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What Is Subscription Management?

What Is Subscription Management?

In recent years, subscription management has become one of the most important investments eCommerce companies can make into improving their ROIs.

Of course, subscription billing models have been around since the 17th century, but the last few years have seen meteoric adoption. Driven by the shifting needs of consumers, many eCommerce businesses have pivoted to offering services and goods via subscriptions.

The subscription economy has grown by more than 435% in 9 years. It’s becoming THE go-to business model for online businesses, but subscription services are becoming the norm among consumers, too.

Currently, 78% of international adults have subscription services. 

Want to join the ranks of the companies that are able to meet this growing customer demand?

That’s where comprehensive subscription management comes in.

Before you start offering these services – or trying to manage them – though, let’s take a look at what subscription management is, how much it costs, why software plays such an important role, and much more.

Introduction to Subscription Management

So, let’s start with the basics.

What is subscription management?

It's the process of managing customer subscriptions and evaluating and optimizing the customer experience. Generally, this term also includes the required technology.

Subscription technology (like our own subscription plugin) has to be able to support dynamic purchasing, maintenance, and ownership models. Because these models are complex, they need a high caliber of real-time oversight. 

To carry out efficient subscription management, you have to leverage CRM technology that can track, connect, and manage all possible variables. This will allow you to achieve accurate, efficient fulfillment and increased revenue recognition. 

Subscription CRM software allows businesses to implement future-forward business models that offer customers dynamic purchasing, pricing, and ownership options. Some of the benefits to customers include:

  • Affordable monthly subscription fees
  • Lower barriers to access goods and services
  •  Easier, less financially-weighty buying decisions
  • Flexible, customized, blended service/product bundling that drives value for individual customers
  • OpEx-related cost savings for B2B customers

For businesses, this means less friction in the customer journey, as well as easier sales and more opportunities for upselling and cross-selling. 

What Is Subscription Pricing?

Recurring billing is one of the defining components of a subscription-based business model.

Subscription pricing creates recurring revenue for businesses at predefined intervals, such as monthly, quarterly, or annually. In exchange for a recurring fee, customers get access to goods or services – on a recurring basis.

Traditional pricing models typically involve a once-off transaction. Subscription pricing models break up the cost into smaller, ongoing amounts.

This is more affordable for customers and also allows for more fluid and flexible relationships between businesses and consumers. 

Fee-for-service models usually charge a fee for individual services rendered. Subscription pricing typically bundles things like tech services, maintenance, and repairs under one price. This adds value and gives customers a broader range of offerings. 

The Value of Subscription Pricing

Subscription pricing has become a valuable model in both B2B and B2C markets

One of the reasons is that subscription pricing lowers price barriers for customers. Instead of having to pay a large amount to own something outright, consumers can enjoy affordable subscription charges for usage. 

Because of this, pay-as-you-go models allow businesses to expand their addressable market. Rather than just focusing on demographics that can afford a once-off purchase, businesses can target lower income/revenue brackets. 

Subscription models also make it easy for businesses to bundle offers together. This creates new revenue opportunities. 

Additionally, subscription pricing gives businesses enhanced revenue predictability. Recurring relationships with customers allow businesses to track and forecast their financial performance with much greater accuracy.

The Pros and Cons of Subscription Pricing

As you can see, subscription billing is taking on a valuable place in modern-day business models. It has a number of compelling benefits – but also some drawbacks – for customers.

The Benefits of Subscription Billing 

Let’s begin with the obvious advantages of adopting a subscription model for your eCommerce business:

  • Access to a wider range of services and products through affordable recurring charges
  • Enhanced flexibility
  • Reduced opportunity costs on purchases
  • The ability to convert capital expenditures into operational expenditure

At the same time, subscription billing also benefits businesses by:

  • Reducing customer churn via enhanced value creation
  • Strengthening customer relationships
  • Allowing businesses to enjoy more revenue predictability
  • Allowing businesses to forecast future revenue with increased accuracy

Subscription pricing has a number of powerful advantages for both brands and customers, but it does also have a few potential drawbacks.

Let’s take a look at those next.

Potential Drawbacks of Subscription Pricing

As we mentioned earlier, subscription pricing – and management – are becoming more and more popular every year.

