How to shift to a subscription model
Shifting from a single pay to a subscription billing model may sound like good business sense. High-profile success stories like Netflix and Amazon Prime can make this recurring model seem easy. However, while subscription billing has several benefits for both the business owner and the consumer, billing customers on a regular interval is more difficult than may first appear.
Starting with the first potential hurdle, if your current Customer Relationship Management (CRM) tool is not capable of managing customer subscriptions, you’re left with the age-old dilemma of “buy vs. build.” But there are many internal factors to consider before getting to platform decisions.
Raise your odds of success
If you’re committed to a subscription model, there are some things you can do to help improve your odds of a successful launch, and it all starts with defining your needs and researching the various players in the subscription field.
Start with defining what your specific needs are from a subscription marketing platform. Every situation will have various must-have requirements. Also, think about where you may take your marketing plan in the next six to 24 months, and be sure to consider your needs beyond just your first marketing iteration.
There are certainly more areas to consider than those highlighted below, but these are the critical items that are ubiquitous to pretty much any subscription marketing campaign.
It all starts with payments
You could easily spend a week contemplating, researching, and making decisions regarding payment needs and wants for what many call “recurring billings.” Payments, and more specifically payment processing, is frequently oversimplified. A payment is submitted; it goes through. If only it were that simple. When defining your needs, think about the following:
- Integrations: Platforms often have built in integrations to complementary services. Subscription SaaS platforms are no different. If you already have a merchant account, you’ll want to make sure the platform you choose supports your current acquirer. If you’re already integrated into an acquirer, the job is easier, although either way you’ll need to acquaint yourself with the nuances of subscription payments (for example, the notion of ‘stored credentials’)
- Currency: Where are you selling your products and services? Digital goods, such as software, may be sold worldwide, which means native currency needs to be considered. If your plan is to transact only in the U.S., your currency decision is more straight forward
- Account Updater Services – Card issuers now have tools in place to make it easier to monitor and update new consumer card information. But what about the merchant? This is where an account update service comes into play. While not a function of your CRM platform per se, you’ll want to make sure your platform can send customer payment information to your acquirer for account updates, and securely store the most up-to-date card information for your customer
- Re-Authorization Cycles– Subscription marketing is all about keeping the subscription alive. But customers may not always have available funds on their cards, causing a billing decline. Re-authorization of the transaction, (i.e., attempting to bill the customer’s card again) often yields success
- There are a number of schools of thought on how to capture the most successful authorizations, including companies that focus specifically on AI routines to improve authorization rates. Look for 3rd party platforms that address authorization strategies or contemplate this feature in your design. Poor authorization strategies can kill margins on a campaign
- Chargebacks and Representments – As a subscription biller, chargebacks and representments will most likely become key areas of focus. Regardless of the cause of a customer chargeback, a successful representment depends on the data you collect at the time of sale, your customer communications, and your ability to leverage those items when the time comes
- A representment of a chargeback is transacted through your acquirer portal. Still, your CRM will need the capability to capture and store the information necessary to successfully win a chargeback representment.
Subscription cadences to consider
Subscriptions can come in many different flavors, although the most common type of subscription is billed monthly. Balancing customer/member service and margin will always be a tug of war but having the right tool to structure your subscription will make it easier to test and optimize the right strategy for you. So, what are the structures you’ll need to consider when buying or building a solution?
- Trial Periods – Many subscriptions start with a trial period, anywhere from seven to 30-days. You’ll want to be able to test various trial durations as well as price points for trials versus a free trial
- There are different ways to look at trial periods. Some believe a ‘free trial’ is the way to go, assuming once the consumer has seen the value of the product they’ll continue as a paid member/user. Another stance is that people place little value on what they get for free. In this case, a paid trial, while driving small numbers, provides you with better name value in the longer term. You may also want to consider the ability to extend these trials to keep leads who are on the fence from completing their trial
- Subscription Periods – The typical billing cycles for subscriptions are monthly and annually. These make sense for most products but might not for you. Many marketers now offer both choices, a monthly experience at a higher price and a “committed” annual experience at a lower monthly equivalent price. Also, rather than a subscription that continues forever, you may have a subscription or payment cycle that stops after “N” subscription cycles (thus the name, “N Pay”)
- Subscription Renewal – This is usually only a consideration for a subscription period longer than monthly, (e.g., quarterly or annually). How does your subscription renew? Does the customer need to take a positive action to renew the subscription? If yes, how do you track and monitor this affirmative consent to renewal within your CRM
- Subscription/Installment Pricing – If your subscriptions bills- out at $99.99 per month, every month, this is easy. But if your product bills on a usage-based pricing model, you’ll need to be able to increase your price point “mid-month” based upon the customers usage. This example falls into the broader category of upgrades and downgrades of service and can become very complicated. As with the pause feature, downgrades can be good retention tools while upgrades help you drive additional margin
- Returns – Think about how and when you want to return monies to your customer. Most marketers choose one of three different strategies: 1) refund the subscription period in full, 2) provide no refund but service until the end of the subscription period, or 3) prorate the refund.
The lure of subscription billing is undeniable, and these considerations are an important first step in building out this model for your business. Once you’ve made some decisions on the above, the next step is deciding on a SaaS CRM platform that will enable your new business model.