How To Use Subscription Pricing Effectively
If you understand buying a new pair of running shoes, you can figure out how to price your product
Pricing a new product is difficult, but it’s not rocket science. It’s just one of those tasks where entrepreneurs throw roadblocks into their own way.
It’s difficult enough to figure out a price point that delights your customer while still generating a profit. When you throw a bunch of extra assumptions into the price calculation, like a lot of startup leaders do, you wind up creating some unwieldy arithmetic pretty quickly.
I like math. I don’t like when math gets in the way of closing sales.
I get called in a lot to help startups with their pricing — either to help set the initial pricing or to fix pricing that isn’t working. When I review what they’ve done, I usually have to untangle a Gordian knot of pre-conditions, assumptions, and expectations that just don’t need to be part of the equation.
Misplaced Assumptions Always Lead to Unnecessary Questions
This past week, I answered a couple questions about pricing a new type of product for an existing market. The founder had developed a new way to do business and was trying to compete against entrenched dinosaurs in a competitive industry. The new product was better, faster, and less expensive than the old way, but it wasn’t getting any traction.
The founder was having trouble figuring out if he should price his new product to undercut his competition on their commission-based pricing or just come out of the gate with a more customer-friendly — but less familiar— subscription model. And if the latter, where he should put his price points based on where his competition’s price points were.
That’s a lot to unpack, but I told him the first thing he needed to do was to ignore his competition and focus on customer value. To understand how to do that, I gave him an anecdote that anyone should be able to apply to whatever product they’re trying to price.