
Ask HN: How to calculate best subscription fee - WadeWilliams
I'm trying to determine which is a better membership pricing structure; $20 / year versus $50 / year.<p>The lower price will increase the number of subscribers but lower the revenue per customer (obviously). The higher number will do the opposite.<p>Is there some information somewhere (not many good search engine results) on ways to compare these two pricing structures? Perhaps some graphs and mathematical explanation of what the advantage of the lower price with more members is versus the higher price with fewer members?<p>Thanks to any responders.
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tptacek
$50/year is too low. It's less than $5/month. I spend roughly that _per day_
on coffee... and yet I'd still hesitate to sign up for something on the
Internet for $5/month, just as much as I'd hesitate if it was $10 or $15 or
$30/month.

~~~
sjs382
Don't undervalue your daily coffee. ;)

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petervandijck
Charge 9.99$/month instead of 50$/year. You'll likely get more subscribers,
and make more money.

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tshauck
If you could find some way to model the price vs demand you could then figure
out how elastic the price is
(<http://en.wikipedia.org/wiki/Price_elasticity_of_demand>) then that would
tell you which price is better.

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inetsee
I believe a better pricing model in many cases is to offer your product as a
monthly subscription with discounts for longer subscriptions, e.g. $5 per
month, $10 per quarter, $30 per year. The drawbacks to this model are that
managing subscriptions may require more effort, and you need to be sure that
your service provides enough value to get people coming back.

I also think your pricing plans are too low. If your service is for businesses
(even small businesses) and it provides an obvious value to them, you should
be able to charge more; like $10 - $20 per month (or more), again with
discounts for longer terms. Even if your service is for individuals, $10 per
month is not excessive. People pay $60 - $100 or more per month for cell phone
service; $10 - $20 per month is not excessive for a valuable service.

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ze_dude
Joel Spolsky wrote about this exact subject (with graphs, etc. as requested).
very worthwhile read:
[http://www.joelonsoftware.com/articles/CamelsandRubberDuckie...](http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html)

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WadeWilliams
It's a website subscription service that I'm trying to pack as much value as
possible into.

I think it's worth $50.

My question is what are the best resources on this topic?

I suppose i need 2.5 as many times the members at the $20 rate to make
generate the same revenue. I've got 100 users @ $50, but will I get 250 @ $20
? If I did get 250 at $20, the revenue hasn't gone up.

$50 seems like the better plan to me. Ofcourse, if I ask the users who haven't
subscribed and still use the free model, they think $50 is too much and they
would be more likely to pay $20.

I'm sure there's lots of discussion on this topic out there, but as soon as
you type in "membership subscription" at google you get garbage like pay pal
and netflix, and not any nerdy discussion on the topic.

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byoung2
_$50 seems like the better plan to me. Ofcourse, if I ask the users who
haven't subscribed and still use the free model, they think $50 is too much
and they would be more likely to pay $20_

Of course they would rather pay less! But you also have to consider that when
people start paying, they usually expect a higher level of service. If you can
keep the number of people with high expectations to a minimum and still turn a
profit, you'll be in better shape.

Start with the higher price, and see how it goes. If you aren't getting enough
customers, you can always offer limited-time discounts (e.g. "Regularly
$50/yr, but sign up during December and get your account at $40/yr for
life!").

~~~
tptacek
_Danger_ : This has been the polar opposite of Patrick McKenzie's experience.
Charge people one shiny nickel and they'll come to you with high expectations.
In fact, lowering your prices pessimizes your customer base with the most
high-drama customers.

~~~
byoung2
I meant that when they start paying vs being free customers they start to have
expectations. You're right, when they pay less, they seem to expect more. The
lower price just attracts that kind of customer. I saw this at Kaplan Test
Prep. The most demanding students were the NCLEX students who only paid
$400-600, while the USMLE students who paid $6000-10000 never asked for
anything.

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cletus
Pricing is more art than science. It is based on many factors such as:

\- perceived value

\- competitor pricing

\- your target market

\- how directly your service let's people save mone or generate income (ie if
your service does either it is more easily justifiable than a pure luxury)

\- customer loyalty (eg some people are paying Dropbox when they don't need
the space just because they love the service and want to support the company)

\- supply (including the illusion of scarcity)

\- cost structure

\- luck

\- etc

There is some theory and psychology around this but like all the social
sciencesnit isn't exact.

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citricsquid
Please don't just do yearly subscriptions, I will rarely (if ever) sign up for
a yearly subscription at first. If you _do_ offer only yearly, make sure you
also have some sort of trial.

Also StavrosK talked about subscription fees here: <http://blog.historio.us/>

~~~
loire280
For me, there isn't much difference in friction between a <$5/month
subscription and a <$20/year subscription. Both fall below the impulse-buy
threshold for an interesting-looking service.

