How Startups Lose Money With Subscription Pricing
From two-sided-marketplaces to on-demand models, there’s a lot of misunderstanding about how subscriptions work
Launching a subscription-based product or service sounds so easy. It’s like instant Monthly Recurring Revenue, just add subscribers.
There’s a problem with subscription pricing models though. A lot of problems, actually.
It’s no secret that consumers are rapidly adopting subscriber models for products and services they used to request on demand. These days, Amazon will sell you a subscription to your coffee pods at a discount to full price. Or you can drive the Porsche of your choice for just $3,100 a month.
On the startup side, service subscription companies are springing up everywhere, sometimes under the two-sided marketplace model, other times as an alternative to traditional service offerings with a no-frills approach to offset the cost and increase the demand.
I’ve got a long history with launching subscription services, from my very first self-founded startup to my most recent self-founded startup, and a few more-well-funded plays in between. A few months ago, I wrote a post detailing how to do a subscription pricing model right. None of that experience came overnight or without plenty of mistakes along the way.
So let’s talk about my vast experience with doing a subscription pricing model wrong.
Subscription pricing doesn’t work for traditional products and services
If you didn’t click on the link to the post above, let me TL;DR it for you.
A vast number of mistakes get made when a startup just tries to slap a subscription pricing model on an existing product or service. The hard truth is that the offering has to undergo a number of changes — in everything from how it’s transacted to how it’s fulfilled — to become an entirely different product or service.
I get plenty of inbound from startups who are trying the subscription model and failing with it. They discover that the demand isn’t there, the margins aren’t there, and what they had hoped would become a steady pipeline is…