Five top tips to subscription success

Subscriptions are rapidly becoming the de facto model for a new generation of companies as businesses new and old start adopting the approach and use it to tap into a rich source of recurring revenues.

It’s an ongoing trend highlighted in an online survey we ran recently, polling the views of 200 senior IT professionals. Across a broad range of industry verticals polled, the results revealed that the number of businesses operating with one-off product pricing models is set to fall by 39% in the near future. In contrast, new relationship-based services built around subscriptions are on the rise, including freemium and pay-per-use and pricing models.

Rather than selling products individually, a subscription provides periodic use or access to a product or service, benefiting suppliers by securing a steady stream of recurring revenue and providing a regular contact point to strengthen the customer relationship, making it easier to cross-sell and up-sell new services. It is an approach with the potential to transform both established organisations looking to rapidly launch new services or solutions, and new businesses eager to quickly develop an agile and flexible customer engagement strategy.

Certainly in the software market, the price per month approach has become the norm as industry heavyweights from Salesforce to Adobe and from Microsoft to Google are now selling their applications on a per-user per-month basis.

At the same time, we are witnessing a new breed of niche e-commerce start-ups come to prominence, focused on introducing subscription billing models for low-ticket regular-use consumables such as razor blades, nappies, medication, vitamins and various foods.

There are benefits for all parties here. The customer gets a regular supply when they need it, in a quick, easy and more convenient manner. Whilst the retailer can sign the customer up to a longer-term service agreement with a predictable revenue stream, and can effectively guarantee that the customer buys from them rather than a competitor.

The issue is that the migration path to subscriptions is not always straightforward. The process of moving from one model to another is not something that is usually advertised or made public. And the truth is, if this change is not carefully planned and executed, there can be many potential pitfalls which may put the whole business at risk.

The simplicity of subscriptions makes them very appealing to organisations and their customers. But in that strength, we can also see the model's inherent weakness. The best services are often the simplest ones. But the simplest ones are also often the easiest to mimic, particularly in the digital services market where the cost of entry is relatively low and the threat of new entrants and substitute products being introduced is high.

So service provider offerings will need to mature. And as they do so, the requirement for innovative pricing and product packaging will become ever greater in order for businesses to differentiate themselves in an increasingly crowded and challenging market environment, and create real value in their customer relationships.
So how can companies address this challenge? Here we provide some top tips.

Make sure you’re offering the right payment choices. From the outset, you need to think about what payment options to give your customers. Depending on your business focus and customer mix (B2B/B2C), you’ll need to decide whether you want to enable customers to pay by automated methods such as direct debit and continuous payment authority (CPA), or other offline methods such as bank transfer and cheque.

Offering this level of choice enables you to streamline the flow of payments into your business, making recurring payments easier to process and ultimately improving cash flow. And you’ll need to put in place the right systems to enable this kind of recurring revenue management – bearing in mind the top priority should always be to make the process as simple as possible for your customers.

Make recurring revenues the basis of your business model. By choosing a subscriptions-based approach, you are creating a billing relationship that makes it easy for your customers to buy extra services from you, and less likely that they will look to buy from your competitors. One of the reasons Amazon has been so successful is that they made it incredibly easy to buy with their 1-click ordering process. This is the benchmark that you need to measure up against and an ongoing relationship based on the use of recurring billing software makes this possible.

Be flexible with your product and service packaging. While most consumers are happy to pay a standard price for a standard product, business customers will typically want to negotiate a better price and will invariably look for a service to be tailored to their needs in some way. So, knowing your customer well and having a flexible way of packaging and pricing your products and services is important to be able to address their needs – whether they are a business or a consumer.

Remember - flexible billing is key. A business model based on subscriptions and usage needs flexible pricing options - but traditional on-premise billing systems are typically too expensive or not agile enough to handle this requirement. It often takes years to implement, configure and integrate a traditional enterprise billing system with other on-premise applications, and a lot of capital will be spent before any benefits are achieved. Cloud-based subscription billing can be key here, reducing the time taken and cost of launching new products and enabling businesses to rapidly turn innovative ideas into monetised services.

Keep on innovating. As competition intensifies in the world of subscription commerce, you need to be continuously innovating to keep yourself ahead of the pack. It’s an urgent requirement. With a cloud billing implementation you can get access to new features and enhancements automatically as part of regular software updates, driving greater business agility. You also get the opportunity to continue innovating around new subscription billing and pricing capabilities to stay one step ahead of the competition.

In business, long-term success is about finding a winning formula quickly – and that means being able to fail fast, learn from your mistakes and then quickly adapt your offerings to the demands of a dynamic market.

The latest cloud billing solutions are able to evolve as your business grows. That flexibility allows you to continue innovating over the long-term by delivering sustained value over time and enables you to deliver more innovative products and services as your business expands. This will include bundled services and pay-per-use offerings as well as a variety of different billing frequencies and payment options.

Remember the ongoing migration to subscriptions is now gathering pace. You need to be part of it. Ultimately, however, success will depend on the ability to rapidly monetise service offerings. To achieve this, businesses will need to make it as easy as possible for their customers to engage with them and spend money with them.

But to be successful they need to take action now. And implementing a cloud billing solution will be a critical step in embracing subscription services and taking full advantage of the many benefits the approach can deliver.