However, it’s also worth looking at some of the potential drawbacks to subscription models:

  • Incomplete or incorrect data can erode the customer experience, create customer service nightmares, and trigger renewal issues
  • Incorrect data can also impact financial reporting and skew revenue recognition
  • Under subscription billing businesses need to adhere to compliance standards such as IFRS15 or ASC 606
  • Subscription models can be complex to manage if businesses do not implement the correct CRM solutions 

Fortunately, most of these drawbacks can be easily rectified by adding the right technological solutions to your subscription management needs.

The right software will ensure that all changes are accurately reflected – delivering accurate fulfillment and revenue recognition. 

Subscription Pricing vs. Subscription Management

Subscription management is the overarching internal process. It supports dynamic purchasing and facilitates new ownership and maintenance models. It also facilitates accurate fulfillment. 

Pricing is a component of subscription management. It includes how subscription services and products are billed, priced, and bundled. 

The term subscription pricing can also apply to recurring billing.

How Subscription Management Models Work

As we outlined above, subscription management models maximize value for customers. At the same time, they give businesses enhanced resource allocation forecasting and revenue predictability.

However, to enjoy these outcomes, you must carry out proper oversight on subscription model deployment and maintenance.

This will ensure that:

  • Orders are accurately fulfilled
  • Customers are satisfied
  • Revenue is recognized appropriately

Data flows are another important aspect to oversee.

Most subscription models require multi-point account access. Customers, reps, managers, and sellers all need to be able to create, modify, or cancel accounts. 

No matter who initiates them, all changes must be reflected in your Enterprise Risk Management (ERM) system. If you attempt to manage subscription systems manually, this can be a recipe for disaster. Issues with subscriptions can erode customer trust and impact your business's financial health. 

Thankfully, you don't need to worry about this if you have a good subscription management solution. Subscription management solutions can seamlessly share CRM data with your ERP. 

Not only does this safeguard you from mistakes, but it also allows businesses to maximize their revenue potential. If your CRM and ERP are talking to each other, you can connect your financial and resource management data. 

This opens up all kinds of opportunities.

You can extend the customer relationship over multiple customer lifecycle iterations.

You can also discover unique ways to deliver solutions to customers. This can maximize customer lifetime value.

Subscription-Based Software Explained

Subscription-based software has become commonplace among companies that run subscription models.

Also known as software-as-a-service (SaaS), it's becoming the preferred model for everything from paid apps to software behemoths like Microsoft and Adobe. 

With subscription-based software, customers have access to the solution for as long as their subscription license is active. 

With perpetual license models, customers have to make a one-time payment for full license ownership. Under this arrangement, the software starts depreciating almost as soon as it's bought. 

Subscription-based software solutions offer customers the same (or better) features at a much smaller recurring cost. Because it's housed in the cloud, customers also get to benefit from ongoing feature and security enhancements. 

Subscription-Based Software vs SaaS

That being said, some people draw a distinction between subscription-based software and SaaS.

With SaaS, software is usually delivered online. It's also hosted by the software vendor.

Everything surrounding the software solution is sold as part of the subscription, including things like:

  • Customer support features
  • Maintenance
  • Security patches
  • Updates
  • Upgrades

So, most SaaS models are subscriptions. However, not all subscriptions for software are necessarily SaaS.

What Subscription Management IS NOT

Subscription management is a multilayered process, which is why people often confuse it with recurring billing. 

So, let’s look at the difference.

Recurring billing is not the same as subscription management. It is an automated process between the merchant and customer that facilitates periodic transactions.

Whereas recurring billing involves processing new purchases and signups, subscription management handles your existing customers. It's an ongoing process to ensure customer satisfaction and retention. 

Subscription management also isn't the same thing as recurring payment processing. Recurring payment processing facilitates secure transfers of funds from customers to merchants. It also involves sensitive data storage. 

PayPal, Stripe, and Braintree are three examples of payment processors. 

3 Times When Subscription Management Is of the Utmost Importance

Subscription management is absolutely critical to the success of this business model.

Here are a few examples that demonstrate how subscription management can be a make-or-break factor.

1. When Customers Sign Up

A lot of subscription models offer free trials. This allows new customers to test out your offerings free of charge before recurring billing kicks in.

But what happens if a customer is undecided when the trial expires? 

Maybe they haven't had a chance to really test the service. If so, it could be a good idea to extend the free trial period. 

Do your customer service reps have the power to enable this?

