What is a Subscription Plan?

Why It Matters

Plans are more than product packaging—they drive customer behavior and ultimately revenue growth.  The combination of feature entitlements and usage allowances into packages with defined price points influences:

• The initial plan selected by the customer (e.g., freemium, good, better, best)
• Decision to upgrade from freemium to paid plan
• The number of users invited to join the account
• Adoption behavior by the user community
• Future upgrades to higher tiers or purchases of add-ons

For SaaS finance teams, plans are also the anchor point for billing, forecasting, and reporting.

How It Works

1. Plans are defined by the product management team,with specific product features, usage caps, and billing terms.
2. Customers select a plan during the self-service checkout process or during the buying cycle.
   
3. The customer account is set up in the billing system with the associated plan, billing frequency, and discounting model. 4. The customer makes changes to their plan over their lifetime —upgrades (e.g., adding users), downgrades (best -> better tier).  These contract modifications trigger billing changes..
   
4. Metrics like MRR/ARR, expansion and contraction ARR, and churn are tracked based on the revenue associated with plans

Common Headaches

• Pricing innovation and competitive dynamics lead to frequent changes to feature entitlements, usage allowances, and pricing associated with plans
• Frequent changes create multiple versions of plans in active use by different cohorts of customers, depending on the customer acquisition date
• Multiple versions of plans active concurrently in billing system creates confusion for billing operations
  
• Upgrades to plans require proration of billing and adjustments to GAAP revenue and MRR/ARR – most billing systems cannot automatically process
  
• Customers are often required to renew with the currently available plans versus the original purchase, driving confusion with customer and in-house 

Best Practices

• Standardize plan naming and metadata (e.g., billing cycle, usage unit, SKUs)
  
• Version-control plans—don’t delete old ones, archive and timestamp
  
• Automate proration and billing triggers for mid-cycle changes
  
• Sync plan metadata across sales CRM, billing, and reporting systems
  
• Use plan-level cohorts for churn, upgrade, and expansion analysis

When to Use

Every SaaS company should consider defining subscription plans. They’re foundational for monetization strategy, billing automation, and financial forecasting.