What Frequency Works Best For Subscription Business Billing?

Image courtesy of digitalart at FreeDigitalPhotos.net

Image courtesy of digitalart at FreeDigitalPhotos.net

When you are building your subscription business or looking to see if your model is as effective as it could be; you need to check your billing frequency is optimal. There are many different considerations to make when you are looking at the frequency. Here are some of your options with the advantages and disadvantages.

Daily

This is probably one of the extreme options you have for frequency billing. However, it can also be one of the best if you are in a market with a short customer lifespan.

The advantages of this frequency is you have a regular daily income that you can clearly manage and you can see on a day to day basis the net effect of your marketing efforts based just on the income.

The disadvantages of this model could be very serious. For instance, daily invoicing requires significant management of the subscriptions and most auto-billing platforms charge per transaction and sometimes a percentage of the transactions (N.B. Fusebill charges on subscriber per month basis). If you don’t have a significantly high subscription charge, you could find that profit margins are too low for this to be financially feasible.

Weekly

This model is probably still for those who have a short customer lifespan or have regular deliveries of their product (i.e. food, magazines / newspapers). This is more feasible than daily payments but the cost of managing the subscriptions can still be expensive. Also, the regularity of these payments can make the payments seem high to the customer, even if the same rate could be offered on a monthly or yearly basis (i.e $1 a week would be $52 per year). Therefore weekly payments have a higher chance of being cancelled.

On a positive note, customers can often manage weekly payments very effectively so you are likely to have few subscribers default on their payments. Although, the end of the month can be a tricky financial time and this would be when you are likely to have higher defaults.

Fortnightly

Having your billing set so your payments go out every two weeks is an unusual method to set your billing schedule to. One of the biggest problems with this is that not every month would have the same number of payment dates. This can make planning difficult for customers who manage their finances monthly. It can also be hard for you to justify the billing schedule if you have an evenly distributed product (i.e. software) as payments on a month to month basis would be uneven.

A big advantage of this however is that you can distribute your bill processing across a wider range of dates making billing management easier.

Monthly

Probably one of the most commonly used frequencies. Monthly billing is very easy to manage both from your business’ point of view and your subscribers’. There is also the added bonus that you could separate your billing dates into different groups to spread out your workload. For instance you could split your subscribers into four groups; each pay on a different date i.e. 1st of the month, the 10th of the month, the 15th of the month and the last day of the month.

This is a great model for those who are providing a consistent service over the longer periods, like software, publications and membership sites. However, if the size of the payments per month is too high, some customers may be dissuaded from buying your product whereas a weekly schedule would have suited them much better.

Annually

Once a year payments are an extreme case and are often used by businesses that are confident their customer lifespan is significantly long. There are some advantages such as less management is necessary for the payments. This means businesses can offer discounts to tempt new customers into signing up for annual plans.

The problem with this model is your subscribers may forget about renewal and therefore not have the funds available when the time comes. This can lead to you having poor retention. To combat this, ensure you are informing your customer in advance of when their renewal is due.

Conclusion

Having the balance between your customers needs and desires and your own is important when it comes to deciding what frequency your business needs to bill your clients. You also need to consider your product and how often it is delivered when coming up with the billing model. With these thoughts in mind you should come to a conclusion of which billing frequency is best for your business.

Do you need recurring billing and subscription management software? Contact one of our experts at info@fusebill.com, call or check out the Fusebill free trial.

Can Subscription And Advertising Models Work Together?

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Business models are one of the most fundamental aspects of setting up a business. It is also one of the least understood area of creating and running a company. There are many different types of business models available but many business founders don’t pay complete attention to the model they use.

This often leads to a business having elements of two or more models within their structure. Sometimes this can work for the benefit of the brand and its customers. Other times it can create a poor environment for the business to thrive. A common mix of models is the subscription and advertising.

What Are The Definitions Of The Two Models?

A subscription model is where a business provides a service or product to a customer for a set regular fee. Common subscription models include software, publications or associations. However, subscription services have been implemented for a number of different industries including men’s health, gaming and food.

An advertising business model is where content or a service is provided for the customer. While they are using the brands content / service they are presented with several adverts from third parties. The advert is likely to be the main earner for the business. Sometimes the income is earned from the user clicking on the advert, other times the advert only needs to be shown.

This is a popular business model online with blogs being one of the obvious implementations. However other publications, online games, mobile app games and other industries have implemented this strategy.

