8 February 2018

4 Reasons to Migrate to the Subscription Business Model

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Do you remember the first time you sold your product or signed a contract for your service? I bet it felt good. Do you know what feels even better? Becoming a trusted provider of your services and products to your loyal customers and catering for their needs in the long-term. That lasting feeling is what the subscription-based business model holds in store for success-hungry entrepreneurs across all sectors.

The seismic shift towards recurring payments was inspired by empires like Amazon, Adobe and Netflix. The model instantly earned the “disruption” status in the global economic arena, seeing more and more entrepreneurs put subscriptions at the cornerstone of their businesses. The sentiment is clearly reciprocated as the number of visitors of subscription company websites reached 37 millions in April 2017 only, having grown 800% as compared to the 2014 rates. In addition, it was observed that subscription-based businesses’ revenue increased 8 times faster than S&P 500.

So where does all the buzz come from? I’ve decided to explain why merchants should be eager to turn that worldwide trend into a local opportunity and discuss four benefits of migrating to the subscription-based model with automated payments.

1. Subscriptions enhance business predictability

Reinventing your payments strategy can increase revenue predictability and, in effect, ensure the long-term sustainability of your business. Once you’ve established your base of loyal subscribers, you never start a financial period at zero. This will allow you to be more forward-thinking and strategic with your decisions around the budget and investments. Hence, it offers more than just a reliable revenue stream. It gives you a comprehensive view on what the future holds and lets you act upon this knowledge to recalibrate your business plan if needed.

Knowing your customers’ requirements well in advance thanks to the implementation of the subscription model will additionally enable you to plan way ahead and estimate how much stock you need as well as how resource- and labor-intensive the months or even years ahead will be. This, in turn, will ensure consistency in your business. To further optimize the automation and revenue predictability, the most forward-thinking merchants tend to use innovative subscription billing providers that offer retry logics and late payment reminders. The latter will either prompt the subscriber to make the payment or tell you when exactly they are able to pay the amount in its entirety. As a result, your attention will no longer be handicapped by handling payments!

Interestingly, if viewed from a slightly different angle, it’s not merely a way of boosting and securing revenue for merchants – it should offer the benefit of predictability to your customers, too! Subscribers know exactly how much they will be charged in each billing period so they can work out their budgets. Likewise, if you combine the subscription-based business model with automated payments, you gain access to analytics tools that give you control over the health of your business. This, consequently, will provide you with profound knowledge that you can convert into ideas of how to maximize your revenue and grow your business.

2. Subscriptions mean fewer transactions declined

Going automatic with your payments will significantly diminish the number of manual errors and… the frustration they can provoke. This addresses your customers’ desire to make payments as frictionless as possible. The most likely scenario is that they won’t have to enter their payment details more than once. They will be able to make purchases conveniently – with one click only. This takes “frictionless” to a whole new level, doesn’t it?

3. Subscriptions increase comfort

The research we carried out to examine the maturity of subscription-based economy in Poland (see the full report here) demonstrated that convenience (23%) is the second most valued advantage of recurring payments, preceded by pricing (30%) and followed by security (22%). Employing automated payments means they won't need to worry about renewals or reordering your service, they will only need to deal with all formalities in the beginning and, having taken care of that, make the most of the comfort you can offer.

Subscriptions also give them a sense of security. The services or products will be provided as often as agreed upon so they don't have to bother themselves with a sudden cessation of delivery or trying to remember when the payment is due. It shouldn’t come as a surprise that the latter makes the top (32%) of German subscribers’ list of the favorite advantages of subscription payments. Not to mention the comfort of not having to face surprises that can await them in case they forgot to pay. In other words, they won’t be welcomed after an enjoyable holiday by an army of devices that stopped working once the electricity was cut out or its side effects like some non-identifiable smells coming out of the fridge!

4. Subscriptions boost customer loyalty

Think of your active subscribers as of members of a sort of your own loyalty club. What would that mean in the case of your business? Helping them learn Portuguese by providing them with access to an online language teaching website every month? Making sure they can watch the latest episode of their favorite show by enabling them to use a video streaming platform weekly? Nurturing their inner literati by giving them access to paid content on influential websites? Whatever it is that you’re going to do for them, the idea is to make their lives more convenient.

The subscription-based business model is benefitial for both sides of transactions. Just like we said a moment ago, your company makes the subscriber’s life a lot easier by reducing customer effort, which happens to be, according to Harvard Business Review, the most significant factor in customer loyalty! Subscriptions will also help you embrace the ethos of customer-centricity if you’ve ever found it troublesome. Once the customer decides to subscribe to your service, they establish a unique relationship with your brand and use your products and services long-term. Additionally, having insight into their respective preferences provides you with an unparalleled opportunity to add a personal touch to your business, which could give you a competitive advantage on the market. It opens a new dialogue in which you communicate with the customer regularly. It lets you get to know them and come up with offers and deals that can result in the deepening of that relationship. It also means you can (or even should) start to concentrate less on the acquisition of new subscribers (which by the way becomes easier when you entice your loyal subscribers to recommend your company) and learn how to nurture the customers you already have. The moment you find out what the customer expects, you’re able to convert your endeavors to keep them happy into a considerable boost in customer loyalty. Following this way of reasoning, the subscription economy offers instant growth to the merchant by empowering the customer.

Where do you start?

Seizing on the subscription model will help you stop wasting your time over payments logistics and let you do more of what you love and what you’re best at – growing your business. The solution does not entail a radical overhaul of your company. It is not a cumbersome process – the opposite in fact. It is rather an easy shortcut on your path to success.

Having a headache trying to figure out which payments model would be right for your business? No wonder – there are so many aspects to contemplate on! For more information on how to seamlessly integrate any payment system into your business strategy, read one of our latest blogs or get in touch with us!

Michał Jędraszak

Chief Executive Officer

Michał is an experienced executive who combines his deep technical background with outstanding business savviness. Prior to joining Straal, he had developed his managerial and analytical skills at a top tier consulting firm - The Boston Consulting Group - where he specialised in strategic advisory for the financial services sector.

At Straal, Michał is responsible for creating and operationalizing the company’s go-to-market strategy, coordination of key business development projects and building fruitful relationships with all stakeholders.

He holds a degree in Mechanical Engineering at Imperial College London.

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