Should You Use a Subscription Pricing Strategy?
Switching from a course-by-course to a subscription-based pricing model has its pros and cons.
You’re thinking of updating your course pricing model, and subscriptions are looking awfully tempting. After all, it’s worked for Netflix—why not your online course?
This has, of course, proven true for many businesses. Subscription services have taken off across the web as the SaaS (Software as a Service) has boomed. Even the giants of traditional software licensing, Adobe and Microsoft, have switched to the SaaS business model in recent years.
However, don’t be too hasty to try it yourself. Subscription-based pricing has worked for many, but it also has its downsides, and there’s reason to believe the market is becoming oversaturated with too many services expecting to becoming a new monthly bill. Users are tired of not owning anything outright, and are less enthused about renting their services.
So, before you make your decision, it’s worth diving in to some of the common pros and cons to see whether this model will work for you.
Pro: A steady income source with automatic renewals.
A huge part of maintaining a healthy business involves establishing a reliable flow of income. Every business goes through busy periods and dry spells, but if you don’t know where next month’s checks are coming from, it’s difficult to plan for the future.
In that regard, subscriptions are a much more reliable income source than one-off course purchases. Your overall subscription rate may rise or fall, but it’s unlikely to disappear entirely. And if you are having difficulty maintaining your subscriptions, you usually have enough advance notice to do something about it.
Con: Requires new content to justify continued expenditures.
The down side, of course, is that with a regular monthly bill, subscribers want something to justify their continued purchases. You may grant them access to a giant library of material with their first payment, but once the novelty of that catalog has worn off, many will start wondering when new material will arrive.
Since we’ve already mentioned Netflix, let’s return to that example: Their content library is so extensive, no subscriber could watch it all in their lifetime. In fact, it’s probably too large for most of us to watch all of the material we want to watch. But that doesn’t stop Netflix from releasing more content.
It’s a matter of psychology: people don’t just want options, they want to know that they thing they continue to pay for will continue to provide value. And there are plenty of ways you can do that with your course, but it will take extra effort.
Pro: Affordable monthly fee means a lower barrier to entry.
Going back to the positive sides of subscription-based elearning, this price model usually comes with a substantially lower initial payment than a one-off course purchase. Instead of paying lots of money up-front for a course they may never use, learners can pay a much smaller price and only sign up for the service for as long as they need it.
The benefit is that, if they like your course, they may choose to stay on for a while, and after a few months they may ultimately pay more for your program than they would have done if they’d bought the course outright.
Con: A high churn rate can make it difficult to recoup initial investment.
Then again, subscription courses are easy come, easy go. You may invest a lot of marketing resources into landing a new subscriber, only to lose them after a couple months. While this situation works to the subscriber’s advantage (they didn’t have to pay lots of up-front money for a course they didn’t use), it can be difficult for you if you can’t recoup the full value of your course, including your marketing expenditures.
Now, you can handle this a couple ways: You can raise your subscription rate so that you recoup those expenses faster, or you can offer a tiered pricing model that gives a discount to learners who commit to a year-long contract, or who pay for multiple months up-front.
Adobe adopted the former strategy with their Creative Cloud SaaS suite. While subscribers can pay a month-to-month subscription fee, if they commit to a year-long contract that monthly fee is some twenty dollars a month lower. Meanwhile, many magazines use the second model: Pay for a year’s subscription to The New Yorker up front, and you get a discount that amounts to about two free months.
Pro: Subscriptions play into the “set it and forget it” psychology.
From a purely sales perspective, a lot of businesses can gain revenue from users who sign up and simply never think to cancel. Maybe they see the bill every month and it reminds them of their intent to keep taking their course, but it doesn’t compel them to go do so.
Inertia is a powerful force. Remembering to go change the status quo takes effort on the part of the user, so once they’ve signed up to your course, they’re likely to stay signed up by default—at least for a few months.
If you can use that time to engage the learner and help them follow through on their initial goal, then great! You’re helping change your learner’s habits so that they can accomplish their goals! That feels good, right?
Con: …BUT, that mindset doesn’t help the learner.
Unfortunately, if you aren’t able to engage your learner, they may walk away from your course feeling duped into signing up for a service they never used.
The point is, your pricing model can’t just be good for you, it has to be good for the learner as well. Whatever “success” means for your learner—whether it’s completing a course or sticking with a language program for a full year—you want your model designed in such a way that your learners achieve their goals. So, if you do opt for a subscription model, focus on how you can design it to encourage continuous learning.
Subscriptions can bring in more revenue, but require more management.
There’s a reason why subscriptions have taken off as a pricing model among many online educators: when implemented successfully, they usually lead to higher revenues than one-off pricing.
However, they also take more work. And not just in content creation: your marketing has to be a steady drip feed of information to learners to remind them why they signed up in the first place, so that they can justify their continued subscription.
As such, a subscription-based pricing model isn’t something to enter into lightly. If you aren’t committed to making it work, think about the more traditional pricing, or try increasing your revenues through micro content.
After all, your pricing scheme has to work for you as well as your learners. Choose what you can sustain.