Offer Design
Subscription pricing and contribution margin
Build a physical-product subscription price from shipment contribution, then check delivery variations, prepaid commitments and the customer’s total price.
Price a physical-product subscription by calculating what each shipment contributes after the costs of supplying it. Then check whether those contributions can cover the business’s other costs. A price that covers the products in a box may still fall short after packing, delivery and payment costs.
Choose the unit you are pricing
Start with one delivered order under one plan. Include the product charge and any delivery charge received for that order, less applicable discounts and refunds. Calculate revenue and costs on a consistent GST basis. The tax treatment of the products and eligible purchase credits depends on the actual offer; a box containing different types of goods may need closer examination.
For a prepaid plan, allocate the amount paid across the promised deliveries for pricing analysis. Receiving payment before dispatch does not remove the cost of later boxes. Check the complete plan as well as individual shipments when contents or delivery costs vary.
Keep GST treatment consistent
A GST-registered business generally has to include GST in the price of most goods and services it sells and report GST on sales and purchase credits to the ATO. GST is 10% on most goods and services, or one-eleventh of a GST-inclusive sale price. Compare shipment revenue and eligible costs on the same GST basis.
GST registration is generally required when business GST turnover reaches $75,000. A new business expecting to reach that threshold in its first year should register, and must do so within 21 days of becoming aware it will exceed the threshold. GST turnover is business income, not profit, so a shipment contribution calculation is not a substitute for checking turnover.
A GST-registered business can generally claim credits for GST included in business purchases. Before using a cost in the shipment calculation, check whether it includes GST and whether a purchase credit is available; treatment can differ with the goods and the offer.
Key Facts on GST and Pricing Compliance in Australia
- GST Rate10%
- GST Registration Threshold$75,000 annual turnover
- Time to Register After Exceeding ThresholdWithin 21 days
- GST Inclusive Price BasisOne-eleventh of the sale price
Calculate contribution per shipment
Contribution per shipment = net shipment revenue − costs assigned to supplying that shipment.
Those costs may include products, packaging, picking and packing labour, postage, payment fees and a stated allowance for expected order-level service or replacements. Use a consistent allocation method when comparing plans. Keep general overhead visible in a separate business-level check: positive shipment contribution is not overall profit.
For example, a hypothetical box earns $50 and costs $30 to supply, with both figures on the same GST basis. Its contribution is $20, or 40% of shipment revenue. The figures illustrate arithmetic, not a market price or benchmark.
To test a chosen target margin, use required net revenue = expected shipment cost ÷ (1 − target margin). At an expected cost of $30 and a chosen margin of 40%, required net revenue is $50. Check whether customers value the offer at the resulting delivered price.
Keep cost inputs visible
Separate product landed cost from fulfilment and payment costs instead of hiding them in one supply-cost estimate. Landed cost can include the product, inbound freight, duty and inspection where applicable; fulfilment can include packaging, pick-and-pack and outbound shipping paid by the business. This makes it easier to identify which assumption changed when contribution moves.
Record payment costs as both percentage-based and fixed transaction fees where both apply. Estimate returns or replacements using observed order behaviour where available, and review the estimate as experience changes.
Use current supplier and carrier charges for the assumptions. Update them when the underlying costs change.
Cost Components in a Subscription Shipment: Product vs Fulfilment vs Payment
- Product Landed Cost
- Includes product price, inbound freight, duty, inspection (if applicable)
- Fulfilment Costs
- Packaging, pick-and-pack labour, outbound shipping paid by business
- Payment Fees
- Percentage-based + fixed transaction fees (e.g., Stripe, PayPal)
- Service Allowance
- Estimated cost for replacements, customer support at order level
Test variations before setting the price
Compare typical and costly box configurations, destinations, quantities and customer choices that affect packing time. Check product and fulfilment costs as well as postage: a change in product mix can alter landed cost, while a larger or more complex order can affect packing and outbound shipping.
Postage remains a cost whether it is included in the product price or charged separately. If it is charged separately, include the customer’s delivery payment in revenue too. Assess these factors separately so one favourable assumption does not conceal another cost increase.
Check the postage charge for the packed parcel, intended service and representative routes. Do not assume one carrier cost fits every shipment.
Model an ordinary repeat shipment first. Calculate the first shipment separately if it has a discount, gift or extra packing work. This shows what the introduction costs and whether the continuing price works on its own.
Make the customer price clear
Show what is due now, what later charges cover, the delivery charge when it can be calculated, and any minimum commitment. Explain renewal and cancellation terms alongside the price.
In this guide
- Calculating the cost of a subscription shipmentBuild a per-shipment cost record for a physical-product subscription, including contents, packing, delivery, payment and exceptions.
- Comparing monthly and prepaid subscription plansCompare monthly and prepaid physical-product plans across the same deliveries, including total contribution, cash timing and customer commitment.
- Pricing a subscription without relying on permanent introductory discountsSet a workable continuing subscription price, define any first-box offer clearly and avoid treating an ongoing discount as temporary.
