Mastering Subscription Pricing: A Guide for Entrepreneurs
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Chapter 1: Understanding Subscription Pricing
Pricing a product can be a challenging endeavor, but it doesn’t have to be overly complicated. Often, entrepreneurs complicate the process by introducing unnecessary barriers.
Pricing effectively involves striking the right balance between satisfying customers and maintaining profitability. However, when startup leaders add extraneous assumptions to their pricing strategy, it can lead to convoluted calculations that hinder sales.
I frequently assist startups with their pricing strategies, whether it’s establishing initial prices or correcting ineffective ones. My role often involves unraveling complex assumptions and expectations that don’t need to complicate the pricing equation.
Section 1.1: The Impact of Misplaced Assumptions
Recently, I addressed inquiries from a founder regarding the pricing of a novel product intended for an established market. This founder had developed a more efficient and cost-effective business model but struggled to gain traction against larger competitors.
He faced a dilemma: should he price his innovative product lower than the commission-based rates of his rivals, or should he adopt a more customer-centric subscription model? If he chose the latter, what price points would be appropriate given the competitors' pricing?
To help him navigate this, I emphasized the importance of focusing on customer value rather than competitor pricing. To illustrate this concept, I shared a relatable example about running shoes.
Subsection 1.1.1: Relating to Running Shoes
Finding the right pair of running shoes can be challenging. Many people, including myself, often settle for shoes that fit adequately but not perfectly. This discomfort may not prevent us from running, but it does detract from the experience.
This scenario mirrors the challenge of launching a disruptive product in a competitive market. Customers may not recognize their discomfort until they experience a solution.
Just as most runners avoid investing in perfectly fitting shoes due to time and cost constraints, customers are often hesitant to change their purchasing habits. However, if you can present a solution that alleviates their pain, they may be willing to invest in it.
Section 1.2: Shifting the Focus to Customer Value
When introducing a truly disruptive product, the goal should be to transform a financial decision into a matter of convenience.
One of the reasons subscription pricing has gained popularity is that it removes the burden of calculations from the customer. Instead of focusing on a lower price, it emphasizes the higher value offered by the product.
To effectively sell a solution, first demonstrate the cost of the pain your product alleviates. Then, position your subscription price below this pain cost. This approach clearly communicates the value of your offering.
Chapter 2: The Future of Pricing in Competitive Markets
The first video, "Subscription Pricing Model for Software Products," delves into effective strategies for implementing subscription pricing, showcasing its benefits for software entrepreneurs.
The second video, "The Official Breakdown of Subscription-Based Pricing Models," provides a comprehensive overview of various subscription pricing models and how they can be applied in business.
As you establish your presence in the market, don’t let existing competitors dictate your pricing strategy. Once you prove your model's success, new competitors will emerge, leading to price competition—but you will be well-prepared to thrive in that environment.
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