Common Pitfalls Of The Subscription Model And How To Avoid Them

Consumer attitudes to ownership are changing, with greater demand for products and services which offer convenience, high-quality customer experience, and accessibility. So it’s no wonder then that in the last decade or so, the digital subscription economy has rapidly grown, reaching $650 billion USD worldwide in 2020.

The customer benefits of the subscription model are clear: no large upfront cost, smaller affordable recurring payments, the option to cancel at any time, and the flexibility to change providers. Whilst customer-focussed businesses see the value of adopting a subscription model, they’re not always aware of the impact on their organization, or some of the potential challenges involved with setting up and running internal systems for handling recurring revenue.

Martin van Vugt, Partner and Senior Business Consultant at Subscription Factory, shares his experience and insights on some of the common pitfalls of getting started with the subscription model.

Implementing A Scalable Model

In today’s world, many people expect convenience and instant access to everything at once. With subscription services like Netflix and Spotify, people are accustomed to quickly entering their personal details and card information online to instantly unlock vast libraries of content. That process, sometimes referred to as the ‘happy flow’, is the simple process for getting started.

When implementing a subscription service for the first time, it’s important to keep the solution simple and scalable. Sometimes the temptation for businesses is to give their customers everything at once – which is possible with a platform like Zuora – but they run the risk of over-complicating their offering and creating deep and unnecessary organizational complexity.

It’s true to say that the subscription economy allows you to scale endlessly, but at the same time the organization itself also needs to be able to handle a sudden upsurge in subscribers. If a subscription model is overly complicated, it becomes difficult to maintain, and scale. That means knowing how to handle support, and limiting the number of features.

Managing Organizational Change

Implementing a recurring revenue model necessitates organizational change. So there’s a direct impact right across the business – from sales through to finance. For a finance team, used to the old transactional model, suddenly they’re faced with new ways of working, and increased automations. For instance, things like invoicing, payment reminders, and even cancellations can be automated, which might leave members of a finance team wondering what their new roles will be or whether they’ll still have roles to fulfil. 

In reality, the subscription model creates new kinds of finance work because with more frequent transactions comes the need for more regular reporting and so on. On the flip side, subscription models ultimately lead to more predictable, and regular revenue rather than the peaks and troughs of single-transaction sales – like an annual software licence.

The subscription model also impacts the way sales teams operate. With a single licence or yearly renewal, sales teams are used to securing the deal and walking away with their commission. As recurring payments usually involve smaller amounts –as opposed to one large upfront cost – which has a knock-on effect on how commissions are handled. 

Typically, recurring revenue businesses calculate commission using a multiplier; based on the average time a customer stays with the company. Whilst salespeople are no longer in the position to offer discounted pricing to ‘seal the deal’, a subscriptions model potentially enables them to push their product or service to more customers, and therefore boost their commissions. Further down the line, there’s also the opportunity to upsell customers on the next subscription package in the line-up. 

 Moving from a single upfront payment to monthly recurring payments removes the need for a yearly touchpoint with the sales team, so they can instead spread their efforts more evenly across the year. Regular and frequent contact with customers is obviously another key organizational change when switching to a subscription model.

For marketing teams, the subscription model opens up more creative opportunities at the wide end of the funnel – because unlike a single transactional product or service, it’s no longer static. In fact, many organizations renew the structure of their subscription packages on a regular basis: to keep their offering fresh, competitive, and of course profitable. This creates scope for more frequent and engaging marketing campaigns.

Handling Technical Implementation

When a company – a re-inventor – switches to a subscription model, they sometimes presume that they can carry over their previous model, making a new subscription service fit their old ways of working. 

Particularly in B2B, where a company may have special agreements in place with certain customers, there is a bedding-in period as existing customers make the transition. Even by providing the best support and guidance possible, this transition can obviously lead to churn.   

Another part of the technical implementation of a subscription model involves careful consideration of how to handle the cancellation process without overburdening the customer and leaving the door open to a future relationship.