Merging The Two Business Models

There are times when the two business models are merged together. A good example of this would be Massive Multiplayer Online (MMO) games. Normally in this case the free users have adverts posted across their web browser or have to watch a video to complete an action. Those who subscribe might also be subjected to the adverts, but in most cases the user can turn them off.

This can be a good earner for the business. The adverts pay very little per view, but when the game is played by tens or hundreds of thousands of players the income per day can be significant. Added with the revenue from subscribers, MMO games are turning in good profits.

Likewise, your subscription site can use this same method. For instance, you could include banners or video adverts that automatically show on your blog posts or main pages of the website. At the same time you can have subscribers sign up to receive exclusive content or use of some software.

There are advantages to mixing the two models:

  • Gives two revenue generating avenues for your business to benefit from.
  • Can allow your business to earn income even when the website visitor does not subscribe.

There are also some disadvantages:

  • If used too often, can become annoying for your subscribers.
  • They can look unattractive on your website.
  • Advertisements can disrupt use of your product.

Best Practice?

If you want to implement both an advertising and subscription model you should ensure you implement some best practices to keep customers happy. The first option is to have your subscribers free from advertisements. You can even use this as a selling point on your website if you have a free use option.

Your website should also not be ‘advertisement heavy’. Keep the number of adverts limited to just two on a page. This could be a banner at the top of your page and perhaps a small one on the right hand side.

Finally, you should ensure advertisements on your site align with your business. For instance, if you run an accounting software package, the adverts should relate to other financial services or complimentary services.

Conclusion

Advertising and subscription business models can be very effective when they are combined together offering your business good returns. You have to ensure you limit the number of adverts displayed and only include ones which are aligned with your business’ activities. You should also allow your subscribers the option to remove advertisements from their view. However, if implemented right, mixing the two models can increase your revenue without increasing your workload significantly.

Why Don’t More Companies Use The Subscription Model?

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

A subscription model is very useful when it comes to running a business. It provides benefits for both your brand and your customers while being very easy to set up and manage. Yet there are a number of businesses out there who are perfect for this model but have not converted. What are the reasons for this?

They Think Subscription Models Aren’t Applicable To their Industry?

There are many products and services which suit a subscription model, yet businesses are unaware of the opportunity. This often forces them to stick with “pay once, use forever” models. However, as can be seen by businesses like Dollar Shave Club, every industry can use a subscription model.

Businesses who want to convert need to sit down and think carefully about their product. If it is a simple product which is delivered with regularity there is the opportunity to create a subscription service. They just need to consider the frequency of delivery and how much they are going to charge your customers.

They Believe Customers Aren’t Going To Like A Subscription Service!

There are many times when businesses might be convinced that their customers aren’t going to like a subscription service. This is often the case when it comes down to certain types of software like operating systems or when the product is required to operate another device / service.

For instance, an operating system on a Mac or PC is necessary to run the device. Consumers might feel they are being cheated if the product they buy is not fully operational without further purchases. This move has been seen with the recent changes Adobe has implemented where users now have to pay a subscription.

However, this sentiment is normally gained because an old – ‘buy once, use forever’ model was implemented. There are some flaws with this model with software and similar products. For instance, many software providers only allow the installation on a set number of machines, normally about three. This means that if the user has more devices or replaces devices on a regular basis, they have to buy the product several times over or buy more licenses – an expensive endeavour.

If the business moved to a subscription basis, the user can be offered a more cost effective method of having access to the software while allowing the product on as many devices as they own. Businesses just need to explain this benefit.

In addition, the cost of buying a product outright can be expensive for the user. Having a subscription gives customers a more cost effective method of gaining access and allows more of the target audience access to the product.

Business Want The Higher Purchase Amount From A One Off Payment!

While businesses may earn more money per transaction when it comes to a ‘buy once, use forever’ model, evidence has shown the lifetime value of the customer is significantly less. Research demonstrates users tend to not unsubscribe from subscription services if the regular payment is low enough and there is good service being provided. Therefore, customers can be with the business for a significant amount of time which will provide more revenue than if the customer was made to buy the product outright. This allows the company to focus less on new customer acquisition to maintain a healthy cash flow and more on customer service, which is less costly.

Conclusion

A subscription based business is one of the most profitable models. The reasons why businesses think the model is not suitable are usually misconceptions. For most industries there are significant opportunities for a subscription business model.

Do you need recurring billing and subscription management software? Contact one of our experts at info@fusebill.com, call or check out the Fusebill free trial.

