Have you stopped to count up how many things you pay for by the month these days? In years gone by, it was mostly newspapers and magazines, then along came the internet and ubiquitous mobile phone ownership, both of which helped to promulgate the subscription model. Today, Australian consumers are spending big bucks each month on subscriptions for everything from entertainment streaming services to wine clubs and pet supplies.
Meanwhile, in the commercial sphere, the software-as-a-service phenomenon has forced vendors to overhaul longstanding sales and licensing models in favour of subscription pricing based on usage levels.
Wondering whether it’s time your enterprise jumped on the bandwagon too? Here are some of the benefits you may realise from going down the subscription route.
Loyal subscribers
While a one-off sale can deliver a welcome revenue boost, maintaining contact with that customer until the time for them to re-purchase rolls around can be challenging. That’s less of an issue when you’re selling on subscription and are able to transform those regular interactions into long term loyalty. Meanwhile, the purchasing data you collect can be used to tailor products and services that address buyers’ needs and preferences more precisely. The net result? Possibly greater customer lifetime value than you could ever hope to achieve via a traditional sales model.
A reliable revenue stream
Having a regular, reliable revenue stream can stop cash flow crises and afford your business the ‘luxury’ of certainty. That’s just what a subscription-based business model can do. Knowing what’s coming in each month allows you to make more realistic long-term plans and to grow your enterprise in a managed way.
Cross selling opportunities
Want to expand your range or branch into a new area of the market, with some complementary products and services? If you’re operating a subscription model, you have a regular customer base who’ll likely be willing to give your latest offering a whirl. Use the data in your keeping to identify up-selling and cross selling opportunities and you’ll soon see your subscribers spending larger sums, more often.
Broader market appeal
Selling the use of a high value item on subscription can open up the market to customers who would be unable to afford the purchase price outright – think the ability to hire a piece of agricultural equipment on a seasonal basis, for example, rather than having your own sitting in the shed gathering dust, for nine months of the year. A subscription model can also put paid to protracted and expensive sales cycles, by giving undecided purchasers the opportunity to trial your offering at minimal cost.
Improved retention rates
An investment in marketing and advertising serves two purposes: bringing new customers into your business; and keeping existing ones coming back for more. A subscription model enables you to spend less on the latter activity because customers will already be coming back, month in, month out.
Higher customer lifetime value
Boil sales success down to the basics and there are two metrics you need to focus on: customer acquisition cost (CAC) and customer lifetime value (CLV). The number you arrive at for the former depends on the costs you choose to include in your calculation – should the overheads of the marketing department be taken into consideration, for example – but the latter is easy to determine under a subscription model. Multiply the annual revenue per customer by the number of years they’ve been on your books, subtract the CAC and voila! In the early days, your CLV numbers will be lower than if you were running a traditional sales model but, if customers stick around, the situation will reverse. As the years tick over and they continue to subscribe, your CLV will be higher than it’s ever been.
Improved inventory management
Knowing how much product to order months in advance can be something of a black art for business owners. During periods of supply chain disruption, never more so. Adopting a subscription model can help to eliminate some of the uncertainty. Instead of relying on sales history and gut feel to estimate future demand, the size of your subscription list can be used as a baseline.
Systems to support a shift to subscriptions
While a subscription model promises many advantages, implementing one in your business may necessitate an investment in revenue management technology to help you manage the sales and billing cycles effectively. Ideally, you’ll choose a robust, scalable platform that integrates seamlessly with your ERP system. In its absence, your enterprise may struggle to adopt usage-based billing, overcome accounting and reporting challenges and deliver a personalised, high quality customer experience to your subscriber customers. If you’re serious about making the shift to subscription sales, it’s foundation technology that will underpin your profitability and growth.
Carl Warwick is regional sales director APAC and Japan at BillingPlatform.