Subscription Pricing Strategy: The Seven Decisions That Decide Your Profit

Michael Martin stood at the bottom of an escalator in Grand Central Station, handing a business card to everyone who walked past. His startup, RapidSOS, had built an app called Haven: push a button and your location went straight to a 911 call handler. The plan was a six-month free trial, then $2.99 a month.

After two hours, Martin rode the escalator up himself. Three-quarters of his cards were in the bin at the top.

People didn't want to pay $2.99 a month for something they felt they already got free by dialing 911. Haven was shut down in 2018. (RapidSOS went on to succeed by selling its technology to other companies instead.)

I tell this story in Chapter Three of The Subscription Playbook because it shows what most owners miss: a good product can be killed by a pricing model that doesn't connect with the buyer. Not by the price being a dollar too high. By the whole structure being wrong.

So this page isn't about picking a number. It's about the seven decisions that sit behind every subscription price, and how to get each one right.

What Is a Subscription Pricing Strategy?

A subscription pricing strategy is the set of decisions that fixes what a customer pays, how often they pay, and what makes their bill go up or down over time.

That last part is what makes subscription pricing different from one-off pricing.

When you sell a toaster, you set one price and you're done. When you sell a subscription, you're designing a relationship. You need to decide how the customer starts, what they pay as they grow, what happens if they shrink, and how you'll raise prices in year three without losing them.

I'll give you my two rules up front, because everything else hangs off them:

1. Whatever pricing models you use, the goal is to move customers toward recurring revenue. That's where the predictability and the business value come from.
2. Keep it low friction. A confusing price means fewer people pay. Sometimes the quality of your pricing structure, more than the actual price, becomes part of your competitive advantage.

The Seven Decisions in Every Subscription Price

Here's the whole strategy on one table. Work through it in order, because each decision constrains the next.

If you only have ten minutes, read the step-by-step guide on how to price a subscription. It walks through these decisions with one worked example. If you've got a coffee in hand, keep reading.

Decision #1: What Are People Actually Subscribing To?

Before you price anything, you need to know which version of subscription you're running.

In the book I describe eight subscription models. Each one has its own pricing logic:

• Consumables (my peppermint tea, Dollar Shave Club) are priced against what the customer pays at the shop. The subscription wins on convenience, not usually on a huge discount.
• Unlimited content (Netflix, Spotify, a course library) is priced on access. Your costs don't rise much with each extra view, so "unlimited" is safe.
• Bundled services (a salon's monthly treatment pack, an accountant's fixed monthly fee) is priced against the sum of the individual services, minus a sweetener.
• Insurance (a vet wellness plan, an HVAC maintenance agreement) is priced on peace of mind and the average cost of what members actually use.
• Minimum commitment (Stripe's lower rates for a 12-month commitment) is priced as a discount in exchange for certainty.

Here's why this matters for pricing. "Unlimited" works beautifully for a car wash, because nobody washes their car 40 times a month. Mister Car Wash made 79% of its wash sales from its Unlimited Wash Club in 2025. But "unlimited" pushed Pret to scrap free drinks in its UK coffee club and forced Panera to cap its Sip Club at 30 drinks a month from August 2026.

Same word. Very different cost curves.

Action: Write down which of the eight models you're running, and whether your cost goes up every time a member uses the service.

Decision #2: How Is the Bill Structured?

In Chapter Three I covered five pricing models: regular fixed fee subscription, advertising, e-commerce, transaction processing, and data and APIs. Those still hold. But in 2026, when people say "pricing model," they usually mean the meter on the bill. Here's how the main options compare.

You don't have to stick to one. Amazon combines all five of the book's models. Spotify mixes subscription with advertising on its free tier.

If you're unsure, the free Pricing Model PickerFlat, tiered, seat, usage, credits, outcome or hybrid? Find out.Open the free tool → will recommend a structure based on how your costs and your customers' value behave.

Decision #3: What Should the Bill Grow With?

This is the decision most small businesses skip, and it's the one that matters most for long-term growth.

Your value metric is the unit you charge for: per user, per location, per 1,000 contacts, per project, per resolution. A good one means your revenue grows automatically as your customer gets more value. A bad one means your best customers get a bargain while your smallest ones feel ripped off.

In the book I said a good usage metric needs to be value-based, scalable, flexible, feasible and predictable. That five-part test has held up well.

Look at what happened to per-seat pricing as AI arrived. WiseTech Global, the Australian logistics software company, removed seat fees from CargoWise in December 2025 and moved to transaction-based "Value Packs." Its explanation was blunt: for businesses that charge per seat, "AI will disrupt them," while its own "revenue is not diluted by customers becoming more productive." By February 2026, about 95% of CargoWise customers were on the new model.

If your customer's team halves because AI does half the work, does your revenue halve too? If so, your value metric is a risk.

I go through 30-plus real examples and a scoring method on the value metric guide.

Decision #4: How Much Should You Charge?

There are three ways to set the actual number. Most businesses use one without realizing there are others.

