Subscription Model Guide
Pricing Model Types
Flat-Rate
One price, all features. Simple but leaves money on the table. Example: Netflix basic plan.
Tiered
Good/Better/Best tiers. Most common SaaS model. Anchoring effect drives upgrades.
Usage-Based
Pay per API call, GB, seat. Low barrier, scales with value. Example: AWS, Twilio.
Freemium
Free core, paid premium. Requires high conversion (2โ5% is good). Example: Spotify, Notion.
Per-Seat
Price per user/seat. Easy to budget, scales with team size. Example: Slack, Zoom.
Box/Curation (Ecommerce)
Monthly box delivery. Recurring revenue, predictable inventory. Example: Birchbox, Dollar Shave Club.
Key Subscription Metrics
| Metric | Formula | Healthy Range |
|---|---|---|
| MRR | Sum of all monthly recurring revenue | Growing >10%/month early stage |
| ARR | MRR ร 12 | Key investor metric |
| Churn Rate | Churned customers / Total customers | <2%/month (SaaS) |
| NRR (Net Revenue Retention) | (MRR end - churn + expansion) / MRR start | >110% excellent |
| Upgrade Rate | Upgrades / Total subscribers | Track monthly |
| ARPU | MRR / Active customers | Should grow over time |
Pricing Psychology Tips
- ๐ก Anchor with the highest tier โ makes middle tier look reasonable
- ๐ก Annual discount (15โ20% off) improves cash flow and reduces churn
- ๐ก Free trial reduces friction (14-day performs well for B2B)
- ๐ก Highlight "most popular" tier to guide decision
- ๐ก Grandfathering existing customers builds loyalty and reduces backlash on price increases