When One Size Doesn’t Fit All: Leveraging Subscription Model for Business Modernization

Shivani Sukhija, SaaS Billing Practice Head, North America at Synthesis Systems Inc

Advancements in digital technology and a globally connected economy have paved the way for booming worldwide subscription growth in the last decade. Consumer attitudes towards ownership are changing, with the focus being on convenience and instant gratification. There is greater demand for products and services that offer convenience, a high-quality customer experience, and accessibility.

 

With no large upfront cost, a range of payment plans, and minimum to no penalties to change providers at any time, the customer benefits of the subscription model are clear. However, businesses adopting a subscription model are not always aware of the impact on their organization. Often, there is an upfront cost to implement or transform their sales, revenue, and operations to handle recurring revenue. They must also maintain a constant pulse check on customer engagement to avoid churn and subscription fatigue.  Based on the subscription industry, they might be required to ensure compliance with regulations to build trust with their subscribers.

 

How Can Your Business Leverage the Subscription Model?

While every business might not be a good fit for the subscription business model, many are trying to succeed by innovating with the subscription models. The subscription-based business is modeled by evolving consumer preferences and supported by technological advancements. Here are a few things to keep in mind on how you can utilize these to support your case:

 

Reach your target audience through the right channels:

As the customer appetite to try new services is high, there are fewer barriers to new ideas entering the market and many successful product launches. Segment your target audience and identify the touchpoints in your sales process to reach them effectively.  Companies like Sunrun, SkillShare and FoodVisor utilized app ads, linked promotional pricing, influencers, and resellers to increase the reach of their product and capture the attention of more customers. Most of the SaaS billing solutions have components to create promo codes and vouchers that can be utilized only when a customer is redirected from a linked channel. The Codes are carried over till Revenue Reporting and can be used to formalize Revenue Sharing Agreements to develop a Reseller Network.

 

Conversion and retention optimization:

Understand your users’ psychology by conducting market research for targeted launches toward the right trial to a paid subscription model for your product. Define the conversion path from the trial as default opt-in or opt-out, or provide freemiums or discounted accesses to products leading to paid subscriptions.

Implement an easy, fast, and engaging shopping experience for your customers, as they lose patience easily if something falls off or won’t return.

Understand your business’s Fixed and Variable costs to implement pricing models such as product bundles with time-bound discounts. HubSpot is an example of a company where different service offerings can be combined into recurring and pay-as-you-go models, and a subscription model keeps the customer connected.

Hybrid pricing can correlate usage and payment, and providers can monitor resource-intensive services, which are costly to implement. Customers expect flexibility in paying only for what they use and how often they use it. The success of services such as Amazon’s AWS  — whether measured by time, storage, CPU cycles, feature set, or similar- is an example. The billing products offer features to create wholesome offers by combining fees based on payment frequency or consumption and utilization of charge models like tiered or volume pricing. Add flavor to different offers through pre-included units,  setting thresholds, and delivery schedule-based pricing.

It is also important that the details of all the pricing and consumption are available to the consumers at all times so they can monitor and control the subscription as per their needs. Access to reliable reporting of all the pricing and consumption details is another important feature that Billing systems provide by incorporating detailed invoicing and notification frameworks that can send detailed invoices to customers at scheduled intervals and can be integrated with the email exchange servers.

Conversion and retention can be influenced, and churn can be potentially reduced by having trials, combining consumption and subscription models based on the type of service, and making certain services pay as you go. The customer’s consumption pattern and stickiness to the product also define the type of charging model that should be adopted. Another important part of the subscription business is to utilize the subscription metrics reporting and utilize it to guide pricing for the next cycle. Billing products integrate with reporting tools like Snowflake, providing powerful insights into customer behavior and how different products fared after launch in different markets.