The trick is to use all three, in the right roles:

• Cost sets the floor. Below it, every new subscriber loses you money.
• Value sets the ceiling. Above it, nobody rational buys.
• Competitors tell you where buyers' heads are. They're the reference point customers compare you against.

Your price lives somewhere between the floor and the ceiling. Where exactly depends on how different you are from the alternatives.

Here's the floor in one line:

Minimum price (ex GST) = (Cost to serve per month + Payment fees) ÷ (1 − Target gross margin)

If a subscriber costs you $18 a month to serve, fees are about $1, and you want a 60% gross margin, your minimum is $19 ÷ 0.4 = $47.50 a month before GST. Anything above that is a decision about value. The Subscription Price CalculatorWork out a profitable monthly price after costs, GST and fees.Open the free tool → runs this for you, including GST and card fees.

For the ceiling, read value-based pricing and, if you sell a service rather than a product, value-based pricing for service businesses.

Decision #5: What Goes in Each Tier?

Once you know your metric and your price range, you design the plans.

For most businesses I recommend three tiers. Call it good-better-best. The entry tier lowers the barrier. The middle tier is the one you want most people to buy. The top tier serves your biggest customers and makes the middle look reasonable.

Xero did this well in Australia. In July 2024 it collapsed four older plans plus add-ons into Ignite, Grow, Comprehensive and Ultimate, saying the new line-up had "more key features included, with fewer plans and add-ons." Combined with regular price rises, its average revenue per customer rose 23% in fiscal 2026.

Three pages go deeper here:

• Good-better-best pricing: how to build the three-plan ladder and steer people to the middle.
• Tiered pricing models: feature tiers versus volume and graduated tiers, with the maths.
• Packaging: what goes in each tier: which features to include, hold back, or sell as add-ons.

You can sketch your own three-tier table in the free Pricing Table Builder.

Decision #6: Trial, Freemium, Monthly or Annual?

How customers start, and how often they pay, changes your cash flow as much as your price does.

Freemium or free trial? In the book I boiled it down to three conditions:

Jason Lemkin's maths explains why. At $10 a month you need about a million subscribers to reach $120 million a year. If 2% of free users convert, that's 50 million free users. Most businesses don't have a market that big.

Monthly or annual? About 70% of subscription services bill monthly, because a smaller number is easier to say yes to. Annual billing gives you cash up front and a 12-month relationship, but it creates a big renewal event every year. One of the best sales professionals I ever worked with called that renewal "poking the bear." (If the bear is happy, why wake it up?)

Many businesses offer both and discount the annual plan. The question is how big the discount should be. The free annual discount calculator compares the discount with what you'd lose to monthly churn, and the full comparison is on annual vs monthly plans.

Decision #7: How Will You Raise Prices?

Every subscription business needs to raise prices eventually. Costs go up. You add features. Your early customers are paying launch prices from years ago.

The businesses that do it well decide how before they need to.

Planet Fitness held its Classic membership at $10 a month from 1998. In 2024, after testing new prices in several markets, it raised the price to $15 for new members only. Existing members kept paying $10. Nobody already paying saw a higher bill, so nobody had a reason to cancel.

Accounting firms are doing the same with fixed monthly fees. A 2025 benchmark of 219 US firms found 80% planned to raise prices by an average of 5% to 10% in 2026, and two-thirds of firms that raised prices in the past year either lost no clients or kept profitability stable despite some losses.

Three moves make price rises easier:

1. Pick a fixed review date and tell customers. Xero uses 1 July in Australia.
2. Grandfather or phase in. Protect existing customers for a period, or step the price up over 12 months.
3. Tie the rise to visible value. New features, more included usage, better service.

Before you announce anything, model it. The Price Increase SimulatorModel the MRR impact of a price rise and your break-even churn.Open the free tool → shows the revenue impact and how much churn you could absorb and still come out ahead. Full playbook: how to raise prices.

Worked Example: One Business, Three Pricing Strategies

Let me show you why structure matters more than the headline price.

Imagine an online booking app for allied health clinics. (The numbers are illustrative, not from a real company.) It has 200 customers:

• 120 solo practitioners
• 60 clinics with 4 practitioners each
• 20 group practices with 12 practitioners each

Here are three ways to price it.

Here's the same thing side by side.

Option A undercharges the big practices and overcharges the solos (who are the ones most likely to say no). Option B is fair, but it ties your revenue to headcount. Option C earns the most today and grows the most as customers grow.

None of this changed the product. Only the structure.

What Changed in 2026: Credits, Hybrids and the Slow Retreat of the Seat

When I wrote the book, I called usage-based pricing "the emerging pricing model" and said we weren't going 100% usage-based any time soon. Both statements have aged well.