More than $20/year, however, and there has to be a compelling discount or a
solid trial before I'll shell out for a whole year.

~~~
citricsquid
The price isn't really the issue, if I can spend $20 I can spend $50, it's the
perceived value. To me spending $50 upfront without any guarantee I'll use the
product is bad, whereas $5/m seems much better even if it works out more in
the long run.

I'd have no problem spending $20/m on a good product I _like_ but I would have
a problem spending $20/year on something I haven't tried, because I "feel"
like I'm spending more and committing to a longer term with the product.

Maybe that doesn't make sense, but the issue for me isn't the money but how I
see the value.

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revorad
Pricing without knowing what you are selling is hard, but I guess you are
charging too little.

~~~
fieldforceapp
There's a lot of history for so-called term subscription license (TSL's) in
the business literature. I agree with the general comments about offering 3-
or 6-month TSL's but price your fees around a 12-month TSL and _charge more_
for shorter commitment periods. The 12-month TSL price calculation is as much
a feature of your estimated churn and resulting life time contract value as
market forces. In our market, salesforce.com is the benchmark and we price
accordingly. Hopefully you can find a public TSL rate to compare, too.

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noodle
read this: <http://www.neildavidson.com/dontjustrollthedice.html>

on the flip side of that coin, i've read that and i'm still struggling to come
up with a good pricing structure.

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petervandijck
Here's a good search that may help you:
[http://www.google.com/search?q=site:ycombinator.com+customer...](http://www.google.com/search?q=site:ycombinator.com+customer+acquisition+cost)

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vaksel
don't guess. split test.

i.e. for me at $50, I sold X. at $40, I sold 2X, at $30 I sold 2X and at $20 I
sold X.

Placing value on your product is important, if you charge too little, people
will think you are selling crap and won't buy as much.

Your price is pretty much the single most important thing you can split test.

~~~
WadeWilliams
So how would one go about split testing a subscription service on a website
without alienating some users? In my case I'm selling to a small (about 5k-15k
people). Inevitably someone would realize that they were paying as much as
half price as some others ?

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wiseleo
No matter what you do, I recommend you have a clear grandfathering policy in
place.

I am particularly generous in that department "Should you decide to return, we
will reactivate your account at last billing tier even if that tier is no
longer published on our site."

There are some conditions to that, such as material change of control events
(all bets are off if you have been acquired).

Failure to do so results in upset customers and negative press coverage.
Competitors love that. If you decide to lower prices, be sure to apply
decreases to your existing customers. That's positive press.

I am experimenting with pricing as well and prefer my customers to be
protected from effects of such experiments.

Annual subscriptions work great when they are a discount over monthly billing.
The pattern tends to be that the user subscribes for a few months of month-to-
month billing, realizes she is in love, and renews at annual level to save
money.

I haven't seen the research, but I think you will find more annual
subscriptions tend to be renewals rather than initial purchases. An annual
subscription for $50 is below my pain threshold.

Let me illustrate my point. I pay some small amount for <http://eventid.net>.
I don't ever remember what it is, but I pay it annually. It's $29 and I had to
look that up. It's just not material to bother with quarterly $12 payments
when I can simply pay $29 and ignore this for the rest of the year.

Eventid is a useful service and all my subscription does is speed up Microsoft
knowledge base searches. When I am billing my client for time spent figuring
out the problem, the speed of research matters and so I pay for this service.

Another example: I pay for <http://usaip.eu> on a monthly basis $9. This
actually just got lowered to $7.99. I primarily use the service to watch
Formula 1 on BBC live and without commercials, but it also comes in handy for
on-demand VPN connectivity that ALWAYS works when dealing with insecure WiFi
networks (have you heard of firesheep? :)). I used to pay by the day, then by
the week, now I pay by the month, and pretty soon I'll just pay for it once a
year ($74.99) and again be done with it. That service also happens to bill me
for European Union VAT, which I am technically not subject to, but again the
cost is just not material enough for me to bother with.

I personally do not have free accounts at all. I have plenty of competitors
who have free option. The fact is that should the customer decide to pay my
competitor, they will likely re-evaluate the market anyway. My software
integrates with too many things and simply delivers too much value. You get
either 100 transactions or 14 days, whichever comes first. For most people, it
pays for itself in one extra transaction as what my software does is maximize
revenue per staff member. I do not yet have transaction-based pricing unlike
say Recurly, but I will likely add that after we sign up enough customers.

I am guessing this is in regards to your water skiing log site? Determine the
value and price accordingly. From what I know, water skiing is not a sport for
poor people, so you may have price elasticity due to customer affluence. My
snow ski equipment is quite expensive.

I'd probably keep the site free with a limit on how many entries can be made
in a year and make a paid mobile interface as a subscription. As a skier, I
would probably want to enter my data, complete with picture attachments, right
after I am done with my run instead of when I get home. In essence, charge for
usability. :)

One last thing - check out Wepay for subscription billing. Much cheaper than
Paypal. They do not advertise that feature yet, but I spent some time with the
team at the hackathon and was pleasantly surprised it was there. :)

Then again, I am just beginning with offering a SaaS solution. I could very
well be wrong. I am easy enough to find on Twitter if you want to chat more.
:)

