Pricing Conundrum

[DuaneJackson]

I have a pricing conundrum that I'd appreciate your input on.

I sell accounting software on a subscription basis.

Currently only annual subscriptions are available.

The retail price is £149 per year. Many users actually pay £99 a year because we provide Promotional codes with as much of our marketing as we can so that we can track it.

It occurs to me that a monthly subscription will be much more affordable and will increase conversion ratios. Especially if the price is below the psychological £10 mark.

I'm considering providing monthly subscriptions at £9.45 a month.
If I do this I will scrap annual pricing, for the following reason

Picture the scenario. You've used the product for 60 days for free and like it. You now have to deicde if you want to pay to sign up. How much is it?

£9.45 a month or £99 a year

As a business person you'd mentally multiply the monthly price by 12 and realise it's more expensive than an annual subscription. As such you'd write-off the monthly option and consider only the option of not paying or paying annually.

We're back to square one.

Also, having just one subscription model very much simplifies everything from a coding perspective and from the way we manage our promotional codes and affiliates.

Another down side is that monthly billing means that I offset a lot of the cash coming in to the business over a period of a year. My argument against this is that the increased conversion rates would mean more money in the long run so worth the cash shortfall.

Then, against the monthly argument is the fact that a business might stop trading after 4 months. If they are paying monthly we've only earned £37.96 (9.49 * 4) from them. Whereas if they paid the whole year upfront we'd have earned £99.

As it stands we are getting a decent level of subscriptions with the current pricing model and we ocassionally get told that they feel it's excellent value for money. But obviously the more subscriptions the better. Especially as we are trying to build up as large a user base as possible.

I just can't decide wheter I should

a) leave it as it is
b) introduce monthly payments and keep annual payments as an option
c) introduce monthly payments and scrap annual payments totally.

I'd really like to hear your arguments in favour of or against any option

[fastfences]

Hi Duane,
I would try to offer both; monthly and annually. Many people, including myself, prefer monthly direct debit for both convenience and cash flow. (kashflow? :lol: ) Direct Debit is a way of life. I'm certain you'd capture a wider customer base if monthly were offered, and, as you so rightly say, there is no 'turn off' when faced with £149.00.

Many companies offer a 'discount' for annual payment; you'll actually be doing that if you proceed with the prices as detailed.
Cheers, Nigel

[Hayles]

I agree. I'd offer both choices. I broke the price down to monthly costs when I was considering the package (which I would go for if you could include the quotation thingy!!). Most people would expect to pay more as in effect they're getting credit from you.

Hayles

[Steve Roberts]

I guess what really matters is the conversion rate. You could try two sample marketing campaigns and measure the different conversion rates.

Secondly, the advantage of monthly is that you could word the contract along the line that it's permanent until you are instructed to stop. As such, you're not offering the client the opportunity to cancel every year.

[Cornish Steve]

£9.45 seems an odd amount. Why not charge £9.95? It's the digit before the decimal point that counts. One of our partners (director of a Continuing Education department) told me about this phenomenon. In his case, just as many people purchased a course for $199 as for $159.

Some people may cancel after a few months, but just as many will forget to cancel after a year - especially if you are charging a comparatively small monthly amount against a credit card.

If you remain concerned about people cancelling within 12 months, what about a one-time setup fee?

One time setup fee: £29.95
Monthly renewal fee: £9.95.

In this way, you'll recoup funds for a couple more months.

[fastfences]

You mentioned an interesting scenario above.

The answer to your question you are not going to find on this or any forum anywhere in the world.

Good luck.

Wrong!

I'd really like to hear your arguments in favour of or against any option

The forum has answered the poster's question. We have provided both 'for and against' so the poster can evaluate our feedback to assist his decision.

Additionally, Duane, are you not putting too much emphasis on the 'fallover' rate? I'm sure you budget a certain percentage of fallovers anyway, but if you introduce the monthly payment you may well increase the fallovers, BUT, by a lesser percentage than the growth of your business as a whole. Perhaps one ploy will be to determine how and why people drop out? Maybe you could add something else to their package to 'personalise' it more for them? Maybe also, you have to (if you already don't) just accept that there will always be people bail out after a free trial.

I've looked with great interest at the program (about 1 week prior to your post) and may even be a candidate myself. The 'hook' to me was the 'free 60 days' but the crunch of £149 slowed me down. I accept there's great value there, and £100's below more 'recognised' programs, but I, like many, much prefer a small monthly payment.

I'm sure the benefits will far outweigh any disadvantages. Anyway, what can you lose except a bit of extra 'admin' time?
Cheers, Nigel

[DuaneJackson]

You mentioned an interesting scenario above.

The answer to your question you are not going to find on this or any forum anywhere in the world.

Good luck.

Wrong!

I'm not sure I was really looking for the answer here, just some opinions from people I respect. The opinions and comments then help me make a decision myself.

And the decision is to offer both options. Annual and monthly.

[Richard Conyard]

I'd go for the previous example of having both one with a set-up fee and monthly payment, the second as an annual payment up front.

Provided the annual charge is cheeper you have the incentive to pay up front, but you also have the ease of paying monthly if you want. So you've removed the barrier and you've got yourself a regular income stream.

[DuaneJackson]

It's tempting, but I'm not sure how I'd justify a "set-up fee" for an account that's already set-up on an automated system. Do you think I could word it differently?

[Richard Conyard]

Administration charge... ?

[Mark Pocock]

Duane

Test. test and test again.

Do a search for split testing software.

Then send alternate visitors to the monthly/full payment web page.

your market will tell you which method they prefer.

cheers mark

[daveashton]

There is a more simple way.

Ask your clients and give a prize for feedback.

Re some of the other points.

Monthly works well if it has a 3 months notice period to stop the beanies looking at it ( they only look at 1 quarter at a time) and this way it just roles on and on.

Banks/ investors etc also prefer this system because every month you have a guaranteed income of X into the business.

As for choice

Great survey done by a leading supermarket.

They have noticed if you have lots of similar products people just dither. If you give them fewer options they will buy quicker and spend a bit more.

Lets remember the big key to selling is to make it easy. If I have 1 option I have made the best decision on how to pay. If I have 2 I need to stop and think what is best.

As for admin charge, set up fee. You name me 1 person who likes paying for that! This just pisses people off along with hidden charges.

[sparklyscotty]

Hi Duane,
I read this post and wrote a response, and then realised who you were, and that I had actually considered buying your software last week! My answer remains the same: I would offer both options.
I am at the point in my business where I have money coming in but the same amount going out. I am in the first year of business, and still having to invest in big once-off investments. £10 a month is easy to afford, but £100 will mean I have to redirect money from other projects.
I would definately sign up at a monthly fee, and if I liked and used the software, then the next year I would pay the annual subscription to save money.
(So if you could offer a monthly subscription before the end of the tax year, that would be great!)
-Angel-