Subscription management is the process of managing your customers’ subscriptions and ensuring that they are happy with your product or service. The process begins when a customer signs up to “subscribe” to your product or service and ends when the customer unsubscribes.
What Are Subscription-based App?
Subscription-based app generates recurring revenue at predictable intervals in exchange for access to a good or service for a specified billable period—monthly, quarterly, semi-annually, or annually.
On the one hand, traditional tariff models are typically based on a single transaction with a one-time payment for ownership, service, and maintenance responsibility (if applicable). On the other hand, subscription pricing models offer businesses and their customers the opportunity to build more dynamic and frictionless relationships.
Why Are Subscription-based Plans Important?
Subscription pricing models can take a variety of forms and have become established in both B2B and B2C distribution environments.
Businesses that offer subscription-based plans experience better revenue predictability thanks to the recurring relationships they have with their customers. Regardless of the interval at which customers are billed, revenue is normalized to a monthly value that can then be used to forecast financial performance and labor costs for the included services.
Pros and Cons of Subscription-based Plans
Subscription-based plans offer some key benefits for customers, such as:
- Access to a wider range of products and services compared to traditional purchases.
- Operating expenses instead of capital expenses.
- Stronger customer relationships and reducing customer churn through higher value creation.
- Better predictability of revenue trends that can be normalized to a monthly value and used to forecast financial performance and resource allocation with greater accuracy.
Disadvantages of subscription-based plans include:
- Difficulty in managing the model without the right technology solution.
- Customers, vendors, account managers, and contact center agents all need access to subscribe, change, and cancel. In addition, all subscription changes must be appropriately reflected in the ERP systems to ensure accurate fulfillment and revenue recognition.
- Incomplete or inaccurate data not only harms the customer experience by causing customer service nightmares and renewal issues, but can also lead to incorrect revenue recognition and financial reporting errors.
Are Subscription-based Businesses Profitable?
Subscription models are very much in line with the spirit of the times and can therefore be extremely successful. Because modern consumers do not want to do without anything and are therefore happy to afford access to products and services that make their private and business everyday life more pleasant. Whether a subscription commerce is profitable depends primarily on whether its regular costs are covered by the income. A good indicator for this is the lifetime value. If it is higher than the cost of acquiring new customers, the subscription model is profitable.
In addition to being able to plan well thanks to regular income, subscription commerce also gives you deep insights into the consumer behavior of your customers. With the help of these, you can easily improve your offer and ensure that your customers enjoy using your offer in the long term and ideally even recommend it to friends and family. Another plus point is that while a customer has to take action in traditional e-commerce in order to buy again, a subscription solution runs on autopilot.
With the subscription model, the customer has to overcome a hurdle in order to cancel the subscription. Also, a subscriber who isn’t actively using your product is still a paying customer. In addition, the subscription business model has high cross- and upselling potential and, thanks to its recurring payments, is also attractive for a profitable sale or acquisition by another company after a certain period of time.
In the meantime, subscription business models have become an integral part of our everyday life. They could also prove to be an ideal scaling strategy for your business.
Ensure a Smooth Billing Process
If payments cannot be executed because there is outdated bank information, an expired credit card or insufficient funds in the account, this increases the churn rate unnecessarily. This is how you lose customers who were actually happy with your subscription. In order to prevent this, it is advisable to offer secure and reliable payment methods in the checkout process. Follow this link to get more info about correct payment development process.
Also, create an exceptional onboarding experience. The purchase hurdle is higher for a subscription model than for a simple one-off purchase. Finally, the customer is aware that taking out a subscription entails running costs.