Subscription box price is one of the important factors affecting many people’s buying decisions. When it comes to subscription box pricing, keep in mind your target customers’ budgets and try to demonstrate a worthwhile experience and value proposition. The majority of customers want to feel as if they got a good deal. So, if you can persuade them of the box’s high quality, variety, and affordability, more customers will be willing to subscribe to it.
In the previous post, we have shared about 6 tips to select products for your subscription box. And in this blog, we will give you a comprehensive subscription box pricing guide. If you also wonder how to charge a fair price for your box, let’s check out some suggestions below.
Customer acquisition cost is the amount of money you spend to obtain a new customer. It takes into account all of your sales and marketing expenses and provides insight into the overall effectiveness of your acquisition strategy. You can even divide the customer acquisition cost (CAC) into paid and non-paid channels to see what works and what doesn’t. This will allow you to more effectively budget for your next marketing campaign. Here is the formula of CAC.
CAC = Total sales and marketing costs spent in a given period: Number of customers acquired in that given period
For example, you spend $1000 on marketing each month and, on average, acquire 40 new customers. This means your CAC is $1000:40 = $25.
Customer churn rate reflects the number of customers who unsubscribe from your subscription service. In another word, it’s the percentage of subscribers who cancel paying you after a certain period of time.
Customer retention is the lifeblood of any subscription business, and the churn rate is the gaping hole in your retention bucket. Churn Rate = 1 – Retention Rate.
Customer churn rate = ( Customers beginning of month – Customer end of month): Customers beginning of the month
A high customer churn rate harms your subscription business negatively so you have to identify the reason why customers cancel their subscriptions. It could be voluntary churn, in which unsatisfied consumers quit their subscriptions. Or else, it may be involuntary churn, in which a customer’s credit card expires and the membership is automatically canceled.
For instance, you have a $1/month plan. At the beginning of the month, you have 120 customers. Out of these 120 customers, 8 customers leave you within the month. As a result, the customer churn rate will be 8:120×100 = 6.6%
Customer lifetime value is the average revenue a customer generates throughout the lifespan of their account. It is a fantastic indicator for your company and can be used to drive profit. Moreover, CLTV can help you figure out how much to spend on new customers, how long they stay with you on average, and how quickly they churn.
Customer lifetime value = 1: Customer churn rate that month
For example, there were 100 people who signed up at the beginning of January 2020. And at the end of that month, 35 ones still subscribed. That would mean your churn rate is 65%. So your customer lifetime value in January 2020 would be 1 divided by .65, or 1.53 months. It means your average customer in January 2020 will remain subscribed for 1.53 months.
The profit margin reflects a firm’s or business activity’s relative profitability by accounting for the costs of producing and selling goods.
Profit margin = Net income: Net sales x 100
If making a subscription box altogether costs $10 and you charge $29.99 each month, your profit margin is roughly 66.65%. But let’s say you can reduce the cost of the box to $8 and charge $34.99 per month. This results in a higher profit margin of roughly 77.13%.
Having this statistic on hand will help you figure out how much you should charge your subscription box reasonably.
Flat-rate pricing, also known as fixed pricing, gives customers a single price for all of the service’s features. Each billing cycle, customers are charged the same amount. Simply described, a flat-rate model offers a single product with a set of fixed features for a given monthly price.
This price model works best for products with few features that serve a particular customer persona. Flat-rate pricing does not work well for businesses whose resource costs vary dramatically from user to user. That’s the reason why B2B (software-as-a-service) SaaS companies, for example, do not adopt this.
Tiered pricing model provides packages with various features and product combinations are available at different price plans. This enables merchants to segment their product and service prices according to certain target markets. Basic, standard, and premium tiers are the most common.
This model is ideal for businesses with a large number of product features and a broad customer base with a wide range of needs, budgets, and user behavior. Tiered pricing is particularly prevalent among SaaS businesses.
The usage-based model, also known as a consumption model or pay-as-you-go, differs from the other models since its pricing is significantly more flexible. It is a method of directly relating a product’s cost to its amount of use, usually involving a base rate and an additional usage charge.
Let’s take your 4G data package as an example. And what happens if your monthly data allowance exceeds. You’ll see right away on your account that you’re not being charged a fixed cost – there’s a usage component. The usage-based subscription pricing model is the most flexible for customers, but it is also the most complex for enterprises to implement.
Pricing your subscription box wisely by adopting a suitable model will help your business grow and scale faster. Keep in mind that all decisions relating to price should come from a data-driven approach and persuasive proof, not assumption or guessing. A reasonable price aligning with product or service quality will be easier to win the customer’s heart and make them commit to your subscription business. Hope that this post about the subscription box pricing guide is helpful to you.
The next post in the subscription series will be about Pro Subscription Box app – An effective tool to start a subscription box. So don’t forget to visit our page for more useful information about the subscription box business model.