How to Choose the Ideal Subscription Price to Maximize Profit and Subscribers for Your App Launch

When preparing to launch an app, one of the most critical decisions you’ll make is setting the ideal subscription price. This is especially important if you’ve already drawn significant interest and are in talks with leads that are close to conversion. You want a pricing strategy that maximizes both the number of subscribers and the revenue, but getting this balance right requires careful analysis and a deep understanding of your market.

In this guide, I’ll walk you through the best practices to establish an optimal subscription pricing model for your app launch.

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Understanding Your Target Audience’s Willingness to Pay

Before you set any price point, you need to know your audience’s willingness to pay (WTP). The more data you have on what your potential subscribers are willing to pay for similar services, the better informed your decision will be.

How to Measure WTP:

  • Surveys & Focus Groups: Use pre-launch surveys and focus groups to gauge what pricing feels reasonable to your ideal users.
  • Competitor Analysis: Analyze the pricing structures of your competitors—those offering similar services or targeting the same audience.
  • Historical Data: If you’ve tested other pricing models, either in beta tests or soft launches, analyze the conversion rates at different price points.

Keep in mind that there’s often a gap between what people say they’re willing to pay and what they’ll actually pay. For this reason, real-world testing during the early phases of your launch will provide the most accurate data.

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Pricing Models: Which One Is Right for You?

1) Freemium (Free + Paid Tiers):

  • How It Works: Basic services are offered for free, with premium features gated behind a paid subscription.
  • Why It Works: Freemium models attract a high volume of users. Once they’re hooked on the basic product, a percentage will convert to premium.
  • Consideration: You’ll need a compelling feature set that users are willing to pay for and a frictionless upgrade experience.

2) Tiered Pricing:

  • How It Works: Multiple subscription plans at different price points, with each tier offering more features.
  • Why It Works: You appeal to different segments of your audience, from cost-conscious users to power users who want access to every feature.
  • Consideration: Be careful not to cannibalize your highest-paying customers by making the lower tiers too attractive.

3) Flat-Rate Pricing:

  • How It Works: One price for all users.
  • Why It Works: Simple, easy to market, and can be perceived as fair, especially for apps where the value to each user is similar.
  • Consideration: This model may miss out on revenue from users who are willing to pay more for premium services.

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Optimizing Price Elasticity: Finding the Sweet Spot

Price elasticity measures how sensitive your users are to price changes. For instance, will a $1 price increase drastically lower your conversion rate, or will it have little impact? Finding this elasticity curve for your target audience is key to setting an ideal price.

Steps to Determine Price Elasticity:

  • A/B Testing: Test various price points during a soft launch and track conversion rates.
  • Behavioral Analytics: Use tools like Google Analytics or Mixpanel to track user behavior and abandonment rates at different price points.
  • Customer Lifetime Value (CLV) Analysis: Price elasticity should be balanced with your CLV. A higher price may lead to fewer subscribers but more revenue per customer, while a lower price could maximize user acquisition and engagement.

Key Insight:

A general rule of thumb is that a 1% increase in price can lead to a 10% drop in demand, though this varies across industries. The goal is to find the pricing level where small increases or decreases don’t dramatically affect subscriptions.

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Bundling and Discounts: Strategies for Higher Conversions

If your leads are already in discussions with your sales team, they may just need the final push to convert. Bundling and discounts can be the catalysts for conversion.

Bundle Offers:

  • Service Bundle: If your app offers multiple features or services, bundle them together into a subscription package that feels like a “deal.”
  • Multiple User Plans: Offer family or team subscription plans where multiple users get access for a reduced per-person rate.

Discount Strategies:

  • Time-Sensitive Discounts: Offer early-bird or pre-launch discounts to incentivize subscribers to commit sooner.
  • Lifetime Discount Offers: A one-time lifetime discount for users who sign up during the launch phase can create urgency and commitment.

Note: Be careful not to overuse discounts, as this can lead to devaluation of your product.

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Subscription Price Recommendations:

Based on industry standards, we can look at some general pricing brackets for popular subscription-based app categories. These prices should be adjusted based on your specific value proposition and competitive landscape.

1) Basic Consumer App (Entertainment, Fitness, Lifestyle):

  • Average Price: $5 to $15 per month
  • Sweet Spot: $9.99/month
  • Why: This price point is low enough to attract a broad audience but high enough to indicate quality and commitment from users.

2) Professional SaaS App (Productivity, Business Tools, Marketing):

  • Average Price: $30 to $99 per month
  • Sweet Spot: $49.99/month
  • Why: This price reflects the utility and value professional users expect from premium software. It's accessible yet represents the app's robust features.

3) High-Ticket SaaS or Specialized Service (Analytics, Enterprise Solutions, AI Tools):

  • Average Price: $100 to $500 per month
  • Sweet Spot: $199/month
  • Why: Enterprise users are willing to invest in high-quality software that provides unique or critical functions. Higher pricing signals exclusivity and professional-grade performance.

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Projecting Revenue: Maximizing Both Subscribers and Profit

Let’s assume you’re trying to decide between a subscription price of $10/month versus $15/month.

1) $10/month:

  • Projected Subscribers: 10,000
  • Revenue: $100,000/month
  • Churn Rate: 2%/month
  • Lifetime Value: $100 (10 months)

2) $15/month:

  • Projected Subscribers: 7,500
  • Revenue: $112,500/month
  • Churn Rate: 1.5%/month
  • Lifetime Value: $150 (10 months)

In this example, while the number of subscribers decreases with the higher price, your total revenue and customer lifetime value increase. Testing both these scenarios during your launch will give you the data to determine the ideal pricing for your app.

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Key Takeaways

  • Willingness to Pay: Use surveys, competitor analysis, and behavioral data to understand what your target audience is comfortable paying.
  • Pricing Models: Consider freemium, tiered, or flat-rate pricing based on your app’s complexity and audience segments.
  • Price Elasticity: Find the sweet spot by testing different price points and understanding how they affect demand.
  • Bundling & Discounts: Drive conversions through strategic bundling and time-sensitive offers.
  • Adjust Pricing: Use real-world data from your initial launch to adjust pricing and improve subscriber acquisition and retention.

By combining these strategies, you can set a subscription price that maximizes both your app’s subscriber base and your revenue potential. Launching with the right price, backed by data and a clear understanding of your market, will position your app for success while enticing leads to close the deal.

WRITTEN BY

Deimante Boguzaite

2024-09-23

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