Eliminating the unknown and replacing it with data
The Big Switch: What Everyone Should Know about the Subscription Software Model
We are all witnessing a powerful shift in our economic goals. Undoubtedly, profit remains a priority, as well as a key growth driver. So important this element is that we can safely say it will never be overthrown, especially now that we have a focused SaaS subscription software industry. It is only natural to watch the subscription age unfold with all things SaaS. But what does this mean exactly in terms of revenue, customer management, security, and payment?
What is the Software Subscription Model?
One term you have most likely heard quite often in the last few years was the Subscription Economy. Zuora CEO Tien Tzuo coined this term, referring to the customer’s purchasing behavior, ultimately leading to a shift towards the software or SaaS subscription model. A disruption in the business ecosystem, subscriptions eliminate the concept of ownership and introduce the idea of recurring revenue in exchange for the usage right over a product or service. Now, while that may seem much like a goldmine, which it is, it also comes with some strings attached to it. The global subscription service changes not only the way the customer thinks but also what they expect. And that means pressure on the SaaS and software developer to satisfy those needs and provide shoppers with a compelling offer. However, before we dive deeper into the topic, let’s discover the benefits of the subscription model.
The 4 Benefits The Subscription Model Brings
The subscription economy brings unique advantages, which explains the impressive popularity this model enjoys.
StabilityWhen using the subscription model, software developers enjoy constant recurring revenue. Depending on the number of subscribers, the profitability rate of the product/service may increase or not. But the benefit is that it is constant, which is hugely important in future business development. Achieving revenue sustainability is a push forward in the right direction, providing the developer with the freedom to invest in their growth constantly.
Long-term relationshipDue to the regular, automated purchases your customers make, bonds between them and your SaaS business take form. You are given the unique opportunity to nurture those long-term relationships with the end goal of driving loyalty. Once you achieve this, you can grow the recurring revenue earned from your audience through unique offers.
PredictabilityThe age of subscription is entirely about the customer. The shopper is the one that triggered the switch to the SaaS subscription data model, so it was only natural to have one benefit for the audience. But this is an advantage for SaaS businesses because there is great potential to secure your bond with clients by providing them with personalized packages. Flexibility makes subscriptions more adaptable to the direct needs of your shoppers.
FlexibilityThe age of subscription is entirely about the customer. The shopper is the one that triggered the switch to the SaaS subscription data model, so it was only natural to have one benefit for the audience. But this is an advantage for SaaS businesses because there is great potential to secure your bond with clients by providing them with personalized packages. Flexibility makes subscriptions more adaptable to the direct needs of your shoppers.
The 4 Downsides of the Subscription Model
Even though we are all part of the subscription economy, we have to admit that just as there are benefits SaaS developers enjoy, there are also downsides to this business model. Let’s see what these are.
A High Churn RiskThere comes a time when all subscribers start questioning their contracts. They either realize that they are not benefiting from the product as much as they believe they should, or they simply found something better. This is a constant risk in a highly competitive market. Some might cover the subscription costs automatically without even utilizing the product. Once they realize that the product they are subscribed to no longer meets their current needs or fails to bring an obvious benefit, that’s when they churn. They terminate their subscription. Yes, you can optimize the churn rate through payment retries. However, fighting churn is a constant battle when going for the subscription model.
The Contract HassleYou might notice that many users, yours and others, have a real fear of contracts. The fact that they need to commit to something as small as a Netflix subscription is very much a real issue. This fear of contracts, no matter how strange or, at times, absurd it might sound, can affect your customer acquisition rate. One way of fighting this problem is by making this step as straightforward as possible. Eliminate all necessary steps and focus on the essentials. The faster the process, the better for your business.
The Difficulty of Maintaining ValueProbably the biggest challenge is maintaining the value as high as possible. Subscription models give you, the SaaS product owner, the unique opportunity to establish long and potentially fruitful relationships with your users. With one condition, though. You need to keep them hooked. Unless your product responds to a vital, essential need, you must always stay on your toes and keep adding value. Your product must be regarded as a work in progress, in the sense that you constantly need to be adding features and make improvements according to the feedback received from your users. Maintaining value is difficult, time-consuming, and expensive, requiring constant investments. But it is the only way you will keep your subscribers close.
Facing Up to CompetitionUndoubtedly, the subscription model is highly beneficial from the Saas developer’s point of view. However, this poses an issue. Admitting that this business model is advantageous, the level of competition will increase, as it already happened. And this could eventually lead to market oversaturation. While competition in itself is no longer a new concept but rather a reality all software & saas business owners have to live with, it is still a growing concern among entrepreneurs. It pressures the marketer to bring something new to the table constantly.
Making The Best of The Subscription Model
The subscription economy McKinsey concept can be a real handful, especially if you want to see your SaaS company thrive. While this software sales model can bring great benefits, you must constantly optimize it. By doing so, your SaaS product will benefit the most from it, and your work will be visible in the high-profit margins. And here is how you do it.
Keep Your Focus On The CustomerSubscriptions are a different approach to servitization, as your business’s focus goes to improving customer service, the product itself even, coming up with real solutions, and providing the customer the opportunity to make better use of your service. The fact that you are in a permanent connection through your SaaS customer service team or otherwise with your client through the subscription model is an incredible gain. We look at the customer as the primary source of inspiration for all our endeavors. Having a customer-centric attitude will get you far, trust us. Ask for feedback and act upon it. Offer personalization tools if the product allows it. Learn from Netflix and its system of offering recommendations based on the customer profile. Collect and analyze the data you obtain and work hard to answer your identified needs. You aim to increase both subscriber engagement & loyalty, as these two drive higher and steady revenue streams.
Constant Value of DeliveryAs we’ve said before, the subscription model SaaS companies come in large numbers. A high competition level leads to a poverty of attention. This pressures entrepreneurs into bringing forward attention-grabbing packages that convince customers to become your subscribers Once you win them over, you need o keep up the good work. You don’t want to lose them. So, always be a step ahead of the competition and focus on bringing your users face-to-face to features or offers they cannot refuse. Establish connections thanks to your SaaS customer service team or because you know how to price SaaS right and convince them with your offer.
Dive deep in analyticsData can get you far, so whatever you do, keep an eye on them and make sure you learn from them. The data you gather will give you precious information on what you need to change or improve to increase your sales. You could verify the promotions you are running and see how they are doing, and check the success of your products. You could run a pricing strategy to identify the right model for your business. Think of data as a fountain of knowledge and dive into it as deeply as you can.
Final Thoughts on the Subscription Economy
Yes, we are the subscription economy. Yes, there is no turning back now. Yes, there are plenty of advantages involved and it’s a pity not to enjoy them No, there is no reason to fight the wave, it’s definitely here to stay. No, you have nothing to worry about. Being part of the subscription empire is the only valid option you have and if that’s all you have on your table, you might as well make the best of it, right?