The way we purchase products is changing—and so are our business models. More and more, customers are looking for ways to streamline their purchases and make transactions easier. When it comes to software and online purchases, those transactions are increasingly moving to a subscription-based model, where customers put their purchases on autopilot so they can have continuous access to SaaS products.
The subscription-based model has become so popular that experts predict that every new software company will now offer subscriptions. Even more telling is that 80% of legacy software vendors will have shifted their business models so they can provide customers with a subscription service, too. The best part? Subscription services are what customers want. 15% of people who shop online now pay for at least one subscription and nearly 90% of businesses are looking for ways to adapt their online payment platforms so they can handle recurring subscription payments.
Below are some of the main advantages of switching to a subscription-based model:
1. It Creates a Recurring Payment Cycle
Traditional business models are set up on the notion that customers will make singular purchases, a subscription model brings in constant, consistent revenue.
Compared to singular purchases, subscriptions mean recurring payments are made to your business (albeit smaller in value.) The plus side of this is that not only is each transaction is smaller and more affordable for the customer, but your cash flow will be constant and consistent.
2. It’s Easier to Scale
When your business is starting out, a traditional business model is easier when it comes to invoicing.
It goes like this: your customer buys an item, you distribute the item, and then you invoice the customer for that item. The problem with traditional business models and the way these invoices work is when your company grows and begins to scale. If you are constantly tied up handling individual invoices and sales, it requires more effort, especially if you haven’t got the right billing system in place. These issues compound if your business deals with physical products, as you’ll constantly be dealing with factors like shipping costs, buyer location, and any customs or import laws (for international deliveries).
With a subscription revenue model (and the right tools), this entire process can be automated. A subscription model can streamline the entire post-checkout fulfilment process for every online purchase through your website.
3. Better Customer Relationships
Did you know that a whopping 67% of customer churn is actually preventable? Yup—companies could retain ⅔ of their paying customers by improving their customer support and the way they handle customer complaints. The reason why subscription-based business models can help you keep customers around? Data.
As a recent CitiBank study explains, once a customer enters into a subscription-based relationship with your company, you can then start to gather regular usage data from them and get to know them better. The more you know about your customer, the more in tune with their needs you’ll be. It’ll then be easier for your sales reps to find ways to cross-sell and upsell products to them as well as using that same data to understand and serve your customers.
If they aren’t happy, you’ll know about it sooner and try and fix whatever problems they have before they opt-out of their subscription.
How to Get Your Subscription Pricing Right
One of the most difficult parts about moving to a subscription-based business model is figuring out—what should we charge? Here are four steps to getting your subscription pricing right.
1. Offer More Than One Subscription Plan
Not only are options good for your customers—they’re good for your business. By offering more than one subscription plan, you can cater to those on a smaller budget as well as customers who can afford more options and even Enterprise companies. The question then becomes, how many plans should you offer, and how much should they cost?
The answer comes down to your product and your customers. Instead of trying to benchmark plans against legacy competitors (which experts warn is the wrong way to go), look at what your customers want. If you know customers are willing to pay $20/month for the bare basics of your software, offer that as a “starter” package, and then you can charge more for other plans with more features. The great thing about pricing your subscription product or service like this is that it makes your product accessible to pretty much anybody, no matter what their budget.
2. Avoid Hidden Charges
Did you know that 56% of customers will abandon their carts if they’re hit with unexpected costs during their buying journey? Charging customers additional processing, onboarding or administration fees can be one of the quickest ways to lose them. To avoid this, be honest and upfront with your customers about what each plan includes and put it in writing on your pricing page.
Not only will this help build trust with your customer base, but it’ll also help your customer service team out. As your customer knows exactly what they’ll be getting charged for their subscription, there will be less chance they’ll be contacting you about an unexpected charge or fee. Setting clear expectations about your pricing from the start isn’t just good business, it’s common sense.
3. Offer a Free Trial or a Freemium Product Option
Free trials and even freemium products are the perfect way to show potential customers how valuable your product or service is. On the surface, offering up a freebie seems like you’re giving away something for, well… free. Don’t think this. At the very least, a free trial shows customers the minimum they’ll get if they subscribe to your service.
4. Measure Everything
Finally, make sure you measure what impact your pricing is having on your subscription sign-ups and churns. Instead of tracking every single metric, it’s most important you keep an eye on your customer growth and churn rate. These two metrics will give you an overall picture of how many customers you’re attracting with subscriptions, and how many are opting out of the service altogether.
If you’ve got a subscription management platform, these metrics will be easy to track as well as keeping an eye on other areas like how customers want to pay for your service. For example, some customers might prefer to pay for their subscriptions using a certain currency or payment method like GiroPay. If you don’t offer these services and meet your customer’s needs, it’s more likely they’ll churn. A subscription management platform will have all these features built-in, and you stop churn by letting your customer pay and manage their subscription however they like.
Make Sure the Move to a Subscription Revenue Model is a Success
The move to a subscription revenue model isn’t easy—but it’s worth it. The first step to making a successful transition is proper planning. Understanding what subscriptions are all about, getting your pricing right, and figuring out what your customers want in your product are all crucial to making the switch in business models a success.
But at the end of the day, the transition will only truly work if you’re able to build a solid relationship with your customers. Unlike one-time transactions, it’s up to you to show your customers that your product will continue to provide value over time.