Subscription Revenue

This research brief will answer the following questions:

1. What are the benefits of offering pre-paid or extended-term options for potential paying subscribers?
2. What is the ideal time frame for a recurring-revenue subscription model?
3. What are the most important methods of optimizing subscription revenue via multiple price points? (Seven Techniques)

Findings

1. What are the benefits of offering pre-paid or extended-term options for potential paying subscribers?

Many online subscription-based sites, whether they are content publishers or other service providers, provide their service for a recurring monthly fee. However, they can also benefit from providing the same service on a longer-term, pre-paid basis for their subscribers.

The benefits of this approach are several:

1. Subscribers benefit from a discount. Some of them are willing to pay a larger sum in advance for a discounted quarterly, six-month, or full-year membership.
2. Publishers benefit from more money up front. This can be invested back into the growth of the site by implementing smart marketing campaigns using the extra available funds.
3. Publishers can also benefit from increased subscriber retention. If a subscriber has paid for a year in advance, there is reduced risk of early cancellation.

2. What is the ideal time frame for a recurring-revenue subscription model?

In a recent test, we added quarterly, semi-yearly, and yearly subscription options to an online website that previously sold only monthly recurring subscriptions.

The following table shows the discount offered for each type of subscription, as well as the average number of renewals per subscriber type.

What You Need To UNDERSTAND: The average lifetime of a monthly subscriber is 5.77 months (4.77 renewals), while the average customer lifetime of a yearly subscriber is 1.29 years (0.29 renewals). The profitability of these individual subscriber types is analyzed below.

Each of the pricing options in the table above is set at a progressively larger discount as the time commitment increases. But how do these discounts impact profitability? Which of these price points proved to be the most profitable?

To calculate this, we determined that the costs involved with supporting a single subscriber for one month was approximately $10.00. The revenue and costs are weighed in the following table:

What You Need To UNDERSTAND: Semi-annual (six-month) subscriptions create the most average profit per member after costs ($10 per member per month). This is followed closely by annual subscriptions.

We calculated a $10 cost per member per month to simplify the profitability projections. However, your real costs will often scale differently as the number of subscribers increases. This is discussed in more detail in the section below.

The profitability of each price point depends on three factors: your costs, the amount of discount, and the average lifetime of the subscribers at each price point. By adjusting the first two figures, you would achieve different profitability results in the calculated figures above.

KEY POINT: Profitability is not the only important factor when evaluating your pricing options. Long-term subscriptions have the additional benefits of providing more money up front to the publisher, and of reducing the risk of impulse cancellation.

3. What are the most important methods of optimizing subscription revenue via multiple price points? (Seven Techniques)

1. Test a number of price points. Different markets will warrant different prices. Your own unique subscriber base will have its own ideal pricing structure.

   You will never please all of your subscribers with a single price point. But profitability should be your ultimate determining factor. In other words, 100 subscribers paying $75 per month are better than 200 paying $25 per month (assuming the same retention rate).

2. Compare your prices to those of your direct competitors. If you intend to compete with them on price, use their prices as guidelines. Even if your Unique Value Proposition (UVP) is something other than price (unique content or products, broadest selection, etc.), you can still use competitor analysis to give yourself a good starting point for price tests.
3. Weigh the advantages of getting more money up front against the costs of discounting your offer. More money up front often outweighs small increases in profit, due to the fact that the additional revenue can be invested back into the company to create even more significant profits.
4. Lower cost through economies of scale. Most subscription-based sites become more profitable as the number of subscribers increases. The costs associated with producing content, for example, remain the same regardless of whether 100 or 1000 people are reading it.
5. Be aware that some long-term pricing can actually have a negative impact on your sales. For example, a $79.95 monthly subscription price may not deter members until they realize that a yearly subscription would be $959.40 (before any discount). High semi-annual or annual subscription prices can create negative perceptions in the minds of potential subscribers.
6. Utilize cross-selling or up-selling techniques. Offer new monthly subscribers the chance to upgrade to semi-annual or annual memberships. This is often done through the welcome email sent to new subscribers.
7. Review our related reports on Content Sales, Ideal Subscription Path, and Offer Pricing for more ideas on optimizing the profitability of your subscription-based website:

   Content Sales Tested:
   http://meclabs.com/cgi-bin/pl/pl.cgi?mco

   Ideal Subscription Path Tested:
   http://meclabs.com/cgi-bin/pl/pl.cgi?mis

   Offer Pricing Tested:
   http://meclabs.com/cgi-bin/pl/pl.cgi?mop

The ideal pricing options can increase the average lifetime of your subscribers and lower your overall costs through economies of scale. By testing a number of price points for your paid-subscription offer, and by offering different pre-payment options, you can significantly increase the profitability of your online publishing venture.

