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Subscription Pricing Strategy Guide: How to Maximize CLTV

Choosing the best subscription pricing strategy isn’t just about flat rate vs. tiered pricing. Use these pricing strategies to increase retention and customer lifetime value.

Updated:  

December 1, 2022

Subscription pricing strategy

Prices are rising, and so too is the number of loyal customers reconsidering monthly purchases like subscription boxes. Even merchants who are able to keep their own prices steady have an increased need to prove themselves worthy of consumers’ hard-earned money. Shoppers are cutting back on subscriptions for many reasons, the top being a need to reduce expenses. With sellers also facing higher prices, many subscription-based businesses are finding themselves in a tight spot.

It’s tempting, in such a time, to double down on what’s worked in the past. But yesterday’s strategies won’t perform as well in today’s economy. Your company should reconsider the way you charge for your product. A successful subscription pricing strategy isn’t just about picking a feasible business model. You need to entice new consumers, offer a personalized experience and reward your loyal buyers. Doing all three will help you increase retention and customer lifetime value (CLTV).

Start With a Sustainable Subscription Pricing Model

Choosing the right pricing model is only part of a good strategy, but you have to get it right. The best pricing model is one that:

  • Reflects your product’s value accurately
  • Meets consumers’ needs and expectations
  • Fulfills company needs
  • Helps attract and retain customers

The pricing structure you ultimately choose must meet all four requirements, or you’ll struggle to win over customers or turn a profit. Ecommerce businesses typically use one of the following models.

Subscription box pricing strategy

Flat-rate pricing: All customers pay the same price and receive the same product. This is also known as a fixed-price model.

Tiered pricing: Customers choose from various packages at different price points. Each price tier has a unique combination of products or a set of features meant to appeal to different customer segments. For example, a soap company could offer a standard subscription box for $20 a month that includes five products and a luxury box that includes seven high-end products for $50 a month.

Usage-based pricing: Also known as pay-as-you-go pricing, this model asks consumers to pay for products (or resources) as they use them and allows for wide variation from customer to customer.

Modular pricing: All customers pay a base rate for access to a product or service, then select add-ons — each with their own cost — as desired to meet their needs.

Per-user pricing: This model charges customers based on the number of users (typically calculated by active logins or licenses) on the account. It is typically used for products (like software) that serve multiple people and facilitate collaboration between them.

Freemium: Anyone can access the base version of a freemium product at no charge, but users can choose to pay for more features or functionality.

Many of these pricing models are more useful for software-as-a-service (SaaS) offerings than product-based ones. Subscription boxes typically use a flat-rate or tiered pricing model. Companies that sell and ship physical goods are constrained by costs and logistical concerns that make most other pricing models unsustainable. Pay-as-you-go, for example, requires customers to have as much product as they might want on hand — which would mean near-constant shipments or built-in free returns for anything they didn’t use. Per-user pricing makes little sense when another user equates to another shipment to be made.

Sellers of subscription boxes must instead differentiate their pricing model by incorporating some of the following pricing strategies that give consumers more control over their shopping experience.

Get Consumers Hooked With Free Trials and Intro Offers

80% of retail subscribers first obtained their subscription via a free trial.

Price-conscious consumers love receiving discounted and free items. This is especially true in an economy that has shoppers checking price tags twice. Cost is the number one reason new consumers cited in our study conducted with PYMNTS for holding off on new subscription sign-ups as of November 2022. At the same time, the joy of trying new products is a main driver for subscribers.

Free trials and intro offers are a great way to address price wariness while giving potential customers what they want. The promise of discounted or free products is often enough to boost customer acquisition by overcoming hesitation at the beginning of a relationship. When given to existing customers, free products are a re-engagement solution that also boosts average order value (AOV). They’re a way to reinforce the value of your subscription as a whole and build deeper customer relationships.

Give Buyers Control With Flexible Subscription Plans

Subscriptions aren’t just about getting products regularly; they’re about getting the right products when they’re needed. Nearly one in five consumers has canceled a subscription because they received more product than they could use, according to the study with PYMNTS. Shoppers look to subscriptions for convenience — and now that subscription boxes are commonplace, that means more than just automating delivery. They want to customize how they pay, when they receive products and how much they receive.

The ability to personalize orders keeps your customer base engaged and happy. It’s easy to provide a tailored experience: You just have to give customers the right tools. Flexible order options that allow subscribers to add, remove or swap products and adjust shipment frequency let customers shape their perfect experience. For example, our subscriber portal allows customers to update their information, skip orders, change their product selection and more. You can even track the changes they’ve made and optimize your core product or offerings to meet customers’ preferences.

Show Consumers You Care With Relevant Upsells and Cross-Sells

Convincing customers to increase their investment may be hard during an economic downturn, but a good upsell or cross-sell makes subscribers feel understood. It’s easy to track subscribers’ product preferences or use patterns just by looking at their order details. Leverage tools to help you better understand customer behavior and trends.

Use this data to surface related products and share when consumers need them most. Does your monthly coffee bean buyer need coffee filters? Would your craft-happy subscribers benefit from props to display their masterpieces? Relevant products like these are the perfect selection for one-click add-on functionality that lets customers add items to their orders from the shopping cart.

Add Value With Product Bundles

Product bundle for subscription pricing strategy

Make subscription management easier by rolling multiple products or services into one bundle. When consumers think about saving money, they’re not just considering how cheap an offering is. Convenience has value in itself, and many will pay a bit more for a subscription that saves them some other pain.

One such pain is subscription fatigue — a common concern in an era with too many streaming video platforms to count on one hand. Companies that bundle products or offerings consumers might otherwise have to pay for (and manage) separately help subscribers save time. This is already the philosophy behind many subscription boxes ranging from meal kits to beauty boxes. It’s easy to implement this strategy with tools to create product bundles.

Reward Loyalty With Special Promos

It’s no secret that people love rewards and discounts from their favorite merchants. Roll these perks into your subscription box, and you’ll win their loyalty — plus, free rewards give customers a bigger reason to stay than either low pricing or convenience. There are multiple ways to reward loyalty: coupons, rewards points and surprise free gifts fit well with the subscription commerce model.

Like upsells and cross-sells, rewards work best when they’re relevant to the customer’s needs. Behavioral and contextual data show you items subscribers may be interested in but aren’t quite ready to buy. A surprise product that fits perfectly into your customers’ lives may turn into an upsell down the road. Or you can allow your customers to trade in reward points for more of what they’d normally get but at a lower price.

Boost Customer Retention With Appealing Pricing Strategies

Not every subscription business will be able to use every pricing strategy listed in this post. Your offering may not lend itself to free trials or upsells. But every type of product or offering is compatible with at least one of the above suggestions. It’s up to you to establish and implement it.

The bigger roadblock may be finding a subscription commerce platform that makes it easy to implement various pricing strategies on top of your chosen pricing model. Our software makes it easy for both merchants and subscribers to customize offers. Plus, merchants don't need to rely on developers to create personalized offers. Our tools also make it easy for customers to tailor their subscriptions to meet their needs. Consumers whose needs are met will become more loyal to your company and thus less likely to churn. That makes taking the time to find the optimal pricing strategy worth it.

We know what makes subscription offerings work. Check out our Ultimate Guide for Starting and Scaling a Subscription Business to supercharge your subscription program.

Ultimate guide for starting and scaling a subscription business