Category Archives: Subscription Billing

The Future Of Subscription Model Businesses

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

What is the future for the subscription business model? Are subscription businesses going to grow or are customers going to avoid them? This article is going to look into the current trends and see what is likely to happen to the business model in the future.

The Current Status Of The Subscription Business Model?

In recent years there have been a number of traditional businesses that have moved from the old pay-per-use model to the subscription model. One of the best examples is Adobe, who has moved away from customers purchasing their software outright to a monthly payment scheme. Another example is the film rental company Netflix who offer customers unlimited rentals as long as they are subscribed to their service.

There are many advantages for these businesses. Firstly they can offer their products to a larger market as a small monthly fee is more manageable than a one off payment. Also, a monthly payment becomes less of a purchasing block in the customer’s decision making process increasing conversions and customer retention. Therefore, businesses can gain more value from their customers than they would do with a one off payment.

Another advantage is that a subscription business has more revenue stability; so businesses can accurately project their incoming revenue and determine what they can afford and what they can’t.

Customer’s View Of Subscriptions

Customers are continuously looking to improve their wealth and access to more luxurious goods while paying less for them and having fewer purchasing decisions. Subscription businesses are continually giving them these benefits. For example; Dollar Shave Club costs just $1 per month for a shaver and there is little decision making for the customer.

Likewise with online film subscriptions, the decisions for the customers are made easier. By having access to an entire library, customers are able to switch what they are watching if they are not satisfied with their choice. With the old pay-per-use model, the customer would be stuck with a bad decision and this would reflect negatively on their customer experience.

How Can The Subscription Model Grow

The movie rental experience can be replicated across many different industries. For example, if you sell food you could automatically package food for your customers and deliver it straight to their door. Customers can even give their preferences on what they prefer to eat so you can tailor each box.

This model could have several benefits for a grocer. Firstly, because demand is known beforehand, there is less product wastage. Secondly, products could be provided that are in season and therefore costs can be lowered. Thirdly, there is no need for large stores to display items – a website would be sufficient. This would again reduce running costs, giving the business greater profits.

The grocery market in the UK is already moving in this direction with some of their biggest grocers providing guaranteed weekly delivery slots that don’t need to be booked every week. The shopping list can even be put on repeat only to be changed slightly each week by the customer. Other food sellers do everything for the customer from choosing the food and delivering on a set day.

So What Does This Mean For The Future of Subscription?

The continuing growth of the subscription business model shows that there is a demand from customers for services that can be paid for on a monthly basis. Businesses are also showing that the model can work and grow the business’ profit, customer acquisition and retention.

The model is also applicable to a number of different industries from pet supplies to software applications. The only limit is the imagination of business owners. Therefore, the future is bright for subscription businesses and will continue to be so in 2015.

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 Determine What Your Subscription Pricing Should Be

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

You went into business because you wanted to make a profit. Achieving that goal relies on a couple of key elements. Firstly, that you provide a high quality service your customers will want to use continuously. Secondly, that your subscription service is priced so you are able to make a profit.

Profit is very important because it allows you to enjoy your lifestyle as you like and fuels growth within your business. If you do not charge enough, then you may not have enough income to cover your costs. On the other hand, if you charge too much, your customers may not see the value in your product and leave your business. It will therefore be harder to maintain your income and profits.

So what can you use to help determine your pricing strategy?

1. Your Business Model

The number of clients you are hoping to have at any one time is an important factor. If you plan for a significant number, then you can charge less per customer but you will be limiting the amount of time you can afford each for troubleshooting, customer service, etc.

In contrast, if you want to have a more exclusive club and have few customers, you need to increase your prices but can afford more time per customer. This may be the best option if you have a very niche product or want to create an elite group of clients where you have very close relationships.

2. The Cost-Plus Method

This is a standard way to price services. The first step is to determine the cost of delivering the service to your market. This should include the fixed costs and the variable costs. The fixed costs should be spread out over the number of customers that you are looking to attract and manage in your subscription business.

The most common mistake to make with this method is that while you may pay someone $12 per hour, the costs are more than that. For instance, you may have rent, utilities, insurance, website, taxes, etc to consider.

3. How Much Your Competitors Are Charging

You might also want to look at how much your competitors are charging. There are various ways in which you can determine if their prices are related to yours, and we have covered this previously.

To find out their costs, have a look on their website, speak to their sales team and talk to associates who have dealt with them. This will give you an indication of how the market is reacting to pricing, especially if you have a significant amount of competition whose prices are very similar.

