Pricing Software Subscription Service

PowerFrameworks sells Microsoft PowerPoint frameworks for visually presenting concepts- if your slide deck is usually filled with bullets you might want to start with them. The more interesting point to me is their pricing strategy, which stands out as an example of pricing done right. There are a few things about their product strategy and pricing that are worth mentioning:

  1. Instead of selling the frameworks as a software with one time revenue, they sell it as a subscription service with recurring revenue.
  2. The subscription model allows them to continuously innovate and deliver new frameworks.
  3. Subscription model is unbundling the product along the usage dimension – instead of buying the product all at once the subscribers pay for usage.
  4. What they offer with subscription are PowerPoint slides with the frameworks, about 400 of them, that a subscriber can download. Technically, someone can subscribe to the service only for the minimum allowed period and download all the frameworks. Their pricing addresses this by pricing the lowest possible subscription period of six months and not month to month which is the norm for  SaaS offerings.
  5. Their six month subscription is priced at $150 and their full year subscription is priced at $250, incenting customers to buy the latter.
  6. They offer mixed bundling – you can either get the subscription that gives access to all templates or buy each template separately. Pricing studies have shown that offering mixed bundling is more profitable than either pure bundling or fully unbundled offering.

I think their pricing schedule is done very well and almost right.    Since the frameworks are available for download, there is no need for a customer to buy an yearly subscription if the customers download all they want over the six month period. So a customer can simply buy the subscription for every other six months or worse even less frequently.

One recommendation I will make is to look at their numbers for six months and  full year subscribers and see if there is opportunity to increase  profit by increasing number of full year subscriptions.

Suppose the numbers of  six month subscribers is   x and full year subscribers is y.

Their total profit (since variable cost is $0) = 150x + 250y          — (1)

if they were to drop yearly subscription to $200 and that causes  ‘z’ number of subscribers to migrate from six month to full year subscription. Assume their total number of subscribers remain the same for now. Then their new profit is

150(x-z) + 200(y+z)   = 150x + 200y + 50z                          — (2)

From (1) and (2),  for the price drop to be profitable,  50z must be greater than  50y, hence z > y

This means they need to more than double the number of full year subscribers. If their current y represents a small percentage of total subscribers there is definitely room for more profit by dropping prices. But if  y represents a higher proportion (most of their customers purchase full yer subscription) then I recommend increasing price of the six month subscription.

Suppose they increased the six month subscription by $25 and as a result lost 30% of their six month subscribers and 10% upgraded to full year subscription. The new profit equation is

(0.6x)175 + (y+0.1x)250    —- (3)

From  (1) and (3) we can see that     the price increase for six month subscription offer more profit than current pricing even if we assume a steep drop of 30% in subscribers.

The net of this is while offering multiple subscription pricing, studying your customers and their willingness to pay is essential to maximize profit. Increasing the pricing on the lowest priced version may still deliver higher profit even at lower subscription rate.