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September 2, 2016 | Authored by: Vindicia Team

Uber sees the advantage of subscription billing

Uber, the popular ride-sharing service, inspires mixed feelings in its customers. The company has faced heat for the way it treats its drivers and its surge pricing model, which multiplies the cost of a ride based on demand. Yet, riders can't deny the service is incredibly convenient and if timed correctly, cheaper than a cab. Now, according to Business Insider, Uber plans to add to this convenience by offering customers a subscription billing system through which they can ride for a flat, preset fee unaffected by distance or surge pricing.

Uber Plus: A new subscription service
Uber is extending invites to a small group of customers in San Francisco, Boston, San Diego, Miami, Seattle and Washington, D.C. as part of a beta test for its new program, UberPlus. The new subscription-based service charges a monthly fee for a set number of trips. In San Francisco, customers can pay $20 for 20 rides or $30 for 40. After paying the monthly fee, riders play a flat fare for each trip - $7 for a private car with UberX or $2 for UberPool. If the customer goes beyond the allotted number of rides, pricing goes back to normal. 

One only needs to take a look at Uber's recent financials to understand the benefits a subscription service can bring the company. According to Bloomberg, Uber lost at least $1.2 billion during the first half of 2016. Gautam Gupta, the company's head of finance, allegedly told investors these worldwide losses were primarily due to subsidies for drivers. 

subscription management model can help Uber by giving it the ability to better predict revenue in the future. They can calculate the average revenue per user per month, then use this information along with their number of new subscribers and churn rate to forecast future profits. This allows them to make better budgeting decisions. In addition, if UberPlus attracts a high number of subscribers once it fully launches, the profits might help it cope with its severe losses.

Consumer-friendly subscriptions to increase revenue
As PYMNTS.com noted, this new service won't just benefit the company. It also makes Uber more attractive to consumers, especially in the face of competitors like Lyft and public transportation.

"Uber has been consistently finding ways to lower prices on rides - from UberX, to UberPool, to flat rates on rides during commute hours," Nicole Ferry, partner and executive director of strategy for the brand engagement firm Sullivan, said to PYMNTS.com. "In many cases, this has meant cannibalizing their own profit in order to simply attract more customers. By offering an even cheaper option with Uber Plus, Uber is becoming an irresistible mode of transportation for consumers, while also becoming more economical than its competitors."

"The cheaper price should make Uber even more attractive."

Uber's service is already valued by many, and the cheaper price should make it even more attractive. Business Insider calculated that customers taking the least expensive option - $20 for 20 UberPool rides at $2 each - would end up paying $3 per ride. That's much cheaper than a standard UberPool trip and costs only slightly more than the bus.

Uber's new subscription offer makes prices more economical for its customers while providing the company a better way to predict revenue. Although it's only in a testing phase and available in a few cities, a full launch could be great for the company and its riders. 

Businesses providing a consistent service should take note of the benefits of a subscription billing system just like Uber did. These recurring payments are customer-friendly, reducing the friction between paying for and receiving a service, and businesses benefit from the ability to predict profits.

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Vindicia Team

Vindicia Team

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