Getting people to maintain their subscriptions is as critical as the initial sign-up. 

2. While Customers Are Using their Subscription

Customers need to be able to upgrade, downgrade, and access other billing-related services. 

When they make changes, your System of Record needs to instantly (and accurately) reflect this.

If the data isn't updated everywhere it needs to be, your customer might:

  • Not receiving the upgraded access they paid for
  • Not being billed correctly

Your subscription billing management solution needs to automatically track these changes and modify customer accounts.

3. When Customers Leave 

If a customer cancels their subscription, you lose more than the value of a sale. The loss is equivalent to the Lifetime Value of the account

Therefore, it's critical to look under the hood of cancellations. You need to know what requests the customer made and what response they received.

In short, is your subscription management up to scratch?

The 5 Key Stages of Subscription Management

As we mentioned, subscription management is an ongoing process that addresses the entire customer lifecycle. These are some of the typical stages of subscription management. 

1. Pre-Signup

The first stage of subscription management is the pre-signup experience. A good pre-signup experience should allow customers to easily see and compare different pricing tiers. 

It should also give customers a clear idea of your value proposition.

2. Add-Ons and Discounts

To incentivize signups, you might also want to offer new customers opportunities to take advantage of add-ons or discounts. A good discount or valuable add-on could be the motivating factor that sweetens the deal just enough for a new prospect to click "buy.”

3. Upgrade Management

If you want to upsell higher tiers to customers, you also need to implement a seamless upgrade process. When customers want to upgrade their accounts, the process should involve the lowest amount of friction possible.

Your subscription management system should also be able to work out and apply pro-rata payments for customers that decide to upgrade mid-month.

4. Renewals

Renewals is another critical stage of subscription management.

During this stage, you need to identify churn candidates and take steps to maximize renewals. One of the best ways to do this is through automating subscription renewals. 

You should also offer cross-sells, bundles, upsells, and incentives during this stage. 

5. Subscription Cancellations

When a customer cancels their subscription, they must be able to complete the process quickly and easily. They also shouldn't be erroneously billed after cancellation. 

This stage of subscription management also offers businesses an opportunity to learn about their customers. By linking your CRM and email marketing systems, you can send out automated customer satisfaction surveys.

Recent reports show that 54% of consumers who cancel subscriptions are doing so to save money. 

Maybe your customer surveys show that most cancellations are due to budget concerns rather than the quality of your offer.

Whatever the case, you can use this data to inform your pricing structure.

Subscription Licenses Explained

Subscription licenses are usually involved in SaaS models. They are typically held by an individual and grant access to a specific software solution. 

Most SaaS offerings involve tiered packages. Higher tiers usually include additional users and grant access to more features. 

Perpetual Licenses

Perpetual licenses grant users lifetime access in return for a once-off payment. They are limited to the version that's purchased. 

However, perpetual licenses seldom include security upgrades or functionality updates. 

Differences Between Subscriptions and Licenses

Subscriptions give customers access to complimentary features. They also include updates and enhancements, usually at no extra cost. Users may also get revolving access to complementary tools and solutions. 

Licenses give users access to a solution. Perpetual licenses grant perpetual access to one product. Often, perpetual licenses are limited to the version purchased.

What Are Subscription Management Platforms?

Subscriptions are intricate to oversee and require tighter management.

However, they offer significant added value for customers. Subscription models also allow businesses to tap into new revenue opportunities and expand their target markets. 

Subscription management systems are the applications businesses use to track and manage the different subscription stages. 

A good subscription management app allows for enhanced efficiency and accuracy. This streamlines operational and financial management. 

Subscription-Based Businesses Defined

Subscription-based businesses generate revenue by giving users a la carte access to services or products. Subscription models also often bundle complimentary offerings.

Customers are billed at regular intervals. If they cancel their subscription, their access will cease. 

Instead of selling customers ownership rights, subscription models offer access for a stipulated time period.

This allows sellers to build recurring relationships. It also lowers access barriers for buyers. 

Many people believe that subscription businesses are marking the end of ownership.

Treating Subscription Management as a Top Priority

While offering your company’s products or services through a subscription is a smart way to skyrocket your eCommerce company’s revenue, the strategy is destined to fail without a sufficient management structure in place.

By treating subscription management as an ongoing priority for your business, you’ll be able to ensure the highest possible ROI for this popular approach.

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