However, you shouldn’t base your prices on just your competitor’s price points. Your product may have a greater value or you could have different costs.

4. The Perceived Value Of Your Service To The Customer

Your customers aren’t going to pay for a service they don’t think is value for money. Therefore, you should ask your customers what they believe the value for your subscription service is. It is likely they will slightly underestimate what you could charge, but it can be a good starting point.

An alternative way of achieving this is to A/B test several price points and see which has the higher conversion rate. At the same time you should look at the customer lifespan; if you find that a higher price has a lower customer conversion rate but higher customer lifetime value – it is obviously the better choice.

Conclusion

Pricing your subscription correctly is an important factor in running your business. Charging too high or too low may cause your business to fail as you will not make enough profit to run your business effectively. Ensure you are charging the right amount to earn enough profit to live comfortably, grow your business and provide a high quality service.

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 Assess The Prices Your Competitors Are Charging

Image courtesy of jscreationzs at FreeDigitalPhotos.net

Image courtesy of jscreationzs at FreeDigitalPhotos.net

When you are assessing your pricing levels you are going to want to make sure your business’ subscription charges are competitive against your main rivals. Many new to business consider this means that their prices have to be lower. However, this is not always the case.

Research from a number of sources has clearly identified that price is not the main reason for customers choosing a service provider or staying with them. Here are three key research findings that have backed this up:

  • The main reason for customer churn is not price. The most cited reason by customers is dissatisfaction of the customer service they have received. Accenture Global Customer Satisfaction Report 2008.
  • When compared to price or product problems, a customer is four times more likely to choose a competitor if they receive poor customer service. Bain & Company.
  • A guarantee of better customer service would encourage 55% of customers to choose the provider that charges more. Defoqto research.

Therefore, looking at their price alone is not going to give you the best idea of how much you should charge your subscribers. Instead you should look at a number of different factors to assess your competitors.

So what do you need to find out about your competitors?

Customer Perception

Linked to the statistics above, one of the first things that you need to assess is what your competitor’s customers are saying about them. There are many different websites that you can use for this, including review sites and business directories. Carefully analyse what is being said by the customers, including:

  • What did the customer say was positive about your competitor?
  • What did the customer not like about your competitor?
  • How often are reviews being left? For every one customer review, there are at least 26 customers who haven’t left a review.

Stories In The Media

You’ll also want to check what is being said in the media about your competitors. These could be positive, negative or just quoted in other articles as an expert. To keep an eye on this over the long term without having to manually search for the results periodically, set up Google Alerts for your competitor’s name.

Their Marketing And Branding

The next option that you’ve got to look at is their marketing position. Look at who they are marketing their product towards, is it large businesses or high earning individuals or is it for small firms / those with limited income? Also look at how they market their services: are they a luxury brand or an essential tool for the user?

Product Specifications

Your competitors’ products are not likely to be the same, nor are they likely to be similar to yours. Therefore you need to check off what the customer will get access to with their product in comparison to yours and others in your industry. You could also estimate how much it would cost you to provide the exact same service and calculate what their profit levels are.

If you are finding this difficult, have an employee call the competitor to get all the information. Their sales team will likely be very helpful.

Suppliers

Finally, try to find out who their suppliers are and what costs they are incurring. Those who have lower supplier costs will able to charge less for their products. See if you can get a meeting with their suppliers and arrange for a better deal – allowing you to be more competitive on price.

Conclusion

Assessing your competitors can help you to determine what prices you should be charging for your subscription business. However, despite what some business leaders believe, lower prices are not always the best price point. Instead you should look at how your competitors are performing, what their branding is and how their supply network affects their costs and then compare these to your business to help you determine your price point.

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.

3 Common Startup SaaS Pricing Mistakes

Image courtesy of cuteimage at FreeDigitalPhotos.net

Image courtesy of cuteimage at FreeDigitalPhotos.net

When you create a pricing strategy for your SaaS start-up you need to ensure it attracts customers and allows you to make a profit. Many businesses however make mistakes when they create their pricing strategy.

The wrong pricing strategy doesn’t just affect how much profit you make per customer; it can also affect your conversion rate and how your potential customers view your brand. In this article we will look at the most common brand pricing mistakes that SaaS start-ups make and how you can avoid them to ensure your brand is performing better than its competition.

1. Pricing Your Products Too Low

There is a misconception that the lowest price will always be best and most desirable for customers. Many customers view extremely low prices as indicating there maybe something wrong with the product or the customer service. Alternatively, they may question the legitimacy of the business. Either of these can significantly lower your conversion rate.