How To Sell The Convenience Of Auto-Renewal

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

When you have a subscription business you need a method to collect the membership fees from your community. You could attempt to do this by sending out a manual invoice at the start of every billing period. This can be expensive and a waste of time that can be put to better use.

Instead, you could use an auto-renewal system to collect payments automatically from your customers. There are several benefits for your business when usin

g an auto-renewal payment scheme. For example:

  • It reduces the amount of administration you and your team have to do.
  • There is a higher retention of subscribers for your business.
  • You know exactly when payments are going to be made by your customers.
  • Reports can be auto-generated to inform you when payments have failed or been cancelled.

While these benefits are a good reason for your business to use an auto-renewal subscription model, your customers will need to be sold as to why they should auto-renew their subscriptions.

The Convenience For Your Customers

The major benefit for your customers is the convenience an auto-renewal subscription model offers. It takes time for your customers to receive, check and pay a manually issued invoice. Having the process automatically completed each period allows them not to be disrupted in their daily lives.

In addition, the process can have financial benefits. As you will not have to process the payments manually you might be able to offer a discount. Energy companies commonly sign up customers to an auto-renewal system by offering a small discount, often between 5 and 10%.

These benefits are especially good if your members are paying a standard flat fee for membership. It allows them to confidently know exactly when and how much the payment will be. This can support their financial planning and management.

Calming The Concerns

One of the major concerns customers may have is cancelling their subscription. It is likely that at some point some of your customer will want to leave the business. They may feel they have to go through significant processes to cancel their subscription including speaking to your customer service team or sending emails to your cancellation team. This may worry them.

In reality the process is much easier. A customer only needs to cancel the payment instructions which exist between them and you. This can be done through their online banking dashboard. This means the payments can be stopped immediately, instead of waiting for your administration team to process the cancellation.

At the same time your online system can be informed immediately and access restricted at the next ‘end of period’. Or if you send out physical products, your distribution team can be informed of the change and they can remove them from the mailing list.

Another benefit for the auto-renewal is your customers will never miss out on a product or period because they have forgotten to make the next payment. This can be particularly useful for physical products such as magazines.

Conclusion

Auto-renewal is one of the most popular methods for subscription businesses to sign up customers. While they have significant benefits for the business, customers are sometimes unaware of the advantages they can gain from signing up to an auto-renewal system. By selling the benefits such as never missing out, the ease of payment and cancellation should they want to leave your business you can increase the uptake of auto-renewals.

This allows you to save costs in manually sending and processing invoices. This can lead you to invest the funds elsewhere in the business or offer your customers a more competitive price.

Do you need recurring billing and subscription management software? Contact one of our experts at info@fusebill.com, call or check out the Fusebill free trial.

How To Figure Out Your Customer Lifetime Value

"Image courtesy of MR LIGHTMAN / FreeDigitalPhotos.net"

“Image courtesy of MR LIGHTMAN / FreeDigitalPhotos.net”

Your Customer Lifetime Value (CLTV) is an important metric. It can help you to determine how much money you can spend to acquire new customers and is useful to determine financial impact when you’ve changed prices.

How To Calculate The Customer Lifetime Value

There are many different ways to calculate the CLTV. Each method will produce slightly different results. One of the best practices is actually use all three methods and take the average from those as your ‘true CLTV’. However, this is not necessary and sometimes one calculation is all your business need.

To demonstrate the equations we will use the following figures:

  • Average Customer Spend / month = $100
  • Average Customer Lifespan = 12 months
  • Margin = 15%
  • Discount Rate = 10%
  • Retention Rate = 60%

The Simple Method

The simple method takes very little time to calculate, yet it is not the most accurate. The equation for this model is:

Average Customer Spend X Average Customer Lifespan = CLTV

In our example the value would be: 100 X 12 = $1,200.

This model fails to include costs for delivering the service. Therefore, you might overspend believing you have more funds available to acquire new customers.

However, if you have very few overheads, this might be all you need to calculate your customer’s lifetime value.

Custom Method

This is still a very simple method, but it allows you to include the costs for delivering your service. This is a perfect equation for those who offer a subscription for a physical product such as wine, specialist food or DVDs.

To calculate:

Average Customer Lifespan X (Average Customer Spend X Profit Margin)

So with our example figures:

12 X (100 X 0.15) = 12 X 15 = $180.

This figure is lower than the simple version but it is far more accurate and allows you to calculate a reasonable acquisition budget without having to worry about costs.