 

Implement right pricing model for your market segment:

Most companies have found that simple low-cost pricing without tiers over a longer duration is better for customer retention and ease of implementation. But what if that does not work well for your business

Simulation is another industry where it doesn’t really matter what is being simulated, but such an application is likely to be relatively sophisticated in composition, require a decent amount of processing power, and will be more expensive to purchase. The Software companies like Anylogic or Simul8 which can offer services using cloud computing can utilize agent pricing, aggregate event or consumption pricing subscription models. When Simulation is tied to use of a location and Hardware as a service, companies like Ansys adopt a subscription model of prepaid access for hardware or location for booked duration and a longer software access.

The idea of access to services in a subscription service can be challenging to implement where a service is required by many people on infrequent basis. Traditionally they have been able to implement only a floating license subscription model. A rather interesting approach taken by healthcare subscription service provider MDVIP to improve the stickiness of customer and create more value towards buying the subscription thus making the purchase more frequent by combining & bundling multiple services from different providers under a single subscription and solve problems for both sides. Patients can combine all kinds of preventive care, doctor visits, meals and fitness plans, diagnostic tests and services under one subscription fee and providers have a recurring revenue with expected number of people to see.  Billing solutions that can set up multi-party subscriptions combining payments for customer but with capability to track revenue at individual level make it possible.

 

Build for scale:

In the subscription industry, planning for scale and global expansion requires more than localization of communication channel. A deeper market analysis helps with price optimization and payment methods that customers are accustomed to whilst mitigating fraud. Offer products in multiple currencies and different frequency products based on that region’s user’s willingness to pay. SmartBeemo  solved the higher cost burden faced by their subscribers who are trying to launch their own business by implementing Billing Product Solution with flexible invoicing, scheduled payment plans and split payments for higher priced products.

Sometimes the rapid growth or interest in a new idea can bring in unique technological limitations a new business might have to face. AI and Education have seen fast growth and subscribers joining in from all over the world in a very short duration. The business might not be equipped to handle billing and taxation regulations and Payment processing in different currencies thus leading to loss of subscribers. Companies like Duolingo, Vidyo.ai solved this by integrating with multiple payment gateways with country specific integrations to create recurring billing logic during smart checkout.

 

Manage organizational change:

It is hard to find an industry with no successful subscription story. A growing number of companies in surprising sectors such as automotive, airlines, gaming, health and wellness, education, professional development, and home maintenance have been introducing subscription services in recent years. However, the subscription model is more than simply putting together a monthly or annual price plan is about reimagining the entire operation process, onboarding all stakeholders, creating a subscription culture, reimagining customer buying experiences, and remodeling the products being sold.

Any Public listed company needs to buy in from investors, shareholders, and external regulators. Implementing a subscription model usually requires upfront revenue reallocation, flattening profits and involvement with a third party to implement the solution. The process is not limited to just sales and marketing functions but impacts all the departments, including operations and finance. A major stakeholder is the customer, who must also clearly communicate the ongoing and future impact on their pricing and subscription model.

 

Build your brand and exclusivity.

Many companies have spun the idea of subscription services to make exclusivity possible for people truly. There are private jet membership services starting from 2000 USD per month, offering unlimited flights on private planes by providers like Surf Air. Most airlines offer exclusive perks for subscribers like early boarding to save time and access to VIP lounges. Companies like Rent the Runway and Scentbird offer personalized and curated experiences to users combined with variety they cannot afford otherwise. 

On the other hand, subscription providers like Breo Box bring the fun and joy of discovery back into life by finding something new for their subscribers in the curated delivery boxes.

The key point to note is a very detailed understanding of the addressable market and customer segment and figuring out the sweet spot where Customers are willing to enter a subscription model for a product/service that was out of bounds/premium with a large barrier to entry.

 

Charting a Course for the Future

The cultural shift in buying behavior and the advent of technology and AI mean all businesses need to adapt their products and processes. There are many challenges, but with careful planning, the right product selection, and an agile implementation team, launching your own subscription model can be a rewarding process.