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The subscription economy is booming, with many companies either supplementing their traditional offerings with subscription-based services or replacing them completely. Consumers are increasingly gravitating toward subscription services, whether they’re looking for streaming media platforms, gaming packages, or cloud-hosted business software. According to Gartner, 75% of B2C companies will offer subscription-based services by 2023.

There are plenty of opportunities for businesses to capitalize on these trends, especially those that offer digitally based services. At the same time, subscription businesses present unique challenges that stakeholders who are accustomed to more traditional business models may not be prepared to tackle.

Any company looking to transition to a subscription business model – or simply add subscription-based offerings to their broader menu of services – must address these concerns head-on to make that move successful. Companies must optimize their businesses according to the specific requirements of a subscription model to increase customer retention, minimize churn, improve customer satisfaction and accelerate revenue growth.

Why subscription-based services are the future of business

In many industries, the subscription-based business model is no longer a disruptive force, having firmly established itself as the go-to approach to service delivery. Software as a service (SaaS), for instance, has been widely adopted in the software space, leading Gartner to predict that 80% of historical vendors, as well as all-new market entrants, will offer subscription-based services in some fashion by 2020.

More advanced tech leads to better services

Why are subscription-based services so popular with today’s consumers? Part of it is due to the technological advancements that have occurred in recent years that make subscription services not only viable but also give them a distinct advantage over traditional business models.

Take music platforms, for instance. Early digital music services like Apple’s iTunes gave users the opportunity to purchase digital copies of songs at a low cost. The concept was fairly revolutionary for its time, but compared with subscription services like Spotify and Apple Music, it now seems pretty quaint. Today’s subscription-based music platforms allow users to listen to enormous catalogs of music at a monthly cost that’s equivalent to a single CD. In many cases, users can access free versions of these services that offer fewer features but include advertising between songs.

Paying a flat fee – or nothing at all – to access decades’ worth of music covering every genre is a significant leap over buying individual songs. It’s no wonder that subscription-based streaming services are so popular today, while former heavyweights like iTunes go the way of the dodo.

Personalize every customer interaction

Subscription services offer more flexibility to users as well as opportunities to personalize the customer experience. Personalization is a very big focus in current subscription business trends and permeates every aspect of the customer relationship, from service delivery to billing. Delivering customized services along with a distinctly tailored user experience will help you build brand loyalty and increase the lifetime value of your customers.

Subscription-based services generate recurring revenue that can be collected month after month. Once established and properly managed, customer relationships can pay off for years to come rather than culminate in a single, one-off purchase.

How do you start a subscription business?

You don’t need to fully commit to a subscription business model if your traditional approach is still working. Staggering the transition is often advantageous since it minimizes any turmoil that can arise from such a drastic change in business operations, not to mention any initial revenue loss that could occur.

In fact, Gartner recommends easing into subscription-based services by rolling them out slowly and offering them as an alternative to – rather than replacement of – legacy products. Continue to support existing customers who have grown accustomed to your traditional service model while growing a base of new, subscription-focused users. You can begin encouraging long-standing customers to switch to a subscription service, handing out exclusive promotions, and highlighting the benefits of those offerings.

According to Gartner, businesses should set a target goal of converting 50% of their customer base to subscription services within a reasonable timeframe. That will keep your transition efforts on track without causing too much disruption in your normal business processes and revenue streams.

Steps to take for subscription business optimization

Simply converting your service delivery mechanisms to a subscription-based approach will not make the most of this business model. There are several key areas that need to be optimized in order to bring in new customers while minimizing churn rates and increasing the lifetime value of users.

Build a strong user interface

The user interface (UI) is very important for subscription services. Intuitive navigation tools, reliable platform performance, and easy-to-use features are all essential for selling digital products and services. If your platform is unwieldy, prone to outages, or suffers from performance issues, customers will find an alternative that can deliver on all of those fronts.

A strong UI combined with a reliable architecture makes it easier for new users to get comfortable with your application or platform while eliminating potential points of customer friction.

Practice end-to-end customer engagement

A common mistake that new subscription service providers make is to focus their customer engagement efforts solely around the acquisition. Succeeding with a subscription business model requires a change in mindset from the days when a customer relationship culminated in a single purchase. Customer engagement efforts need to be ongoing well past the point of purchase to keep users happy and enrolled in your services.

The best subscription businesses understand how to increase the lifetime value of their customers, continually engaging users and encouraging them to keep their subscriptions going for years on end. It takes far less effort to keep any existing users signed up for your services than to find a new customer to replace them if they cancel.

Speaking of which, don’t cut ties with customers at the point of cancellation. It’s very common for users to cancel a subscription only to sign back up a few months down the road. For example, OTT media streaming services often see subscription numbers fluctuate according to the release dates of popular programs.

Make the cancellation process as painless as possible so you don’t cause undue friction with departing customers. End the relationship on good terms with the expectation that those individuals will be back and ready to sign up again at a later date.

Capture illuminating metrics

Continually work to improve your subscription business by collecting as much data as possible about your operations, services, and customers. There are several metrics that do a good job shedding light on subscription businesses and opportunities for growth and refinement:

• Customer lifetime value
• The average revenue per user
• Churn rate
• Monthly recurring revenue
• Customer acquisition cost

That’s just to name a few. Tap into the insights provided by subscription-focused metrics to power your business and increase revenue.

Personalize services and engagement tactics

As we noted earlier, subscription services offer plenty of opportunities to personalize the user experience and deliver customers a unique offering that can’t be found anywhere else. Personalization should permeate every aspect of your subscription service that goes beyond the offerings themselves.

For instance, reviewing a customer’s transactional data could reveal that they recently switched their payment method from a credit card on file to a Google Wallet account. That could indicate that they are now using their smartphone or other mobile devices as their primary touchpoint for your digital service. You can use that insight to personalize future interactions, communications, and promotional offers, gearing them toward mobile users.

Don’t miss a single opportunity to personalize your services. According to a 2017 Epsilon survey, 80% of consumers were more likely to do business with companies that provided unique brand experiences customized for each customer.

Set subscription prices with care

Knowing how to set ideal prices for subscription services isn’t easy, especially for companies that have spent years or decades operating within a traditional business model. Raise your prices too high and you risk turning away customers; go too low and you wind up diminishing revenue opportunities.

Diligently analyze the marketplace and the competition to land on an initial price point. From there, feel free to experiment a little with your subscription pricing – potentially introducing different tiers, bundled packages, monthly fees, and annual subscription rates – to find the perfect middle ground that supports new customer acquisition and minimizes your churn rate.

Get started on the right foot with your subscription business

Starting a new subscription-based service or shifting to a subscription business model can lead to new revenue opportunities, but it requires a great deal of know-how that business leaders and stakeholders may not already possess. That’s when it’s time to turn to the professionals.

Vindicia’s years of subscription billing experience in this industry can help any organization successfully embrace a subscription business model, increasing revenue and boosting customer retention metrics. Contact our team today to find out the best way to optimize your subscription business.