I don't think this has anything to do with cost-based pricing. In a non-commodity market, you don't charge based on how much it costs... you charge based on how

I don't think this has anything to do with cost-based pricing. In a non-commodity market, you don't charge based on how much it costs... you charge based on how much the market will bear. I don't think the choice of $36 vs. $50 has anything to do with a 44% expense rate. It's simple. It's hard to charge $50 a year ($4.17/mo) when you also have a $5/mo plan ($60/year). It's all driven by the $5/mo plan. Simply put, compared to $5/mo, $50 a year is not compelling enough to motivate annual subscriptions. This makes their $36/year ($3/mo) a compelling purchase to motivate annual subscriptions. Likewise, they actually make more money with people on a monthly plan, assuming they have a customer LTV > 12 months. So, they're making $60/yr on monthly subscribers (20% more +$10), and their annual plan, while a 23% reduction from previous pricing (-$14), which means only a $4 discount on an average customer basis assuming they have an even mix of monthlies who stick around at least 12 months and their annuals. So, they would just need to grow their market such that they only need to have more monthlies than annuals, and they're making MORE money in the aggregate. (Do the math -- you'll see a mix of 58.33% monthlies and 41.67% annuals on the new plan is roughly break even with 100% annuals on the old plan). Or even more starkly to show how this works -- if they didn't grow their annual base AT ALL, and dropped the price, they would only need 23.4% as many monthlies as annuals to break even to cover the difference. So, if they had 10,000 annuals, even if they didn't grow that at all and gave them all a price break, they would only need 2,334 monthlies to make up the difference (just under 19% of the total combined audience). And odds are high that monthlies will be a lot more than 19% of their total base. Oh, and they'll probably grow their annual subscriptions anyways. They can see that their rate of growth for monthlies, combined with a more compelling discount for an annual program will actually increase the bottom line. Solid pricing strategy.