subscription based models, how to determine pricing?

I am nearly ready to launch, however I need to determine a pricing for monthly payments by the clients.

How do you price it? Each time a user uses the product it costs us money through hardware consumption (bandwidth, resources).

If you yourself can be your own customer ("you eat your own dog food"), the number one piece of advice is, what would you pay for it.

At Inkling we've gotten in the habit of sticking in our own credit card to pay for using our own software. Yes, it's a bit silly when the credit card processing takes some money off the top. But it makes the feeling very real that you are paying for this, and now it's an expense just like it's going to be an expense for your clients.

So when we started Tgethr, I stuck my credit card in to pay for the plan that met our own teams needs. Through doing this, I found I was paying $99 just to support the groups of family and friends and the folks at work with this software. After a couple months of getting dinged that $100 for my particular situation, it didn't feel right. We were charging too much. So we tweaked the plans to offer more storage, more groups, so that I could move myself to a smaller plan and now start paying $49 a month, which feels much more realistic or fair to me as a customer.

I'd start with doing exercises like this. If afterward, you find your pricing + customers doesn't support your hardware and resources, then you are going to have to provide much more value to justify raising prices.

I recently went through the same thing. I looked at a lot of factors like the ones people often look at (competition, ROI, positioning, expenses, etc.).

I also talked to a few potential users and asked them to give me a price that felt right. That got me guesses that ranged from $5 to $75, but most people seemed to stay within the $10 to $20 range.

I'm still playing around with my pricing at this moment but this is what I'm doing:

One week pre-launch to my existing email subscriber list at special pricing at the low end. I made them aware this was temporary and only for them. I then watched my website convert visitors to the paid account at 11%. Pretty good numbers.

This week I've launched and I moved the price up, still under what standard pricing will be, but more than my pre-launch pricing. I'm watching the numbers and conversions have been very low.

The problem with this is that right now I can't tell whether my numbers are low because I'm dealing with a cold audience (first time visitors to my website), or if it's because of the pricing. Or maybe it's the fact that I only have two plans (0 and 14), and I need to introduce a more expensive plan to put adjust their perception.

Like I said, I'm currently in this phase but I plan on experimenting to see what gives me better results.

I'm going to add a more expensive plan and watch what happens. I'm also going to work on converting free account users into paying users -- the theory here is that free account users will be easier to convert than first time visitors of my website (though it doesn't fix my pricing problem). Another thing I'm going to try: send a survey to my email list (ones that didn't sign up) to find out what they thought about the pricing and features.

I'm monitoring with crazy egg to get a better feel of what the behavior as well.

Anyways, my basic strategy is start low, monitor, make changes, and move pricing up. Hope this helps in some way.

I've put together several reads and consideration on this very topic here:

Pricing an online service

You're looking at it completely wrong. First of all, you don't price based on your costs, you price based on what the market will bear. Second, the cost to run a web site or a piece of software is zero. The best approach is to start at 0.00 and if you are able to get some users, it will become fairly apparent what the right price points are.

I think it would be helpful to describe your service at a high level. Pricing may differ wildly.

If you have direct competitors, look at their pricing and make yours different. If they're per-month, makes your per-quarter. Bundle some services in, make some marketing partnerships. Anything to differentiate.

If you don't have direct competitors, look at other services that are similar or have the same customer. Look at what their pricing was to begin with. See what customers seem to accept. Then run different prices (make up some discounts or sales), and see what customers seem to accept.

Lots of study was done on pricing it right, read http://www.pricingwire.com/

Do research on your competitors and what they're charging.

Conduct a focus group (formal / informal) to explore members of your target audience and their feedback on pricing.

Is there an ROI / value of using your product? If so, detail that.

Write up your costs at various levels of users.

Test - once you launch, monitor very closely to understand prospect and customer reaction to your pricing. You could be too expensive or you might be leaving money on the table. Once you launch is when you can really understand market acceptance.

Do research on your competitors and what they're charging.

Conduct a focus group (formal / informal) to explore members of your target audience and their feedback on pricing.

Is there an ROI / value of using your product? If so, detail that.

Write up your costs at various levels of users.

Test - once you launch, monitor very closely to understand prospect and customer reaction to your pricing. You could be too expensive or you might be leaving money on the table. Once you launch is when you can really understand market acceptance.

You need to charge what users are willing to pay. Don't use "multiples" of your costs or anything like it. Study your customers and decide if your product is a must have or a nice to have.

Answer this questions:

1. How much are your competitors charging? Can you charge less?
2. Do you want to be the low cost provider?

Just be carefull if you choose to be the low cost provider because there are businesses where a lower price point than your competitor actually kills you.

Our plan is to use an increasing subscription price as an incentive in our B2C company. That is to say that we will be upfront with our prospects that the price of the product subscription will increase as the product is fleshed out. More specifically, very early users will get a dirt cheap price with the understanding that their subscription price is good for X years. New users coming later will pay more, but again, their subscription cost will remain constant for X years. Our hope is that the risk of increasing prices will get people on board earlier.

For us this is a very attractive model. Our pricing strategy will be completely transparent and it gives us a reasonable way to charge small amounts from the beginning without offending users later with price increases.

Thoughts?

Is it B2B or B2C? Generally B2C will need to be a lower pricing point? You need to also look at whether you can be profitable at a given level - long term can you persuade enough people to pay 5,50, 500 dollars.

You could always start with a free trial period to build numbers and guage interest. If you can't get lots of users on a free product, its unlikely to improve as you increase costs.

I think it's not that simple as "what would you pay for it". It depends on the product. If it is a new product and you are trying to concept sell, it may take sometime for the customers to use it and understand it's true value and full potential. In that case you may need to initially charge low and once the customer has realized the potential of your service/product, he would be able to better appreciate his ROI even on a higher price.In this case, while you understand the ROI on the product/service, the customer may not and "what would you pay for it" may not work. On the other hand, if your product/service is a standard one , then the initial pricing may be driven heavily by what the competitors are charging.