Daniel Layfield

KPIs for your pricing test:

• Primary KPI: revenue per allocated user
• Secondary KPIs: revenue, month 1 churn, plan mix, conversion rates.
• Guardrails: lots!

Most products with under 12 months' retention heavily discount their annual plan. Eventually, everybody deploys this tactic of pricing annual plans to be 1 to 2 months more than usage retention.

Payment fail rates are a hidden cost of churn that most companies don’t monitor. Don’t accept them; try to solve this!

If you haven’t raised your annual prices in a while, a great tactic is to increase your monthly plan instead of decreasing the annual plan.

The most common cause of death for subscription companies is overspending on acquisition. When you launch a new channel, do not assume that the LTV of those users will be similar.

You can try to upgrade monthly users to a yearly plan, but it’s more effective to use every trick in the book (calling out best value or savings, highlighting, etc.) to convert users on the higher plan to begin with.

For users with legacy prices, let them know during cancellation that their price is no longer available. Some will stay with the product to keep the lower price. You can also have a “pause” feature to allow them to stay on.

Annual plans can extend you past your product's “natural” retention. Most B2C apps solve a problem that lasts under 12 months, so figure out how long a user should stay on your product and discount your annual plan accordingly.

When you’ve defined the price raise:

• Announce that it is happening in the future and why
• Run a “last call” marketing email campaign to get a bump in revenue
• Ship the new prices (be very cautious about raising prices on existing and dormant users)
• Communicate widely in the company and update prices in all locations (customer service template responses, FAQ pages, ad copy, etc.)

When you think about pricing yearly vs. monthly, consider how your payment processing works and factor in how much more discounting you can “afford” on the annual plan based on your payment failing rates.

The best retaining products do not offer annual plans. Instead, they provide different packages/tiers to drive up the LTV by attracting different users. Examples: Netflix, Spotify, AT&T, and Insurances.

For shorter lifecycle products, annual plans are the subscription equivalent of AOV in eCommerce. It’s one of those things you want as high as possible and fixes/mitigates the issues you might get in many other areas:

• Enables higher acquisition costs
• Lowers churns
• Simplifies payment processing
• Activates better

Knowing your LTV in the early stages of a company is hard because you’re constantly releasing new features, adding new channels, and changing prices, and it takes time for cohorts to mature. It’s a continually rolling problem. Annual plans solve that.