basicthinking, 28 April 2020: The subscription model certainly isn’t new. But more and more companies are offering their services as part of a refined “subscription model” – even in the manufacturing industry. This enables companies to acquire new customers and to retain them in the long term.
The subscription economy is growing and growing. From well-known brands like Spotify or Adobe, to young start-ups, many companies are striving to achieve lasting customer retention – and this is has been enabled by variety of subscription models tailored to customers’ needs.
The advantages of this approach are obvious: the costs of acquiring customers gradually reduce, while revenues can be more accurately forecast. Subscription billing thus represents an enormous opportunity for many companies – even traditional ones – to break into and get established in new markets.
According to a McKinsey-study, 15 percent of all online customers get out at least one subscription that will allow them to use goods or services regularly. They profit from a convenient, personalized and often better-value option. And this often involves goods that they would buy anyway.
Yet many consumers cancel their subscription after a while. The most common reason for this is they are not satisfied with their personal customer experience. When customer experience is seen by customers to be in need of improvement, migration rates are high. Price is thus not always the decisive factor.
Alongside the above-mentioned advantages in customer acquisition and revenues, there are other advantages that companies profit from with the implementation of subscription billing:
- companies need less time and manpower for their customer acquisitions. At the same time, the likelihood that customers will stay loyal to the company for longer increases.
- Subscription billing allows a variety of price models, enabling companies and products to be more clearly distinguished from one another. For SaaS offerings in particular, this leads to an accelerated launch, as services can be precisely geared to the needs of specific customers.
- Companies can more efficiently plan their customer numbers in advance, as one-off payments are reduced. This helps them to carry out more effective budgeting and provides them with a more exact picture of their sales.
- Customers are excited by the product in a way that lasts, and they can be retained in the long-term.
- This in turn leads to a more accurate collation of customer data. The product or service can thus be even better tailored to the respective customer. Key word: personalization.
- As subscription models don’t have any limits, companies can profit from a previously unknown scalability.
If companies are prepared to transition from one-off payments to recurring billing cycles, they will have to overcome a number of challenges. It’s not merely the purchase process that will require comprehensive adjustments, but also the whole customer journey.
Companies should thus also consider dynamic billing with regard to rating, mediation, upgrades, downgrades, and to one-off or recurring fees. Additionally, the IT solution required for this will also have to be integrated into all company-wide systems such as CRM, ERP, and finance systems.
Companies should offer their customers multiple payment methods that enable recurring debits. Equally, all payments made by any connected payment service providers have to be checked for completeness, due-date, and accuracy. A payment clearing-solution takes over these tasks, including accounting and a certifiable monthly closing statement.
A further crucial point that companies should consider when implementing a subscription billing solution is flexible invoicing. Invoices should be sent to customers in an automated way and at adjustable intervals. Only a high degree of automation of this process can allow a high level of scalability to be reached.
If your company is aiming to achieve lasting customer relationships, customers will need to be satisfied consistently.
Subscriptions are long-term relationships. The longer customers are willing to pay for services, the higher their customer lifetime value is, and thus the higher your profit.
Thus, be careful to ensure optimal value for money. Your customers will only be prepared to opt for a subscription model if they think the price-performance ratio is appropriate.
In addition, your company should be adaptable. In subscription models, the boundaries between products and services are fluid, and in the case of some services have disappeared completely. With the required ability to innovate – and enthusiasm for innovation – you should thus focus on subscription-based, experience-oriented services.
Even companies in the consumer-goods sector have made the change and are offering their products via rental models.
The German provider nexnet develops integrated solutions for this. Its Subscription Billing platform is an efficient BPO solution and is also designed for the management of international recurring payments and subscriptions. SOX compliance and the handling of diverse tax rates and foreign currencies are part of the package.
Subscriptions make life easier companies and customers alike. The aim in implementing Subscription Billing should always be to offer added value that will excite customers.
You should not underestimate challenge of shifting from one-off payments to recurring billing processes, however. The changeover can only succeed with the aid of customized solutions, modern technology, and business process that are optimized accordingly.
To find out about what differences there are with subscription billing, what model suits you, and how you can reduce your migration rates, read this white paper.