SUBSCRIPTION The Fundamentals of Effective

Even Seasoned Pros Can Be Thrown Off by Subscriptions • As business models change and

evolve over time, different ways of monetizing them are enabled.

• Software-as-a-Service (SaaS) and investors’ hunger for “recurring revenue” are new and different.

• As a result, it’s easy to conclude that subscription pricing is some totally new and unique animal.

But Is Subscription Pricing Really That New or Different? • While the applications are new,

this monetization approach has been around for over a century.

• The mechanics will vary, but you can see the basic concept all over the place if you’re looking for it.

• And when you take a hard look, you’ll see a lot of “subscription” offerings that really aren’t.

As Usual, the Fundamentals Make the Biggest Difference • Subscription offerings may seem

unique and different, but you’re still marketing to human beings.

• So the fundamentals of effective pricing not only apply, they are more important than ever.

• In fact, getting the fundamentals right is a big advantage...because so many are getting them wrong!

Exploring Some Differences... True “price realization” of subscriptions will

usually have a variable time component. Customer expansion typically includes users

or seats, as well as products or services. The variable costs tend to be lower (not zero)

and are usually support and service related. The “financial health" metrics for subscription

businesses have new and different names. There’s more potential to fully monetize the

value you're actually delivering over time. There’s a much greater possibility of running

into serious issues with cash-flow. Revenue recognition rules can obscure and

complicate the truth of profitability.

UNDERSTANDING VALUE

Do the homework to create and communicate a strong

differential value story.

Segment prices to capture differences in willingness-to-

pay and perceived value.

PRICE SEGMENTATION

Leverage presentation and positioning techniques to

influence price perceptions.

PRICING PSYCHOLOGY

Price the various elements to work together, align to value,

and drive your objectives.

PRICING STRUCTURE

Help salespeople with value communication, negotiation,

and discount parameters.

SALES ENABLEMENT

Understand fixed/variable costs and relative differences

in customer cost-to-serve.

UNDERLYING COSTS

Stay close to the product team and “bake in” effective pricing as early as possible.

PRODUCT DEVELOPMENT

Strategies, Tactics, and Tips... • Get clear about the marketing versus the billing. • Recognize the differences between B2B & B2C. • Use LTV to capture many dynamics in one metric. • Strategize with a desired configuration in mind. • Use cohort analysis for comparisons over time. • Use segment performance to refine targeting. • Leverage users or seats as a volume normalizer. • Strive to get as many users as you can upfront. • Ensure Sales has a real “Land & Expand” process. • Use “grandfathering” in the upfront value prop. • Ensure Sales has a "Stick the Renewal" process. • Be creative and test multiple promotional offers.

Wrap-Up and Reminders... Despite the perceptions, subscriptions

do not pose a dramatically different or entirely unique pricing challenge.

And the fundamental pricing practices and processes that have evolved over many decades should not be ignored simply because “it’s a subscription”.

The fundamentals are where the real power of pricing is maximized.

Take care of the fundamentals and you’ll outperform those who focus on the nuances (everyone else).

Questions & Answers (Questions definitely. Answers hopefully.)