Notes

Related MEC Reports:

Content Sales Tested:
http://meclabs.com/cgi-bin/pl/pl.cgi?mco

Ideal Subscription Path Tested:
http://meclabs.com/cgi-bin/pl/pl.cgi?mis

Offer Pricing Tested:
http://meclabs.com/cgi-bin/pl/pl.cgi?mop

Landing Pages Tested:
http://meclabs.com/cgi-bin/pl/pl.cgi?mlp

Long Copy vs. Short Copy Tested:
http://meclabs.com/cgi-bin/pl/pl.cgi?mlc

Order Process Tested:
http://meclabs.com/cgi-bin/pl/pl.cgi?mdr

Order Recovery Tested:
http://meclabs.com/cgi-bin/pl/pl.cgi?mor

Pay-Per-Click for Subscription Sites:
http://meclabs.com/cgi-bin/pl/pl.cgi?mpss

Welcome Message Sequence Tested:
http://meclabs.com/cgi-bin/pl/pl.cgi?mws

Transparent Marketing:
http://meclabs.com/cgi-bin/pl/pl.cgi?mtm

Literature Review

As part of our research on this topic, we have prepared a review of the best Internet resources on this topic.

Rating System

These sites were rated for usefulness and clarity, but alas, the rating is purely subjective.

* = Decent | ** = Good | *** = Excellent | **** = Indispensable

ClickZ – Publishing: Fee or Free Archives ****
http://clickz.com/experts/design/freefee/archives.php

ClickZ – Content Development Archives ***
http://clickz.com/experts/design/cont_dev/archives.php

ContentBiz.com ***
http://www.contentbiz.com/

Online Publishing: The Long View, Part 1 ***
http://clickz.com/experts/design/freefee/article.php/3393121

Online Publishing: The Long View, Part 2 ***
http://clickz.com/experts/design/freefee/article.php/3404451

Online Publishing News **
http://www.onlinepublishingnews.com/

Content Blog **
http://www.contentbiz.com/bizblog.cfm

Proven Online Subscription Sales Tactics **
http://e-consultancy.com/publications/subscriptions_online/

6 Money-Making Search Marketing Tips for Online Publishers **
http://www.contentbiz.com/sample.cfm?contentID=2834

2004 Selling Online Subscriptions Summit Transcript: 10 Publisher Case Studies **
http://sherpastore.com/store/page.cfm/2144

Online Subscription Sales Boom; Micropayments Explode **
http://www.onlinepublishingnews.com/htm/n20030305.644418.htm

Payment Online Subscription Management Software **
http://www.paymentonline.com/subscription-software/

CCBill Subscription Management Software **
http://businesscenter.ccbill.com/dynamic_features.html

iBill Subscription Management Service **
http://www.ibill.com/Services/

Welcome to the Riptide **
http://clickz.com/experts/design/freefee/article.php/3323351

The Better to Tease You With **
http://clickz.com/experts/design/cont_dev/article.php/3329361

When People Pay What They Think Content Is Worth **
http://clickz.com/experts/design/freefee/article.php/3310761

Content, or Malcontent **
http://clickz.com/experts/design/freefee/article.php/3298841

What Price Content? **
http://clickz.com/experts/design/freefee/article.php/1574981

10 Steps from Free to Fee **
http://clickz.com/experts/design/freefee/article.php/3286991

Monetize the Archive? **
http://clickz.com/experts/design/freefee/article.php/2218901

Paid Content: Three Studies **
http://clickz.com/experts/design/freefee/article.php/2107431

Optimize Content to Maximize the Bottom Line **
http://meclabs.com/cgi-bin/pl/pl.cgi?sco

Increasing Your Conversion Rates **
http://clickz.com/experts/design/traffic/article.php/842631

Top 4 Subscription Marketing Lessons from the Adult Content Industry for Mainstream Sites **
http://library.marketingsherpa.com/barrier.cfm?CID=2617

Match.com Tests Rich Media Email to Convert Site Skimmers into Paid Members **
http://library.marketingsherpa.com/barrier.cfm?CID=2650

How to Raise Subscription Site Conversions and Lifetime Value Rates **
http://library.marketingsherpa.com/barrier.cfm?CID=2602

How to Convert Free Newsletter Readers into Pricey Paid Content Buyers — Step by Step **
http://library.marketingsherpa.com/barrier.cfm?CID=2564

Best Practice Guidelines for Magazine Publishers Going Online *
http://www.onlinepublishingnews.com/htm/n20020702.612869.htm

Selling Out: Web Publishers’ Newest Problem *
http://www.clickz.com/features/insight/article.php/3335991

Hoover’s, NYT to Promote Electronic Subscriptions *
http://www.clickz.com/news/article.php/1471471

About This Brief

Credits:

Editor — Flint McGlaughlin