Here's what the 2026 data shows:

• Consumption is rising, but blended. ICONIQ's 2026 survey of about 305 AI builders found consumption pricing rose from 35% to 42% of companies and outcome pricing from 18% to 23%. Companies now blend an average of 1.7 pricing models.
• The fastest growers meter usage. Of the 44 companies that crossed about $100 million in reported ARR in 2026, 18 of the 33 with visible pricing charge mainly on consumption (usage, credits, a usage hybrid or outcomes). Only 4 rely mainly on seats. I've broken the list down in how 2026's fastest-growing companies price.
• Incumbents bundle AI into the seat and raise the price. Slack folded AI into Business+ in June 2025 and raised it from $12.50 to $15 per user. Notion retired its $10 AI add-on and bundled AI into its $20 Business plan.
• Credits cause the biggest backlash when allowances shrink. In June 2025, Cursor moved its $20 Pro plan from 500 fast requests to $20 of model usage at API prices. Users hit surprise bills, and Cursor wrote: "We recognize that we didn't handle this pricing rollout well, and we're sorry."

Why the shift? Because AI has real costs per use. A heavy user of an AI product can cost you many times more than a light one. A flat price that works for the average customer can lose money on the top 10%.

The answer most companies settled on is a hybrid: a familiar monthly price, an included allowance, and clear overage. If you're pricing anything with AI inside it, start with the AI pricing guide.

When a Simple Flat Price Is the Right Answer

I don't want you to walk away thinking you need credits, meters and five tiers.

Most small businesses don't.

A flat price is the right answer when:

• your cost to serve is roughly the same for every customer;
• usage is naturally capped (car washes, gyms, a monthly service visit);
• your customers are consumers who hate surprises on their card;
• you can't easily track usage, and building that tracking would cost more than it earns.

That last one matters. In the book I warned that the investment needed to track usage accurately can outweigh the revenue benefit for smaller businesses, and that lost predictability can sting a business that can't absorb cash flow dips. That's still true.

Amazon Prime, Uber One and Monarch (a paid-only budgeting app at $14.99 a month or $99.99 a year, with more than a million members) all run on simple flat prices. Simple is not a weakness. Complexity you don't need is.

The Australian Angle: GST, Fair Terms and the 2027 Rules

If you're selling subscriptions in Australia, three things affect your pricing strategy. This is general information as at October 2026, not legal or tax advice.

GST. GST is 10% on most goods and services, which means it is one-eleventh of a GST-inclusive price (ATO). So a consumer price of A$55 is A$50 to you and A$5 to the ATO. Price from the ex-GST number up, or you'll quietly give away a slice of every payment.

Unfair contract terms. Since 9 November 2023, using unfair terms in standard form contracts can attract penalties (ACCC). The ACCC has long flagged terms that let a business change a contract without the customer's consent. If your terms let you raise prices, make sure customers get notice and a genuine way out.

Subscription traps. The government announced plans in February 2026 to target hidden fees and subscription traps (Treasury), and the resulting law, the Unfair Trading Practices Act 2026, has passed. From 1 July 2027 it requires clear pre-contract disclosure and an easy way to cancel, plus ongoing notices at times set by regulations. Renewal and free-trial reminders are expected, but as at October 2026 those regulations hadn't been made, so check the final rules before you lock in your timing. Build your trials and annual plans with this in mind now. I cover it in detail on Australia's subscription trap laws.

If any of these could affect your contracts, talk to your lawyer or accountant before you change prices.

Free Subscription Profit Review

Australian business owners can book a free 30-minute review with a BPAG Accountants adviser. An honest conversation about:

• whether a subscription model could work for your business
• how recurring revenue could cover your fixed costs each month
• how it could lift what your business is worth

Book my free review Call 1300 272 422

No cost, no obligation. General information only until we understand your situation.

Your Subscription Pricing Checklist

Run through this before you publish a price.

• I know which of the eight subscription models I'm running.
• I know whether my cost goes up every time a customer uses the service.
• I've chosen a value metric that grows as my customer gets more value.
• I've calculated my cost floor, including GST and payment fees.
• I've estimated the value ceiling from real customer conversations.
• I have no more than three or four tiers, and each has a clear "who it's for."
• I've decided between free trial, freemium or neither, and why.
• I've set the annual discount with churn in mind, not as a guess.
• I've picked a date each year to review prices.
• I know how I'll treat existing customers when prices rise.
• My pricing page can be understood in ten seconds.

What to Do Next

Pricing feels like a big, scary decision. It isn't, as long as you break it into the seven smaller ones.

Here's what I'd do this week:

1. Write down your answers to the seven decisions in the table above, even if some are "don't know yet."
2. Calculate your floor with the subscription price calculator.
3. Talk to five customers about what your service is worth to them. Not what they'd pay. What it saves, earns or protects.
4. Sketch three tiers and test them on those same five people.
5. Put a date in your calendar twelve months from now to review it all.

And remember RapidSOS. Haven wasn't a bad product. The pricing model just didn't connect with the people it was meant for. Get the structure right, and the number becomes much easier.

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Robert Coorey, MBA

Robert is the author of The Subscription Playbook and Feed a Starving Crowd and a Director at BPAG Accountants in Sydney. More about Robert.