Setting subscription pricing
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The document discusses the importance of evaluating pricing strategies in subscription models, emphasizing customer lifetime value and the impact of churn on revenue. It highlights the differences between traditional sales and subscription businesses, particularly how billing practices can drive customer retention or churn. Additionally, it introduces Fusebill's platform as a solution for managing subscription billing efficiently and effectively.
Setting subscription pricing
- 1. Pricing in a Subscription World Steve Adams – CEO February 1, 2013 1
- 2. Speaker Introduction Steve Adams, CEO stevea@fusebill.com www.fusebill.com Friday, February 01, 2013 2 Call Us at: 1-888-519-1425 Copyright Fusebill Inc. 2013. All rights reserved
- 3. Agenda • Evaluating Subscription pricing is different than 1-time sales • Key Points – Lifetime value – Churn – Impact of billing practices • Fusebill Introduction February 1, 2013 3
- 4. Key Takeaways • Measure customer lifetime value. Segment! • Pricing impacts churn, not just customer acquisition • Billing itself triggers churn February 1, 2013 4
- 5. EVALUATING PRICE MODELS IN A SUBSCRIPTION WORLD February 1, 2013 5
- 6. Price Testing in a Transactional World Sales volumes drop as $ price increases Sales volumes $ increase as price drops Choose the option that maximizes revenue Revenue = Unit Volume * Price_per_unit February 1, 2013 6
- 7. A/B Testing • Split traffic between pages with different price points and compare A B Price: $10 Price: $20 Visits: 100 Visits: 100 Sales: 25 Sales: 15 Conversion rate: 25% Conversion rate: 15% Expected Revenue: $250 Expected Revenue: $300 • Conclusion: – B > A so set price at $20 February 1, 2013 7
- 8. But…Subscriptions behave differently A B Price: $10 / month Price: $20 /month Visits: 100 Visits: 100 Sales: 25 Sales: 15 Conversion rate: 25% Conversion rate: 15% Lifetime revenue: $120 Lifetime revenue: $80 Annual Revenue: $3000 Annual Revenue: $1200 $25 $20 $15 $10 A B $5 $0 February 1, 2013 8
- 9. A/B Testing • Split traffic between two pages and see what works best – Assumes cost of acquisition is constant – Assumes revenue (and margin) is the same • Works well for one-time sales – revenue is known at time of purchase • Fails for subscription sales – using initial revenue is not accurate • Does help measure price/demand tradeoffs February 1, 2013 9
- 10. Model Lifetime Value Client Economics • (Lifetime revenue) – 150 (Cost of acquisition) Breakeven Profit 100 • Segment: 50 – Acquisition channel – Price plans - 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (50) • Use margin (100) • Don’t ignore churn (150) (200) Customer Acquisition Cost Cumulative Contribution February 1, 2013 10
- 11. Client Economics - Considerations • Cost of Acquisition – Marketing Programs and Promotions – Sales (salaries, commissions) – Channels (commissions) • Contribution – Revenue – Costs • Costs – Cost of Goods – Customer Support – Data Center, Bandwidth… – Sales costs (incentives for upgrades, renewals) February 1, 2013 11
- 12. Impact of churn • Churn (% customers lost per time period) drives customer lifetime (and CLV) • Beware of averages – timing of churn impacts revenues 3 year revenue = $2200 100 90 80 70 60 3 year revenue = $1320 50 40 30 20 10 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 3% churn 3% churn after 3 months February 1, 2013 12
- 13. Typical Impact of Billing on Churn Free Trial Ends Monthly Plans Annual Plans 13
- 14. Billing & Churn • Card failures on initial signup – And/or no capture of client information for follow-up • Card failures on recurring billing Mechanical – Typically 25-30% of cards will fail but succeed on retries • Expiring cards – Cards last 3 years – 3% expire EVERY month • Passive churn – Card expiry, subscription expiry Behavioral • Surprise charges – especially for annual subscriptions • Oh! Am I still paying for that? February 1, 2013 14
- 15. Recurring Billing Systems Help! • Automate intelligent retries • Communicate: – renewal notices, – failure notices – Receipts? • Evergreen vs. term based subscriptions • Manage cards – online update of payment methods • Implement account status – not paying needs to have an impact February 1, 2013 15
- 16. Implementation Issues • “Changing the billing system” is often the hardest part of price testing – Restricts flexibility of sales and marketing teams • Access to Information: revenues often buried in backend systems • Need for Automation – Manual processes don’t scale – leads to revenue leakage and unhappy clients Flat rate pricing is often used ONLY because it is easy. February 1, 2013 16
- 17. Fusebill Executive Dashboard February 1, 2013 17
- 18. Track Lifetime Value, Churn February 1, 2013 18
- 19. Fusebill Platform Overview Self- Online Swipe & Agent Lifecycle Service Analytics Checkout Subscribe Interface Management Portal API Layer – Customers, Subscriptions, Transactions Pricing Accounts Billing Invoicing Payments Products Subscriptions Rating Payment Credit Card Price Plans Invoices Usage Volumes Terms Date ACH Usage Tiers Ledgers Pro-rating Control Storage Vault Discounts Reseller Taxation Review, Edit Gateways Coupons Tracking Coupons Aging Dunning Payments Currency Adjustments Retries Adjustments Adjustments Scalable Multi-Tenant PCI Compliant Security External Payment Processing February 1, 2013 19
- 20. Implementation Issues • “Changing the billing system” is often the hardest part of price testing – Restricts flexibility of sales and marketing teams • Access to Information: revenues often buried in backend systems • Need for Automation – Manual processes don’t scale – leads to revenue leakage and unhappy clients Flat rate pricing is often used ONLY because it is easy. February 1, 2013 20
- 21. The Fusebill Difference Experience Product Commitment to service www.fusebill.com 21 Call Us at: 1-888-519-1425 Copyright Fusebill Inc. 2013. All rights reserved
- 22. Try Fusebill Free for 30 days. No contracts, credit card, or surprises. Sign up at www.fusebill.com Thank You! www.fusebill.com 1-888-519-1425 support@fusebill.com Twitter: @fusebill 22
Editor's Notes
- #3: Steve has over 20 years of experience in leading high-technology and software companies, most recently as VP and General Manager with j2 Global, which acquired Ottawa-based Protus. Steve helped propel Protus into one of the fastest growing companies in Canada, with over 555,000 subscribers, before it was acquired in 2010. Steve also worked at Spotwave Wireless, CrossKeys Systems Corporation, Corel and Nortel.Steve is a graduate of the University of Waterloo and the Ivey School of Business.
- #22: Experience counts:Vision – automate billing for all subscription businesses.People – we know how to run and scale subscription businesses.Technology - scale, reliability, quality.Product : Breadth – supports the entire organization from accounting and billing operations , through sales, marketing and management. Flexibility – we can tailor to meet your needs. Easy to use – Intuitive UI, no technical expertise required.Commitment to Service Available - Product experts available at all stages of implementation.Responsive – 24/7 phone, and email support as well as Twitter and FacebookFriendly – Your success is our success. We take the time to help you succeed.