Figuring Out What to Charge for a Subscription

One of the most common questions I get asked is, “Why do you charge $200 for A Media Operator?” It’s also one of the questions I least like getting primarily because it makes me look a little unsophisticated.

The story goes, I was about to get a new boss at my last job, I didn’t want to have to explain why I had a side hustle, and so, I very quickly decided to launch the subscription. Everyone on Substack at the time was charging $100 per year (or $10 a month) and so, that was going to be my price.

But, at the very last minute, I decided that if a media operator got at least one piece of good information, it would probably be worth much more than $100. And so, I changed the 1 to a 2, and voila, now I launched with $200 for the subscription.

For someone who writes about building digital media companies, my strategy for how I price A Media Operator wasn’t very simple. But let’s assume we wanted to take a more advanced approach to pricing our subscriptions… how would we do it?

Since I spend most of my time thinking about b2b publications, I am going to focus most of this piece on that. However, a couple of years ago, Piano, a registration platform, released a PowerPoint that offered some really great insights into what to charge for a consumer subscription.

There’s the simple answer, which is to look at what competitors are doing. Like I said above, a lot of newsletter writers were going out at $100 a year because everyone was charging that. And if you’re building something similar to what already exists, it might be a good benchmark for price.

This chart shows how much revenue a publication generates by price point. Why do so many charge $10 per month? Because it happens to be the price point that maximizes revenue. According to Piano, between $9 and $10 is when publishers maximize revenue. Once you go past that, it starts to drop.

The reason for this is actually straightforward. In subscriptions, there are three variables that determine revenue: price, quantity, and retention. In the case of this chart, what we are looking at are the first two variables. If you charge less, you need to get more subscribers to convert to hit the same revenue as if you had fewer subscribers paying a higher amount. But what Piano found was that, at some point, you could be charging too much, which means fewer people would subscribe and total revenue would be lower.

Does this mean that you should just automatically charge $10? Of course not. This is aggregate level data where some publications are publishing a few pieces a day and others are publishing dozens. However, for consumer media companies, you’re dealing with a personal credit card, so price sensitivity is a thing.

In the case of b2b, I think there is different user psychology at play because we’re more often than not dealing with a corporate card. While I am very thoughtful about spending my own money, I am a little less restrictive when it comes to a company’s money, especially if I think it’ll help me do my job.

NiemanLab did a piece on the recently launched Axios Pro and its pricing strategy. This part is worth looking at:

With an enterprise subscription product like Politico Pro (which starts at thousands per year) or Bloomberg Terminal (more), “you don’t take out your personal credit card and swipe it to get one of those,” Johnston noted. Axios Pro subscribers are likely to be professionals in the fintech, health tech, and retail worlds but Johnston thinks it’ll make a difference they won’t have to call up their procurement officer or CFO in order to subscribe.

There really is no thought that has to go into spending $600. At least no more or less thought than has to go into spending $200. In both cases, it’s a low enough number that the individual can just drop their corporate card and go on their way.

For context, you can see this across plenty of business-oriented publications. The Information costs $399. Skift charges $365. Digiday costs $395. Bloomberg is $415.

I think something starts to change when you start pushing four figures on your subscription. If it costs $899 or $999 or even over $1,000, you start entering the land of approval processes. It is a major step of resistance when a user has to go ask their boss for permission to sign up for something rather than doing it based more on impulse.

This is where you can use the above Piano graphic to see a similar outcome. It’s likely that in the $300-$600 range, you’re going to maximize revenue and if you go either too cheap or too high, you’ll start to see missed opportunities for revenue.

But there is an area where you want to make it a little harder to sign up. When it comes time to try and sell a group plan, you want there to be a conversation. For larger purchases, it’s likely that there will be a required approval process. Here is where the publisher can offer a discount on a per-seat basis, but more than make up for it by increasing the revenue per organization. I’ve offered these here. I’ll take a 10% cut per subscriber if it means total revenue is higher.

Why not allow the person to just pre-select how many seats they want? Because you want to try and sell them. Let’s say they ask about three seats, but their team is actually five. They may just choose three, but if you try and upsell, maybe you can get the entire team. Additionally, you want to have the flexibility to discount where appropriate. When dealing with team subscriptions, I tend to operate from a position of revenue maximization even if the per-subscription price is lower.

Test, test, test

That brings me to the major point, though, which is that you’ve really got to test. There are plenty of publishers that are offering subscriptions at their respective prices, but only you can figure out what your publication is worth to your audience. That’s because the best way to determine pricing is to operate from a “value-based” methodology.

The only reason a person pays for a subscription is because they derive value from it. They don’t care if it’s comparable to another publication and they certainly don’t care how much it cost you. Instead, the only question they ask is, “how valuable is this to me?”

And this is where I attempt to redeem myself from my simple approach to monetizing my newsletter. I had received enough feedback from users saying, “this stuff is good, you should charge” that I was able to assign some value to A Media Operator. From there, I priced.

But by testing, you could do even better. If we know what users value about the subscription, we can experiment with different price points to help support the price. Netflix does this a lot. It has built such unbelievable loyalty from its subscribers that it can increase the price by a couple dollars a month and I would wager there will be very little churn. It knows its audience values it.

A simple test is to promote the same subscription to different audiences for different prices. Watch the difference in conversion and revenue. You’ll probably see a drop in conversions the higher you go, but will revenue increase?

The other side of the testing will have to do with churn. You may charge more and see revenue increase because of it, but if you see greater churn from the more expensive subscribers, you know that users are not finding value to the tune of your price.

Ultimately, when determining the price for a subscription, you have to try and determine how a user will value it. The more valuable it is to them, the more they’ll pay. This, by the way, is the exact reason companies spend so much to increase their brand recognition; it helps with pricing.

Many publishers avoid a deep exercise in pricing (I know I did when I launched A Media Operator), but the reality is, it’s one of only three variables that truly determine revenue. You can optimize calls to action and work to reduce churn all you want, but if you’re mispriced, you’re leaving money on the table.