Another problem is that having prices too low can be dangerous for your business operations. Only the very best businesses can hope to sustainably charge significantly low prices for a prolonged period of time. These companies often have large amounts of stored capital to support their operations and a strong public image to entice customers to their brand.

Therefore, don’t consider copying some of the major discount brands like Costco and Walmart but instead price at a level that is acceptable for your business. Consider the acquisition cost, the cost to deliver the service and a reasonable profit margin.

You could also look at your competitors and see what they are offering and for what price. You might even find that if you can prove your small business’ authority, you could charge the same amount or more and still attract a significant proportion of the target market.

2. Too Many Pricing Plans

There is often the temptation by new businesses to offer a pick and mix or a large variety of pricing plans to entice customers. This seldom works. Customers like to have options, but too many can confuse them. A confused customer will leave your website and it is unlikely you will see them again.

Instead create a pricing structure that has between 2 and 4 options. Each pricing plan should have slightly more than the previous plan. This gives your visitors an easier choice and clear definitions of what each price grants them access to.

If you have several products available you could consider more pricing plans, but it would be best to separate them so they are on different pages and there are clear boundaries on what each product is.

3. Not Using the Right Pricing Point

One of the biggest mistakes that new businesses make is not using pricing theory. This states that if your product’s price ends with a 9 it will achieve better sales than those that end with another number, even if the price ending with 9 is more expensive.

The only time when this is not the case is when you are comparing an original price ending in 9 with a sale price that shows the original price. This is true even when the sale price is higher than that of the price ending with 9.

Conclusion

Selling online involves providing the right price that can convince your customers to purchase one of your products. When starting your SaaS business, you need to ensure that you are not making some of the most fundamental pricing mistakes that will turn your customers away or limit your profits. By studying the above common mistakes and implementing the advice you could create a successful pricing strategy that will perform well 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.

Traditional Businesses That Can Move To A Subscription Model

Image courtesy of patpitchaya at FreeDigitalPhotos.net

Image courtesy of patpitchaya at FreeDigitalPhotos.net

Businesses across numerous industries are starting to realise the benefits of a subscription model and are making the switch. A recent example of this would be Adobe who recently changed their products from a ‘pay once – use forever’ model to a subscription based service. This transition has allowed numerous customers to use the product who before couldn’t afford the initial outlay of the software.

Another industry moving from a pay-per-use to subscription model is the UK grocery delivery sector. Some of their big name brands like Asda, Tesco, etc have moved to allow customers to book in their favourite spot during the week for a set monthly fee.

These industries aren’t the only ones who can switch their pricing models to gain the benefits of the subscription model. Here are some traditional businesses that can make such a move.

Food Service

It isn’t just the deliveries which can be paid for on a subscription basis. There are numerous businesses which provide boxes of food on a subscription model. This can include raw ingredients for cooking pre-planned meals or just items for the customer to create their own meal plans.

There are some good benefits to this model; for instance, you only need to acquire enough of your products to meet the demand of your subscribers. Therefore you are limiting product waste which can be very costly to your business.

Photo Printing

Photo printing is often done on a pay-per-order basis. However, with the rise of digital photos, online ordering and other technologies, this is one industry which could make the switch.

A service could be established where customers pay a monthly fee to upload photos for printing and delivering. The number of photos offered to the customer could be different depending on the price of the package.

Bank Services

There has already been a move by some financial institutions to move their account holding services from free to a pay monthly scheme. In some cases, the subscription fee can be reclaimed when a minimum amount is deposited.

Financial services are perfect for the subscription model. For one, businesses cannot tell how often a customer will need to use the bank’s services and it is likely any use of the bank’s time will be concentrated in a few interactions across the year rather than evenly spread out. It is even possible some consumers will not need the majority of services for years then use them heavily in a short period of time.

Leisure Services

There are a number of leisure services which already offer their customers the opportunity to use their facilities for a regular fixed sum. Some of the traditional models include gyms and health clubs. However, other leisure services could provide their entertainment on a subscription basis.

For example cinema, swimming pools and local attractions could offer customers a subscription to gain access to their services. This is particular good for those attractions that have fixed costs and need to know how much their monthly income is going to be.

Copywriting

Copywriting is not a business many would think could use the subscription model. Yet a subscription model could work very well in this industry. For example, a copywriting professional could offer clients a set number of articles or words per month for a set fee. This could help stabilise the income of the copywriter and offer the client a chance to become one of the higher value customers.

Conclusion

There are a number of businesses who are capable of changing their traditional pricing structures to become subscription based. All it requires is the right pricing points and the tools to implement the changes.

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.