Downsizing the complexity of the implementation helps organizations to transition more smoothly, as does rolling out a solution at the right pace. The typical time it takes to get a good first version of a subscription model in place is around six months. The switch to subscriptions also creates a revenue gap, because yearly payments are now spread monthly across the year. In the long term, the revenue is the same (or higher) but in the short term there is an initial deficit when compared with the single transaction model.

That’s why when it comes to implementation, many businesses turning to the subscription model build in a transition period to allow customers to make the switch, and stagger the onboarding process rather than moving everyone over all at once. Of course, this transition period requires businesses to run two models, which adds to the complexity in the short term.

Avoiding The Pitfalls

Businesses switching to a subscription model face a number of potential pitfalls which can be difficult to avoid, without expert guidance and support. 

For over a decade, Subscription Factory has helped numerous businesses make a successful transition into the subscription economy. At GoRecurring 2022, we’ll be sharing expert advice for implementing successful subscription services. 

  Would you like to know more and discover the potential within your business?
  Feel free to contact Martin van Vugt

Bolstering Our Subscription Expertise With A Strategic Partnership

Subscription Factory has teamed up with our friends at rb2 to create a new brand – GoRecurring.
We’ve got years of experience giving companies advice and guidance on how to make subscription services work. At the same time, rb2 has been delivering the technical side of things for even longer.

Between the two of us, we know we’ve created something rather special – something that can not only benefit you but our existing customers as well.

What is GoRecurring?

GoRecurring is a new brand: a strategic partnership between rb2 and Subscription Factory. It’s essentially a platform where anyone or any business can find lots of information, inspiration, use cases, help, and awesome insights on the power and opportunities offered by subscription business models.

Why Now?

For over 10 years we’ve been helping businesses from a variety of sectors, transform their business using subscription service models and recurring billing. It’s a product offering that we have believed in from day one and is used by almost every consumer – across streaming services, food deliveries, or software platforms.

What we do best is use our experience and expertise to offer strategic thinking, project management of subscription rollouts, and guidance that we draw from all the other customers we’ve worked with in the past.

Businesses out there have truly woken up to the power of subscriptions and that’s why we’re working with rb2 to develop GoRecurring. We want any business to have access to the best resources available so they can start their subscription journey whenever they want.

Sign Up For Our Free Event! 

As part of the GoRecurring launch, we’re running a two-hour online event on the 3rd of November, giving you the latest industry insights into all things subscription services. It’s called GoRecurring 2022, and it’ll be a virtual event quite unlike anything you’ve seen before.

  Would you like to know more and discover the potential within your business?
  Feel free to contact Timo Zuidgeest

Is your company starting, growing or reinventing?

The subscription economy can boost your company. The Subscription Economy has four drivers: Technology, Customer Demand, Sustainable Revenue creation and simplifying sales processes. If one of these drivers is applicable to your organization the main question is how to approach the launch of your first subscription offer.

Of course, different organizations have different stages and you need to understand what kind of stage your organization is in.  We define three types of subscription maturity levels who all come with their specific needs.

  Would you like to know more and discover the potential within your business?
Feel free to contact Timo Zuidgeest.

How to set the right price for your subscription package?

The pricing of your subscription packages will always be a puzzle, especially as you have to forget the old ways of pricing. It is important not to overcomplicate your offer while taking care to design your services around what customers are willing to spend.

When new initiatives arise from technical product advances, talk to your customers and ask them what they are prepared to pay for the new value you are adding. All too often, companies remain in a kind of trial phase in which they give away new services or initiatives almost for free. They justify this by saying they are giving the customer more value. However, when you start with this approach it is hard to roll-out real price plans and to convert your customers because they come to ‘expect’ this service to be included.

So, you need to perform A/B testing to find out what your customers are willing to pay. And you need to be focused on your ultimate objective of ensuring that a decent part of your revenue becomes recurring.

Constantly demonstrating to your customers that you offer value for money is crucial because you will always be faced with the prospect of churn. As such, the key question is always: From which areas of activity or responsibility can I unburden my customers and are they willing to pay for that?

  Would you like to know more and discover the potential within your business?
  Feel free to contact Timo Zuidgeest