You’ve built a great app and you’re ready to launch it to the world. But there’s one last thing you need to do before you can start raking in the cash; you need to price your app. Deciding how to price your app is a tricky task that requires careful consideration of multiple factors, especially if you’re unsure how much your app is worth. In this blog post, we’ll give you some tips on how to price your subscription app so that you can get the most bang for your buck.
Three Common Subscription App Pricing Strategies
To assist you in determining your own subscription price, let’s examine three typical methods subscription businesses use in order to set their prices; cost-plus pricing, competitor-based pricing, and value-based pricing.
Cost-Plus Pricing
Cost-plus pricing is a subscription model that takes into account all costs associated with developing and maintaining your subscription mobile app, such as materials, labor and overhead. Once you add up all the costs involved in producing and delivering your subscription services, you then add a percentage markup to arrive at the subscription price.
For instance, you pay significantly more for a phone when you purchase it from a store than it costs to manufacture. The supplier and the retailer each add a set amount on top of the expense of the phone.
Cost-plus pricing appears to be the ideal strategy at first glance; you’ll cover every expense! But does it work well for app monetisation? Most of the time, no. In software development, it is relatively inexpensive to provide a user an account. The value that the customer will receive from this account, however, can be rather considerable.
Competitor-Based Pricing
Competitor-based pricing involves researching what competitors are charging for similar subscription services. If your app is on the higher end of the pricing spectrum, you’ll need to be able to justify this with features or value that exceed those of your competitors. Conversely, if your app is on the lower end of the pricing spectrum, you’ll need to make sure that it’s not so cheap that people will assume it must not be very good. When used correctly it can be an effective way to set prices for subscription apps since users often compare subscription prices between several different subscription companies before choosing one.
A start-up can employ this method because it is straightforward. However, if your product is significantly superior to that of your rivals’, you shouldn’t let their pricing bind you down.
Value-Based Pricing
Finally, value-based pricing is a method of setting subscription rates based on the perceived value of the subscription mobile app, rather than its costs. This subscription model is based on the concept that a subscription price should reflect how much value users receive from the subscription app experience.
For example, compare Zoho Enterprises CRM software subscription at $50/user, with the Salesforce Sales Cloud CRM costing $150/user for enterprise, with the HubSpot enterprise plan at $3600/month. Different providers have different pricing plans so within your domain you can choose a price based on your strategy, and, where you want to play. So, how do you calculate a value-based subscription price? The answer is to collect data on how and were your app can add value to the user.
Revenue and Profit Forecast Pricing
Many businesses use pricing strategies that are based on revenue and profit forecasts. This means that they set prices to achieve a certain level of revenue or profit. There are many advantages to this approach. Forecasting provides a clear target for pricing your subscription app, and it can help to ensure that prices are set in line with business goals. In addition, forecasting can help to avoid the problems that can arise from setting prices too low or too high. However, it is important to remember that forecasting is not an exact science, and there is always the potential for unexpected surprises. As a result, businesses should use caution when relying on forecasting to set prices. First, decide what your revenue and profit goals are for your app and then fix your app price. Although you may need to invite people to your office, collect their responses and analyse them, the end result will be much more realistic.
Step-by-Step Instructions for Determining a Specific Price for Your Subscription App
Let’s now look at how to calculate subscription prices using specific techniques and tools.
Get in Touch with Your Customers
One of the traditional methods for determining a price is to conduct field research and ask customers how much they are willing to pay for your services. You can use tried-and-true frameworks to help you. We’ll explain each of these methods briefly, so you’ll know what to do your research on.
The Gabor-Granger Method
When it comes to setting prices for apps, the Gabor-Granger method is a popular and effective approach. Named after economists Enrico Gabor and Peter Granger, the method involves surveying a group of potential app users and asking them how much they would be willing to pay for the app. Based on the responses, the price is set at a level that maximizes revenue while still being affordable for the target market. While there are other pricing methods available, the Gabor-Granger approach is often seen as the most fair and most transparent way to price apps. In addition, by taking into account the app’s perceived value, it can help ensure that prices are set at a level that reflects the product’s true worth.
Price Sensitivity Meter by Van Westendorp
The Van Westendorp Price Sensitivity Meter is a popular tool for determining app pricing. The Meter works by asking users four questions: at what price would the app be considered “too expensive”, “expensive”, “cheap” or “free”? By analysing the responses, the Meter can help to identify a price range that is both acceptable to users and profitable for the app developer. In addition, the Van Westendorp Price Sensitivity Meter can be used to assess user willingness to pay for new features or upgrades. By understanding how sensitive users are to price changes, app developers can make more informed decisions about how to price their products.
Brand Price Tradeoff
Deciding how to price your app is a tricky task that requires careful consideration of multiple factors. The Brand Price Tradeoff model provides a framework for thinking about how your app’s price will affect its perceived value and can help you determine a specific price point that maximises revenue while still appealing to potential customers. Keep these tips in mind when setting the price for your next subscription app and you’ll be sure to make the most of your pricing strategy.
