How to use the subscription pricing calculator
The calculator has three tools for the main pricing decisions a subscription business makes.
Price for a target sets the monthly price:
- Choose the goal: a gross margin you want to keep on every payment, or a monthly revenue goal (MRR) you want to reach with a given number of subscribers.
- Enter the expected subscribers for the period you are planning.
- Enter the costs per subscriber per month. Divide your monthly hosting, infrastructure and API bills by the number of subscribers; do the same for support. Your payment processor’s statement shows its percentage fee and the fixed fee per charge.
- Set the annual plan discount and, optionally, your fixed monthly costs (salaries, tools, rent) to see operating profit and the subscriber count that breaks even.
Monthly vs annual takes a monthly price, an annual discount and your monthly churn rate, and compares what one customer brings in over a year on each plan.
Tier mix takes each plan’s price and the share of customers on it, and returns the average revenue per account and MRR.
How the price is calculated
When you set a margin target, the price must cover the per-subscriber costs and the payment fee, which grows with the price itself:
Annual plan = 12 × Price × (1 − d)
Gross margin = (Price − Hosting − Support − f × Price − Fixed fee) ÷ Pricem is the target gross margin, f the percentage payment fee and d the annual discount, all as fractions. With a revenue goal, Price = MRR goal ÷ Subscribers.
For the monthly vs annual comparison, a share c of monthly customers cancels each month, so the expected number of payments in a year is:
Annual plan advantage = 12 × Price × (1 − d) − Price × Expected months paidThe first payment is taken at sign-up. The break-even churn rate is the c at which the advantage is zero.
A worked example
A software product costs $2.40 a month per subscriber to host and $1.80 to support. The processor charges 2.9% plus $0.30 per charge. For an 80% gross margin, the monthly price is $26.32, leaving $21.05 of gross profit per subscriber.
With a 15% discount, the annual plan is $268.42, or $22.37 a month. Its gross margin is 78.2%: the discount comes straight out of profit, because hosting and support cost the same either way.
At 1,000 subscribers, MRR is $26,316. After $12,000 of fixed costs, operating profit is $9,053 a month, and the business breaks even at 570 subscribers.
Why high margin targets push the price up fast
Because the margin sits in the denominator, each extra point of margin costs more than the one before:
| Target gross margin | Monthly price | Gross profit per subscriber |
|---|---|---|
| 70% | $16.61 | $11.62 |
| 80% | $26.32 | $21.05 |
| 90% | $63.38 | $57.04 |
Going from 80% to 90% more than doubles the price, while going from 70% to 80% adds far less. The lesson is not that 90% is impossible, but that it depends on low per-subscriber costs. Cutting hosting or support cost per subscriber does more for margin at a fixed price than most pricing changes, and it shows up across every plan.
Monthly or annual billing
An annual plan trades a discount for two things: the whole year’s cash on day one, and protection from churn during the year. Whether the trade pays depends on how many monthly customers leave.
At $29 a month, a 20% discount makes the annual plan $278.40. With 5% monthly churn, a monthly customer is expected to pay for 9.2 of the next 12 months, or $266.59. The annual plan brings in $11.81 more per customer and collects $249.40 more on day one. The break-even churn rate is 4.16% a month.
| Monthly churn | Expected months paid | Annual plan advantage |
|---|---|---|
| 2% | 10.8 | -$33.76 |
| 5% | 9.2 | $11.81 |
| 8% | 7.9 | $49.18 |
With low churn, the discount costs more than churn would, and the annual plan gives up revenue in exchange for cash upfront. With high churn, it earns more. A smaller discount moves the break-even churn down: at 10% it is 1.94%.
One caution: the comparison assumes the same customer could choose either plan. Customers who pick annual billing are often more committed to begin with, so part of their lower churn is selection, not the plan. The upfront cash also matters on its own for a young company, since it funds growth without borrowing.
Reading the tier mix
The average revenue per account depends as much on where customers land as on the prices. In the example, 31.9% of revenue comes from the top plan even though only 10% of customers are on it. Moving 10% of customers from the cheapest plan to the next one would lift ARPA from $40.50 to $43.50 and add $2,400 of MRR at 800 customers, without a single new sign-up. That is why limits, features and the gap between tiers often matter more than the headline price of the entry plan.
What this calculator does not include
- Customer acquisition cost. The margin here is gross margin; the cost of winning each subscriber comes out of it. Our LTV to CAC calculator compares the two.
- Refunds, failed payments and taxes. Card failures cause involuntary churn, and sales tax or VAT may be added to or included in the price depending on where customers are.
- Demand. The price that covers your costs is a floor, not a forecast of how many people will pay it.
- Annual renewals. The monthly vs annual tool covers one year; annual customers who renew add more value beyond it.