If your marketing agency currently offers digital marketing services as a subscription (or retainer), you know the benefits of using a subscription-based model to generate dependable, recurring revenue. 

But, how do you know if you’re maximizing profits?

Testing your subscription or retainer pricing can ensure that you’re priced appropriately and making the most of every new client that enlists your monthly services.

While there is no hard and fast rule, there are several key aspects to consider when testing your pricing. Here are 6 tips to help you determine what price will give your digital marketing agency the greatest chance for success:

1. Ensure Profit

The first thing you need to know is the profit margin that is required to keep your business going. Knowing your boundaries and your opportunities for profit will give you a bracket to consider in picking out your subscription price:

  1. Know your profit margin
  2. Calculate customer lifetime value 
  3. Create a sales forecast

You may find that you can’t afford your ideal price due to your costs. This will bring up essential discussions about cutting costs or being creative with your marketing.

2. Scope Out the Competition

Price testing doesn’t occur in a void.  How your competition positions their services has an impact on your pricing as well.  Before you test a new pricing model, compare it to what your competition offers to hypothesize how a pricing change might impact your business’s ability to acquire new customers.

  • What pricing model has worked well for your competition? What can you learn from them as you approach your own pricing?
  • If priced very similarly to the competition, how can you differentiate your service offering?
  • Can you price your services higher than the competition and continue to look attractive to potential customers?
  • Can you afford to undercut the competition, and do you risk starting a pricing war that drives down prices in your niche?

3. Test Different Pricing Models

You can speculate the investment your customers are willing to make in your service, but you never know for sure until you test.  

  • Will potential customers protest at a price increase, or will they subscribe without batting an eye?
  • Can you get enough new customers in the door to compensate for a price decrease?
  • Does it make sense to decrease pricing for customers who commit to your service for 3 months, 6 months or a year?
  • Can you add or remove features or services to your packages to offer more than one price point?

Choose the pricing model you want to test.  Then, leaving everything but the price the same, launch your new pricing model in the wild to compare results of the new pricing with the old pricing model.

4. Look at Return on Investment

As you’re testing new pricing, you need to look at more than just the end dollar amount earned. Take into account the cost to acquire a new customer, revenue and profit. The lowest subscription amount in your experiment might be best, even though you make less per subscription because it sells more subscriptions. The highest subscription may be the best choice, even though you might sell fewer subscriptions, because it may cover your costs and you may want to market your product as a high-end good.

5. Determine Impact on Marketing, Sales and Support

Changing your pricing model doesn’t just affect revenue, but also has an impact on your marketing, sales and support.  

For instance, if you increase the price, you may need to position your services in a different way – emphasizing the benefits to potential customers seeking value over price.  Or, you may want to take a more hands-on approach to customer service to deliver a white-glove experience that matches customer expectations.

Likewise, if you decrease pricing, you’ll be focused on increasing volume.  Your marketing and sales may change to emphasize features and pricing over benefits to attract price-conscious customers.  To sustain lower prices, you might also need to decrease touch points with your customers in order to scale your business more efficiently.

6. Measure Stickiness

Do new customers stick with you longer on the new pricing model? Increasing the lifetime value of your customers can boost your bottom line and increase average monthly revenue.  

For example, say you lower your monthly fee and get more customers in the door – but they cancel their service after two months.  You might be better off with a higher price point that attracts fewer customers who stay for the long haul and have a greater lifetime value.

Bonus Tip

When you are determining the correct price, there is a theory that you should have an experimental price that is too high. This gives you a ballpark on where your top price should be. Reach a little higher than you think the market is willing to spend so you can find out the highest amount potential clients are willing to pay per month. If you haven’t found that number yet, you may not be maximizing your profit potential.

Setting a subscription price is hard work, and impacts the marketing, sales and support of your digital marketing services. Test more than one option to find out which pricing model maximizes profit for your business.