Traditional CLTV

This equation is the more accurate; however it is the most complex and should be used only if you want a precise valuation.

The new metrics used in this calculation are:

The Rate Of Discount = The interest rate used for calculating the present value of future cash flow. This number is usually between 8% and 15%. This value assumes prices aren’t going to increase in the immediate future.

Retention Rate = A calculation for a subscription business. It is simply the percentage of customers who remain with your service from month to month.

Average Gross Margin Per Customer Lifespan = This is how much profit each customer provides during their lifespan. To calculate this use your final figure from the simple method and then multiply it by the profit margin. For our example we have 1,200 X 0.15 = $180.

The CLTV equation:

Average Gross Margin Per Customer Lifespan X (Retention / (1 + Rate Of Discount – Retention))

In our example this would equate to:

$180 X (0.60 / (1+ 0.1 – 0.6) = 180 X 1.2 = $216.

You can then use all three figures to calculate an average Customer Lifetime Value, however you might prefer to use just one of these figures.

How To Use These Figures

Whichever method you use, you can now calculate the maximum spend to acquire new customers. For instance, if you use the traditional method you know you can spend up to $216 to acquire each new customer. Sticking to this value means each customer you have is allowing you to stay in profit over the long period.

Conclusion

Working out the CLTV for your business is an essential task. It can support you in your marketing budgets ensuring you aren’t spending too much. In addition, you can see the results of any price changes and note whether the price change had a positive effect on your business’ finances.

Do you need recurring billing and subscription management software? Contact one of our experts at info@fusebill.com, call or check out the Fusebill free trial.

How To Tell Your Customers That You’re Increasing Subscriber Fees

"Image courtesy of zirconicusso / FreeDigitalPhotos.net".

“Image courtesy of zirconicusso / FreeDigitalPhotos.net”.

Customers like signing up with subscription based businesses because they enjoy the consistent price. However, chances are at some point you will need to increase the price. The reasons for a price increase might include:

  • You want to earn more revenue.
  • Your costs have increased.
  • You want to reposition yourself and appeal to a different target audience.
  • Demand for your service is too high and you want to encourage fewer subscriptions.
  • You have increased your expertness or have a higher brand value.
  • You offer more services or products and wish to incorporate their costs into your pricing.

Whatever the reason, you have to inform your subscribers the reason why prices are increasing. Without the right strategy to inform your customers you could lose a significant percentage of your customers. Here are some tips to maximise your customer retention during a price increase.

Tip One: Terms And Conditions

Include in your terms and conditions a clause clearly stating you hold the right to increase the price. This way your clients cannot claim a price increase doesn’t apply to them.

It also allows you not to state a clear reason why you are increasing prices. However, not stating the reason is likely to cause several customers to leave.

Tip Two: Give Plenty Of Notice

Always give your customers plenty of notice of a price increase. This notice should be at least 2 months. This gives plenty of time for your clients to find the funds necessary for the price increase. It also supports the trust between you and your customer.

During this notice inform you customers exactly when the price will increase and how the increase will be collected.

One subscription based business which rarely gives notice of price increases are energy firms. Though they tend to announce some changes in the news, they rarely write to customers informing them of when the price increase will come into effect.

Tip Three: Don’t Give Too Much Notice

A big mistake on the other hand is to give too much notice. Some companies can give up to six months notice of a price increase. This is too much time and it is likely your customers would have forgotten about the increase by the time it comes in effect.

Tip Four: Give A Reason Why You Are Increasing The Price

Customers like to know exactly why you are increasing the price and how it will benefit them. This will increase the acceptance of your price increase amongst your customers. Ensure that this reason is passed onto your customer service team so customers can be told the same thing when they call to discuss the change.

Tip Five: Present The Price Increase Right

Present the price increase as a percentage. This has less impact in the minds of the customer, especially if the percentage is less than 5% or the price increase has a significant monetary value.

Tip Six: Repackage Product Bundles

If your service includes groups of products or services, re-organise them. Each new package should offer slightly more than it did before but be priced higher than its predecessor. This way you can increase the price while providing a better service to your customers. Something they will appreciate.

To support this, if you are offering a physical product and you have old stock left over, offer this at a discounted price until the stock has run out.

Conclusion

There are always going to be times when you need to increase the price of your subscription. By ensuring you have the right method to announce your price increase you can minimise the loss of customers and maintain strong customer relations.

Do you need recurring billing and subscription management software? Contact one of our experts at info@fusebill.com, call or check out the Fusebill free trial.