Automated Insights. More info at joeprocopio.com

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