Managing the Transition to a New Price System
When you are operating a business—especially in an inflationary environment—prices typically go only one direction: up. And for traditional companies, these systematic price increases often make sense, as pricing often takes cost factors into account. But for subscription businesses, pricing changes are about more than just increases. There comes a time in a company’s Journey to Usership where the existing pricing system does not reflect the strategic direction of the business. This will inevitably occur when a business transitions from traditional transactions to recurring revenue through subscriptions, but also at later stages when the monetization strategy evolves.
Whether your pricing is purely usage-based, based on a recurring flat fee, or somewhere in between, the prices themselves are just one input in a complex matrix of factors that affect revenue. A change in the price of just one feature or tier can have a ripple effect across the entire product portfolio, wreaking havoc on metrics like annual recurring revenue (ARR), churn, and customer lifetime value (CLV). The power of compound growth means that a failed price increase could have major consequences for long-term profitability.
We have developed this ebook to help subscription company leaders navigate the critical but risky process of Pricing Transformation. Designing a new price system requires a lot of effort, and it is important that the time and resources devoted to this endeavor are not wasted. Often, Pricing Transformation is undertaken when a company reaches a new level of maturity during the journey to usership. The need to change is usually obvious, and urgent. The question is, how do you implement the necessary new price system without rocking the boat?