The advanced subscription model

basicthinking from April 28, 2020: The subscription model is certainly not new. However, more and more companies are now offering their products and services as part of a more advanced “subscription model” – including those in the manufacturing industry. This enables many companies to acquire new customers and retain them over the long term.

The subscription economy is growing and growing. Whether well-known brands like Spotify and Adobe or young start-ups: Many companies strive for long-term customer loyalty; This is made possible by various subscription models tailored to individual needs .

The benefits of this approach are obvious: the cost of acquiring customers gradually decreases, while revenues are more predictable. Subscription billing therefore also represents an enormous opportunity for traditional companies to open up new markets and establish themselves there.

Customers love convenience and are willing to pay for it

According to a McKinsey study , 15 percent of all online customers take out at least one subscription in order to be able to use goods or services regularly.

You benefit from a convenient, personalized and often cheaper option. And often these are goods that they would buy anyway.

But some consumers cancel their subscription after some time. The most common reason for this: They perceive their personal customer experience as unsatisfactory. If the customer sees the customer experience as in need of improvement, the churn rates are high. The price is therefore not always the decisive factor.

Subscription billing: Companies benefit from these advantages

In addition to the customer acquisition and revenue benefits already mentioned, there are other advantages that businesses enjoy when adopting subscription billing :

• Companies need less time and manpower for their customer acquisition. At the same time, the chances of customers remaining loyal to the company increase.
• Subscription billing allows different price models. Companies and products can thus be better distinguished from one another. This leads to an accelerated time to market, especially for SaaS offerings, since services can be tailored precisely to the needs of specific customers.
• Companies can better plan the number of customers in advance because one-time purchases are minimized. This helps companies budget more effectively and provide a more accurate view of their sales.
• Customers are enthusiastic about the product in the long term and can be retained in the long term. Companies benefit from better monetization as a result.
• This in turn leads to a more accurate collection of customer data. The offer can thus be tailored even better to the respective customer. Key word: personalization.
• Since subscription models have no limit, companies benefit from previously unknown scalability.

Don’t underestimate the transition to subscription billing

If companies are ready to switch from one-time payments to recurring billing cycles, there are a number of challenges to be overcome.

Because not only the purchasing process requires extensive adjustments, but also the entire customer journey.

Companies should therefore also consider dynamic billing in relation to rating, mediation, upgrades, downgrades and one-off or recurring fees. In addition, the corresponding IT solution must also be integrated into all company-wide systems such as CRM, ERP and financial systems.

Companies should offer their customers several payment methods that enable recurring debits. Likewise, all payments from all connected payment service providers must be checked for completeness, due date and correctness. A payment clearing solution takes on these tasks, including complete accounting and a certifiable monthly statement.

Another key point that companies should consider when introducing a subscription billing solution is flexible billing. These should be automatically sent to customers at adjustable time intervals. Great scalability can only be achieved through a high degree of automation of these processes.

Successful subscription billing requires nurturing relationships

If your company also strives for long-term customer relationships, it is important to consistently satisfy the customers.

Subscriptions represent ongoing relationships. Because the longer your customer is willing to pay for your services, the higher their customer lifetime value and, accordingly, your profit.

Therefore, pay attention to an optimal price-performance ratio. Only if your customers rate this as appropriate are they willing to enter the subscription model.

In addition, your business should be adaptable. In the subscription model, the boundaries between products and services are fluid or no longer exist for some services. With the necessary innovative ability and enthusiasm, you should therefore focus on subscription-based, experience-oriented service models.

Even companies from the consumer goods industry are switching and offering their goods within a rental model.

The provider nexnet from Germany offers companies a holistic solution for this. Its subscription billing platform is an efficient BPO solution and also designed to manage internationally recurring payments and subscriptions. SOX compliance and the handling of different tax rates and foreign currencies are integrated.

Conclusion

Subscriptions make life easier for both businesses and consumers.

The goal when introducing subscription billing should always be to offer lasting added value that customers will be happy about.

However, you should not underestimate the switch from one-off payments to recurring billing processes. The change can only succeed with tailor-made solutions, modern technology and business processes tailored to it.