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How to monetize subscription business to improve performance

Monetizing a subscription business sounds relatively easy, but there is an art and a science to getting it right in order to achieve the best performance.
Niclas Lilja
By Niclas Lilja on October 26, 2020

Money talks, time is money, money makes the world go round. So when it comes to monetizing your subscription business, there are a lot more things to take into consideration than just freemium model versus package prices. While subscription business models make tracking and predicting MRR and ARR easier, and can help you scale volume, the real value in subscription business is that you can make your money work for you, not the other way around - but only if you're thinking about monetizing your products and services in the right way.

Focus on value - for you and customers

Most businesses struggle to properly put a price to the value of their products and services when just starting out. Especially when you are offering something new, or changing aspects of your existing business, it may be hard to find comparison points that can give you guidance. Overprice and you can deter prospects or make existing customers unhappy, underprice, and you miss out on revenue and potentially appear low quality to prospects - also deterring them.

Monetizing is tricky, but find the balance between the value for you and the value for customers, and you'll be in good shape. The first step is to recognize that long gone are the days of cost-based pricing, primarily because a service (or even SaaS) is so much more than a one off sale of a physical product.

One of the most straightforward approaches to monetizing value is to align with the customer revenue model. If, for example, they depend on visitors, you should think about how your service grows with their growth of visitors. You can then set a price based on an activity - their wins become your wins, and by tying your monetization to their performance, they'll know you have a vested interest in ensuring their success.

If you're a fairly young company and this approach feels risky, you can think about how you can monetize added value. While you may start out with straightforward tier-based pricing, think about how you can add features, consulting hours, onboarding, and other services that add specific value for customers, and create associated fees on top. If it works, you can become more customized in your monetization without feeling like you risk uncertainty with transaction-based pricing formats.

Monetization is active - not static

Remember that once you decide on your revenue streams and how you will monetize your services, you don't have to be beholden to those decisions forever. Think about monetization as a "land and expand" practice rather than worrying about getting the "right price" from the start.

When setting up a business, many assumptions need to be made - about your product/market fit, about your target customer profiles, or about your value proposition and positioning. Monetization is the same.

Refine your model as you learn more about how customers use your products and services, find out the reasons for your "closed lost" deals and if the price and/or pricing structure was a factor, and test different methods of self-service versus high-touch sales and pricing to understand how your customers buy and want to be sold to.

With monetizing SaaS and subscription model businesses, the most important thing to think about is what your customers are paying for, and why they would pay for it. The first answer is likely not your specific product or service, it's the solution it provides for them. If the solution is cost-saving or time-saving (which also is cost-saving) or growth enabling, then you can see an immediate value for customers.

But then, understand that your monetization doesn't need to be set in stone. It should be a fluid activity that responds to market demand, customer feedback, and your ability to scale as a company.

If you approach monetization in these two ways, you can ensure that the performance of your company will not be dependent on poor pricing, and you can be free to focus your intention on the activities that will actually bring in revenue.

Learn more about another crucial method of subscription business - control - by downloading our new guidebook here:

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Published by Niclas Lilja October 26, 2020
Niclas Lilja

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