How our test site optimized subscription revenue by adding quarterly, semi-annual, and annual subscription options
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?
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:
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.
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.
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.
|Subscription Model – Price Points|
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:
|Subscription Model – Profitability|
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)
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).
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.
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.
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.
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.
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.
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:
Ideal Subscription Path Tested:
Offer Pricing Tested:
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.
Related MEC Reports:
Content Sales Tested:
Ideal Subscription Path Tested:
Offer Pricing Tested:
Landing Pages Tested:
Long Copy vs. Short Copy Tested:
Order Process Tested:
Order Recovery Tested:
Pay-Per-Click for Subscription Sites:
Welcome Message Sequence Tested:
As part of our research on this topic, we have prepared a review of the best Internet resources on this topic.
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 ****
ClickZ – Content Development Archives ***
Online Publishing: The Long View, Part 1 ***
Online Publishing: The Long View, Part 2 ***
Online Publishing News **
Content Blog **
Proven Online Subscription Sales Tactics **
6 Money-Making Search Marketing Tips for Online Publishers **
2004 Selling Online Subscriptions Summit Transcript: 10 Publisher Case Studies **
Online Subscription Sales Boom; Micropayments Explode **
Payment Online Subscription Management Software **
CCBill Subscription Management Software **
iBill Subscription Management Service **
Welcome to the Riptide **
The Better to Tease You With **
When People Pay What They Think Content Is Worth **
Content, or Malcontent **
What Price Content? **
10 Steps from Free to Fee **
Monetize the Archive? **
Paid Content: Three Studies **
Optimize Content to Maximize the Bottom Line **
Increasing Your Conversion Rates **
Top 4 Subscription Marketing Lessons from the Adult Content Industry for Mainstream Sites **
Match.com Tests Rich Media Email to Convert Site Skimmers into Paid Members **
How to Raise Subscription Site Conversions and Lifetime Value Rates **
How to Convert Free Newsletter Readers into Pricey Paid Content Buyers — Step by Step **
Best Practice Guidelines for Magazine Publishers Going Online *
Selling Out: Web Publishers’ Newest Problem *
Hoover’s, NYT to Promote Electronic Subscriptions *
About This Brief
Editor — Flint McGlaughlin