To summarise, each situation is unique, and you must decide which technique to use based on your niche and your time/money constraints.
Conduct Market Research
If you are unable or unwilling to work with focus groups, you can focus on how to determine subscription pricing through market research. Business intelligence tools allow you to gather data on target markets, customers, and marketing efforts.
First, you must gather competitor data, which can usually be obtained from app stores and competitors’ websites. Then, select the parameters to be examined. The price index, competitor promotional activity and product availability are all important metrics to consider. Only consider companies that are still in business and actively developing their product. Finally, apply machine learning tools to the gathered data to generate valuable pricing business insights. AI tools can process larger amounts of data more quickly and accurately. Data analytics enables you to see the big picture rather than relying solely on your intuition.
The following are the best competitor price monitoring tools:
Prisync
This is a SaaS application that assists you in determining market competitors’ pricing strategies. It allows you to conduct market research, discover historical pricing trends and monitor fluctuations. It can conduct as many competitor searches for the selected category as you require.
PROS
PROS is the way to go if you want a simple cloud application to estimate your competitors’ pricing strategies. It is powered by AI and allows entrepreneurs to make more informed pricing decisions.
Zilliant
You can use Zilliant to get a pricing solution that is specific to your company. The program will assist you in developing a pricing strategy by calculating cost volatility, revenue leakage, and other factors.
Select the Best Subscription Pricing Model for Your Service
The first step in pricing your subscription service is to choose your subscription business model.
Read on to learn more about the three most popular subscription service models.
Membership at a Fixed Cost
For a single recurring fee, subscribers receive unlimited access to all content on your platform with a flat rate membership. This pricing strategy is straightforward and simple for your customers to understand.
Membership at a fixed cost means that everyone pays the same fee and receives the same benefits. Users understand that they are getting the whole package for a set price. Netflix is a popular example of flat-rate pricing; customers can access the entire library of content on any device for a monthly recurring fee. You can still offer different prices based on the customer’s payment period when using flat-rate subscriptions. For example, you can sell quarterly, bi-annual, and annual subscription packages, each with its own set price.
Some benefits of utilising this pricing model include:
– It can give you more money upfront
– Provides a choice for every level of customer commitment (which can increase retention)
– Longer payment terms increase customer lifetime value
– Long-term customers should be rewarded with a lower monthly rate
Another inherent benefit of this model is that customers value the simplicity of a flat rate fee. The disadvantage is that a single membership option may not meet the needs of all potential customers. Some customers may be unwilling to pay an umbrella fee if they know they will not use certain aspects of your service.
Tiered Membership Plans
Tiered subscription plans work by offering customers several subscription levels with different benefits. This can include access to certain features, more storage space, or discounts on products.
Spotify is an example of a tiered subscription plan. Basic subscribers pay a lower fee and get access to streaming music services without commercials. Premium members pay more for additional features like offline listening and higher-quality sound.
Tiered subscription models are great for segmenting your customer base and giving customers the option to choose what suits their needs best. It also allows you to upsell customers from one subscription level to another if they start using more of your service. The downside is that it can be difficult to explain the differences between subscription tiers in a way that is easy for customers to understand.
Flexible Subscription Plans
Flexible subscription plans work by allowing customers to pay for a subscription based on usage rather than a flat fee or tiered level subscription. Customers can choose from a range of subscription packages with varying amounts of usage and the ability to upgrade or downgrade their subscription as needed.
For example, Adobe Creative Cloud offers subscription-based access to its software applications. Customers can pay monthly, annually, or quarterly based on their usage needs. They are also able to upgrade or downgrade their subscription easily depending on how much they need the software at any given time.
Flexible subscription models allow customers to customise their subscription plan according to their own usage needs and budget. This subscription model is ideal for customers who need access to your service but aren’t sure how often they will be using it. The downside is that it can be more difficult to track customer usage and revenue compared to other subscription models. It also requires close monitoring of customer activity in order to ensure subscription plans are priced correctly.
Once you have chosen your subscription business model, the next step is to determine the price point for each subscription tier or plan. When determining subscription prices, consider factors like cost volatility, revenue leakage, user churn rates, and market trends in mobile app development for startup apps. You’ll also want to take into account any additional fees or taxes associated with running your subscription service. Once you have determined subscription prices, you can begin marketing and selling your subscription app. With careful consideration of customer needs, market trends, and subscription models, you can create a pricing structure that appeals to customers while maximising revenue.
The success of your subscription business depends on finding the optimal balance between meeting customer’s needs and maximising profits. It is essential to understand the different subscription models available and how they can be used to effectively price your subscription app. By carefully considering each type of subscription model, such as flat rate subscriptions, tiered membership and flexible subscription plans when pricing your subscription app, you can create an optimal subscription solution for your customers and maximise profits. Good luck!
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