Recurring Revenue: How to Lose Money with Subscription Pricing

Recurring Revenue: How to lose Money with Subscription Pricing

Subscription pricing is famously tricky to get right. Major brands of all kinds such as Youtube and Microsoft have run into difficulties dealing with subscription pricing and a wary customer base. When handled well, a subscription model can be a great means of recurring revenue, but certain mistakes are almost guaranteed to cost your company more in the long run.

Here are a few surefire ways to lose money with a subscription pricing model for your SaaS business.

Overlook supply and demand issues

Nailing your subscription pricing model often comes down to perfectly balancing supply and demand. With the right amount offered at a steady rate, you can keep the majority of your customers happy with a monthly (or otherwise regular) fee—and secure monthly recurring revenue for your business. However, tipping the balance too far in either direction often results in a sudden realization on your customer’s part that they can do without your service or product. This almost inevitably means they will choose to do so.

Deliver too much

Subscription pricing relies on an intimate knowledge of your customer base to prove effective. Settling on the ideal amount of value to deliver to your customers on a regular basis can be tricky and demanding for your team. However, getting this part of the equation wrong is as easy as oversupplying users and customers with value even when your data shows they require substantially less. Receiving more than they bargained for is likely to entice them to find a cheaper alternative with sufficient value for their needs.

Deliver too little

Just as overdelivering can lead customers to rethink their payment commitments with your company, underdelivering can quickly force them to consider more fitting alternatives. To lose money consistently, offer customers services and products that will run short when they actually need them instead of implementing a clear, data-backed pricing strategy that revolves around your customers’ actual needs.

Be nonessential

The best brands that benefit from a subscription model have found clever ways to become an essential element in their customers’ daily lives. Whether we turn to household utilities or Netflix accounts as examples, the importance of becoming a need rather than a want is evident.

If your goal is to lock in recurring revenue at every opportunity, then you should skip making your service essential and allow it to be simply nice to have. When customers begin to notice how little they need you to accomplish their goals, they will move on and take their money with them.

Offer something helpful but unnecessary

Eschewing the appeal of being essential is as easy as prioritizing mild helpfulness over actual utility. Bad subscription models rely on gimmicks to attract customer attention, but often fizzle out as buyers tire of making regular payments for things they don’t actually need. If you aim to lose money, then going the gimmick route can certainly get you there.

Punish non-paying customers

Services that are not essential are often avoided by potential customers altogether. This can lead some businesses to adopt punitive measures in an attempt to coerce customers into signing up for a subscription. However, forcing your customers to pay for something by intentionally lowering the quality of a service they get from you for free comes off as a betrayal of their trust and can often turn them away.

Even being met with confusing cancellation terms can cause customers to feel mistreated, leading them to complain and distance themselves from your brand. Clothing and accessories company JustFab found out as much when their questionable cancellation policies invoked the ire of their customer base.

Never update your prices

Stagnant pricing makes it difficult for companies to capitalize on stronger demand, adapt to new trends in their industry, improve market penetration and satisfy their customers’ needs more effectively. If your aim is to lose money, then keeping your pricing consistent over the long term is key. Businesses that excel at appropriately pricing their products and services adopt a more dynamic stance, shifting prices up or down as opportunity and necessity dictate.

Give all of your customers the same price

A similar misstep to allowing your prices to remain the same for far too long is simply applying a flat price across the board for all of your clients. Setting a different price per customer is not necessarily ideal, but offering just one price point is unlikely to work well either. Tiers can better accommodate customers with different needs and thereby attract a wider stock of buyers than a single price would.

Subscription pricing can get you the recurring revenue you want

Implemented correctly, subscription pricing can generate excellent recurring revenue for many types of businesses. SaaS companies and other digital product offerings can benefit greatly from this approach to pricing. However, doing any of the things we’ve covered in this article will seriously subvert your efforts in building a profitable subscription pricing model for your business.

To learn more about what not to do when building out a subscription pricing plan for your business and how a digital product agency can help you plan out your approach, reach out to our team at VeryCreatives today.

The previous part of this article has been published here: Recurring Revenue: How to Generate Recurring Revenue Without a Subscription Model

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Feri Fekete

Feri Fekete

Co-founder of VeryCreatives

VeryCreatives

VeryCreatives

Digital Product Agency

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