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Setting subscription pricing

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In this presentation Fusebill CEO Steve Adams discusses how to evaluate price models as opposed to price points, review churn and its impacts, what to consider when selecting a price strategy and review some of the most popular strategies for subscription based businesses .

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Setting subscription pricing

  1. 1. Pricing in a Subscription World Steve Adams – CEOFebruary 1, 2013 1
  2. 2. Speaker Introduction Steve Adams, CEO stevea@fusebill.comwww.fusebill.com Friday, February 01, 2013 2Call Us at: 1-888-519-1425 Copyright Fusebill Inc. 2013. All rights reserved
  3. 3. Agenda• Evaluating Subscription pricing is different than 1-time sales• Key Points – Lifetime value – Churn – Impact of billing practices• Fusebill IntroductionFebruary 1, 2013 3
  4. 4. Key Takeaways• Measure customer lifetime value. Segment!• Pricing impacts churn, not just customer acquisition• Billing itself triggers churnFebruary 1, 2013 4
  5. 5. EVALUATING PRICE MODELS IN A SUBSCRIPTION WORLDFebruary 1, 2013 5
  6. 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_unitFebruary 1, 2013 6
  7. 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 $20February 1, 2013 7
  8. 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 $0February 1, 2013 8
  9. 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 tradeoffsFebruary 1, 2013 9
  10. 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 ContributionFebruary 1, 2013 10
  11. 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. 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 monthsFebruary 1, 2013 12
  13. 13. Typical Impact of Billing on Churn Free Trial Ends Monthly Plans Annual Plans 13
  14. 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. 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 impactFebruary 1, 2013 15
  16. 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. 17. Fusebill Executive DashboardFebruary 1, 2013 17
  18. 18. Track Lifetime Value, ChurnFebruary 1, 2013 18
  19. 19. Fusebill Platform Overview Self- Online Swipe & Agent Lifecycle Service AnalyticsCheckout Subscribe Interface Management Portal API Layer – Customers, Subscriptions, Transactions Pricing Accounts Billing Invoicing Payments Products Subscriptions Rating Payment Credit CardPrice Plans Invoices Usage Volumes Terms Date ACHUsage 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 ProcessingFebruary 1, 2013 19
  20. 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. 21. The Fusebill Difference Experience Product Commitment to servicewww.fusebill.com 21Call Us at: 1-888-519-1425 Copyright Fusebill Inc. 2013. All rights reserved
  22. 22. Try Fusebill Free for 30 days. No contracts, credit card, or surprises. Sign up at www.fusebill.com Thank You!www.fusebill.com1-888-519-1425support@fusebill.comTwitter: @fusebill 22

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