How Startups Make Money With Subscription Pricing

It’s about fixing leaky pipes, not replacing exploding toilets

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An overview of the economics of subscription pricing

I’ve written before on how a startup needs to overhaul their business model to make a subscription pricing model work for their customers.

Establish your subscription pricing model on the 80/20 rule

Think of the ideal full-service use case for your business — all the bells and whistles, the white glove version. This is your 100% case.

  1. You have to know which parts of your product or service can be broken out and offered a la carte.
  2. You have to reshape those parts into an offering that provides 80% of the value of your full service for 20% of the cost.

Subscription is one-size-fits-all, no one is special

When reshaping your offering to fit a subscription model, there are basically two concerns:

  1. You’ll launch a low-value product that diminishes your brand.

Set limits and caps and make them transparent and clear

To repeat: You want to shoot for 80% of the value for 20% of the cost. If a customer needs 85% of the value, they don’t belong on your subscription plan.

Do not mix full service and subscription plans

The answer to that question presents both huge opportunities and enormous challenges. All of it involves the 100% case, and you absolutely need to build a wall between your subscription plan and that case.

  • A managed services offering. This blends the benefits of the subscription plan with some of the white-glove aspects of full service. Caution here as well — the managed services plan is not the subscription plan or the 100% case. It’s its own thing.
  • A marketplace. Here, you’re offering access to 100% case vendors and sharing revenue with them. But again, this is its own offering, and should be separate from the subscription model.

Measure and adjust where needed, then tier up

Your subscription plan MUST work economically for your company, otherwise it will do more harm than good.

I’m a multi-exit, multi-failure entrepreneur. Building Precision Fermentation & Teaching Startup. Former Spiffy & Automated Insights. More at joeprocopio.com

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