Traditionally, businesses make money by charging a specific price for a product or service; however, as competition increases and product and service offerings become more complex, modern businesses have taken more creative approaches to maximizing profits. In this blog, I will discuss the top 3 pricing model trends that you need to know.
1. Make Money on Advertisements
Facebook and Google are giant corporations, but they don’t make money off their users, they make money on advertisements. Since their products/services attract a large client base, marketers recognize the potential to advertise on these platforms.
Challenges: This model is not for everyone, as you will need a large client base (at least in the millions) to succeed. If you are a blogger for instance, attracting a large user base may take years of consistent content development.
2. The “Freemium” Model
Many software companies, like LinkedIn and Dropbox, offer a free base product. Their pricing model is to charge for premium and advance features. The trick with this model is that it allows the users to try out the product and perceive enough value to upgrade after.
Challenge: Be careful when determining the base product features. You should give enough features to entice the clients to upgrade, but not too much that they are comfortable with what they have. Critics of the freemium model argue that it supports freeloader who will never become paying customers. If you are a startup, how much are your limited resources are going to be used to produce this free resource and what are the costs of converting a free customer to a paying customer.
3. Discounted Products Through Subscription
In order to hook clients, some companies offer full-priced products next to the same product discounted through a subscription. One classic example of this is cell phone companies, where the cost of a cell phone is cheaper when you sign unto a phone plan.
Challenges: In my last post about pricing, I mentioned how we respond positively when we think that we are getting a deal; subscription-based pricing is meant to illicit that response. If you decide to go with this strategy, make sure that you are making enough margin on the subscription to cover the discount given on the full priced item.