Picking the Price That Maximises Profit

publication date: Jun 19, 2006

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author/source: Miles Galliford

Get the price too low and your costs, marketing in particular, will eat into your margin. You could also put people off if the price point gives the perception of low value.

• The monthly subscription can be anything from £1/$2 up to £1,000/ $1,800. The most common subscription charges fall in the range £4.99/$4.95 - £19.99/$19.95.

• A website with just 1,000 members charging $9.99 a month will generate about $120,000. If this business is run from home, even after costs, it could generate a net income of over $100,000 for the individual publisher.

• It is recommended that publishers offer a choice of payment plans, with discounts for members willing to commit for longer periods of time, for example:

• If you offer three pricing points, you tend to get most subscribers going for the middle one. It’s a psychological thing.

• If you offer a monthly price point, make sure that it is much higher than 1/12^th of the annual. You want to encourage people to subscribe for as long a period as possible, whilst not putting off people who want to test the water before fully committing themselves. E.g. Monthly £19.97, Annual £149.

• Offering just an annual subscription will greatly reduce your conversion rate because you are increasing the perceived risk for prospects signing up. This is still the case even if you offer a 100% money-back guarantee.

• Be aware that many payment providers will not allow you to charge an annual subscription because if the website closes down, they are liable for refunding members the outstanding balance for the remainder of the 12 months.

• Generally speaking, sites aimed at consumers charge less than those targeted at businesses.
  • Consumer sites, typically £30 - £120 per year.
  • Business sites, typically £120 - £700 per year.

• What are the competitive sources of information for your potential audience? How much do they charge? If Manchester United charges £100 a year for membership to the official fan club, a competing online independent fan club should probably charge no more.

• The more exclusive the content, the more you can charge. A very successful share trader, Vince Stanzione, charges £100 /$180 a month for a newsletter reporting what trades he is about to make or has just made. Jay Abraham charges $300 a month for access to his website that gives his personal advice on growing a business (www.abrahaminsider.com).

• Study magazines in your sector. How much do they charge? What is their circulation? How will you compete? There is no rule about charging more or less than them, but you have to be sure that your value proposition is more compelling when trying to attract new members. Do remember that as an online site, you offer huge advantages over print. These benefits have a value that you can charge for.

• People love a deal! Set your price a bit higher than you intend to charge and then discount it back. This has two benefits:
  • People perceive that the value of the content is at the higher price.
  • Prospects feel they are getting a bargain.

• There are psychological barriers in pricing. It is better to charge $4.95 a month than $5.00, or $9.97 is better than $10.00. There are also opportunities to push pricing up towards these barriers. For example, if you charge $385 a year, you could probably get away with lifting the price to $397 without any impact on sign up rates. Just don’t break the $400 level, as this is the next psychological barrier and will cause a fall in subscriptions.

• Don’t give discounts to loyal members! If a member returns year after year, they perceive that the price they pay is equal to the value they receive. By all means, reward their loyalty with bonus information, such as a free e-book or a research report, but don’t reduce the price. This is a very common mistake.

• Offer promotional prices for one year, but don’t drop the general price. If you believe that you are missing out on a big market group because they are more price sensitive, offer them a promotional code/discount on the standard price. Don’t drop the price for all subscribers. A good example is if you decide you want to attract students who tend to be very price sensitive.

• DON’T ever consider, even for a moment, charging a one-time fee for lifetime’s access. This was common in the early years of the internet, but I haven’t seen a single site that has survived with this strategy.

• Test, test and test again! One of the greatest benefits of the internet is you can easily change pricing, offer discounts or promote free incentives with minimum effort and cost. For example, send out two different price offers to two similar groups of prospects. Measure the response rate and margin to find out which offer is most profitable. Then create a new offer and try it against the best of the first offer ... and so on. This is known as “AB Testing”.

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