Did you know that the subscription business model has been around for over three hundred years? Western Europe kicked it off by offering subscriptions for everyday items like milk, clean drinking water, fruit, and grains. By the 1860s, the subscription monetization trend crossed the pond and subscription-based selling of magazines became all the rage.
Throughout its history, this pricing model not only continued to gain in popularity but helped inspire new and profitable business models. Today, you can purchase virtually anything on a subscription basis. Given its longevity and wide appeal, does this business model show any signs of becoming yesterday’s news? On the contrary, a report by UBS determined that the subscription business model market could grow from $650 billion to $1.5 trillion between 2020 and 2025.
Is Subscription-Based Billing Right for Everyone?
Subscription monetization is based on the idea of selling a product or service and receiving monthly or annual recurring subscription revenue. So it’s no surprise the focus of subscription-based businesses is on customer retention rather than customer acquisition. While this business model continues to be adopted by a wide variety of industries, is it right for all companies? The short answer is no.
The longer answer to this question revolves around its benefits and disadvantages for the business and customers alike. If you’re thinking of adopting a subscription-based pricing strategy, it’s important to keep in mind that your offerings and pricing models require two things.
- The flexibility to keep pace with varied and changing customer needs.
- Direct alignment between offering value and price needs to be transparent and easily understandable.
While these are critical requirements for subscription-based business success, there are other considerations. Subscription-based business models provide customers with what they want on a regular basis for a set recurring fee. From the business side of the equation, companies receive a predictable revenue stream. However, this model also has some disadvantages like when the price doesn’t align with customer usage/value and money is left on the table. Dig a bit deeper into subscription billing considerations to learn more about its advantages and disadvantages.
Subscription Monetization Strategies You Can Bank On
As one of the few business models that puts the customer at the center of everything you do, it’s important that your subscription monetization strategy takes into consideration not only your specific business requirements but the needs of your customers. To ensure long-term success for your subscription-based business, here are the top five subscription monetization strategies.
- Refine Your Pricing Strategy: Today’s consumers want flexibility around how they pay for products and services. Some may want simple subscription packages where they know their monthly or annual cost versus others who want to pay only for what they use. From freemium pricing and per-user subscriptions through usage-based to more advanced pricing models such as hybrid and dynamic, providing your customers with a variety of pricing models and bundling options allows them to choose the one that best suits their needs. What’s important here is that you spend time on pricing strategies and revisit it often.
- Be Customer Focused: Today’s customers want flexibility and will quickly go to the competition if you’re not meeting their needs. This business model isn’t just about acquiring customers, it’s about retaining them and developing long-term customer loyalty. As the backbone of your recurring revenue growth, it’s important that you provide them with the ability to easily upgrade/downgrade their plans, purchase optional add-ons, renew subscriptions, suspend subscriptions, etc. Essentially, you need to provide customers with an intuitive way to manage their accounts across the entire subscription life cycle.
- Enhance Products and Services: The market evolves quickly just like your customers’ needs and requirements. Subscription-based businesses need to keep abreast of product and services advancements to continually deliver on customer expectations. When offerings become outdated or no longer meet customer needs, subscription-based companies risk a decline in customer retention.
- Create Customer Centricity Across Departments: When it comes to subscription monetization, working in siloed environments doesn’t work. It results in inefficiencies, inaccuracies, and customer disconnects – all of which can (and does) result in customer churn. Delivering an exceptional and seamless customer experience across departments requires aligning sales, marketing, finance, and customer success. And this means implementing a revenue operations (RevOps) methodology.
- Provide Accurate and Intuitive Invoices: Subscription billing is complex by nature, and all too often results in inaccurate and difficult-to-understand customer invoices. As the most frequent communication you have with customers, your invoices are representative of your company and should be flawless. Create long-lasting customer relationships by delivering timely and accurate invoices every billing cycle.
It’s important to remember that customer relationships are at the core of your subscription-based business growth and profitability. To do this well, your subscription monetization strategy needs to be centered on developing the type of customer relationships that exceed expectations. Further to this point, the subscription monetization strategy you’re using today may not yield profitability in the future. For this reason, you should frequently review it and make changes when needed.
Realize Your Full Revenue Potential With Subscription Monetization
As previously discussed, the subscription-based business model is complex. Realizing your full revenue potential is dependent on the lifetime value of your customers and this means creating a subscription monetization strategy that is focused on your customers.
BillingPlatform helps you to easily evolve your subscription monetization strategy. With us you can quickly configure and deploy any pricing model, regardless of the complexity, mediate data from any source to create creative pricing models, and automate the rating and billing of high-volume metered usage. BillingPlatform provides an enterprise billing system that scales as your customer base grows and evolves as your business expands. Our cloud-based solution enables you to create and deliver creative offerings, give customers choices, and provide the tailored experiences customers crave. Curious to learn more? Request a custom demo or start a free 14-day trial experience to see for yourself.