Subscription Pricing Models Explained

The Subscription app supports two methods of product pricing.

• Time-Period Pricing (including consumption-based pricing).
• Fixed-Term Pricing.

Time-Period Pricing means the number of time-based units (e.g. weeks, months, quarters, years) drives the Total Price of the opportunity product. You can use this approach on both renewal and evergreen products.

Incidentally, consumption-based pricing (where the price is based on how much of your product or service the customer uses) is also supported through time-period pricing.

Fixed-term pricing defines a single price for the duration of the agreement. You use this pricing method only on renewal products.

Let’s start with some examples.

Time-Period Pricing

Here are two examples of time-period pricing.

First, let’s consider a SaaS app in which the pricing is calculated as the number of users * the monthly price per user * and the number of months. For example, the customer purchases 10 users at $100 monthly for 12 months. This means the Total Price of the opportunity product is $12,000 (10 * $100 * 12).

Second, suppose you have a service on which the pricing is calculated as the number of API calls per month * price per 1,000 API calls * the number of months. That’s an example of a consumption service. In other words, the price is based on how much of the service you expect the customer to use (the number of API calls in this case).

In this example, the customer expects to use 10,000 API calls monthly, and 1000 API calls cost $25. It’s a three-year arrangement, so the Total Price on the opportunity product is $9,000 ((10,000/1000) * 25 * 36).

Of course, in your business, you may base the Total Price on the cost per week, quarter, or year instead of month. That’s’ fine because the Subscription app accommodates these options.

Fixed-Term Pricing

An example of Fixed Term pricing is a service contract that costs $25,000 for three years. In other words, a single price is quoted to the customer for the entire agreement period rather than a price per month, year, or quarter.

Naturally, you might have a combination of time-based and fixed-term products on a single opportunity.

Calculating the Total Price

The Total Price is a standard field in Salesforce that represents the value of the opportunity product. This figure is critical because the Total Price for each product on the opportunity rolls up to the Amount field. Total Price and Amount are essential in pipeline and sales performance reports.

So, how does the Subscription app calculate the Total Price?

Total Price on Renewal products

With a renewal product, the customer uses the product or service for an agreed time (e.g. a twelve-month SaaS license). In other words, unlike Evergreen products, we know the entire period in advance.

Consequently, for renewal products, the pricing can be time-period based (e.g. the app costs $100 per month per user for twelve months). Or, it can be fixed-term (e.g. the app costs $500 per user for the length of the contract).

In either case, we can easily calculate the Total Price of the opportunity product because we know in advance how long the customer will be paying for the service. For example, the Total Price is $100 per month * 10 users * 12 months = $12,000).

Total Price on Evergreen products

In contrast, we don’t know in advance how long the customer will continue to hold the evergreen product. However, the app solves this problem by using a field on the Product called Evergreen Default Revenue Months.

You use this field to set a value for the months that should apply in calculating the Total Price. For example, let’s say you set a value of 12. In our previous example, the Total Price is $100 per month * 10 users * 12 = $12,000).

Do you get the idea? Nevertheless, it begs the question. What value should you set for each product on the Evergreen Default Revenue Months field?

Evergreen Default Revenue Months

Several factors influence the value you set for each product’s Evergreen Default Revenue Months field.

For example, you set a value based on how long you anticipate the average customer to retain the product or service. For example, if you expect the average customer to continue paying for three years, you set the Evergreen Default Revenue months to 36.

Alternatively, how you pay commission or track salesperson performance versus target may determine the field value. For example, in some companies, the salesperson receives credit only for the first month of an evergreen subscription. In others, it is the first 12 or 24 months. In this case, you set a value of 1, 12, or 24, and the opportunity product’s Total Price reflects the credit the salesperson receives for each sale.