Pricing a Subscription Service to Maximize Customer Lifetime Value

As more and more businesses switch to subscription-based offering, traditional pricing & revenue management models need to factor in the long-term effect of price on customer’s lifetime value. In this presentation, we demonstrate a way to combine the effect of pricing on acquisition of new subscribers as well as the effect of pricing on renewal likelihood to promote a pricing structure that maximizes the overall lifetime value of a customer. Incorporating the effect of price on customer’s likelihood of renewal in subsequent years allows the business to make better pricing that creates a higher value customer pool that is more likely to renew the subscriptions without additional incentives. Early results from the implementation of this model indicates a 5%-10% increase in number of subscriptions along with a 2%-5% revenue increase in the first year.