When it comes to subscription based business models, many question whether or not discounts should be offered to those committing to long term agreements. For some, it makes sense to offer a reward for those willing to agree to a long term contract. Others believe that these offers shouldn’t be available.
So what are the key points to these arguments and should you be offering discounts when customers are willing to sign up for the long term?
Key Point Number One: It Encourages Commitment
Those who sign up for a long term contract are demonstrating that they are willing to invest their time, and money, in your brand’s services. This commitment is therefore a golden opportunity for your subscription service to demonstrate exactly what you have to offer and how you can improve their lives. This commitment can then become a lifetime association with your brand.
Key Point Number Two: It Entices Bargain Hunters
Many people are looking to save money yet receive the same great products. By offering customers a way to save money by committing to one payment for a longer time period, you are enticing those that look for offers to select your services.
A simple offer, like saving 10% for a year’s subscription, could be enough to attract some of the pickiest customers.
Key Point Number Three: It Is Less Work
When you have one payment to cover a long period, your administrative team have less work to do on a month-to-month basis. This reduced workload will help you reduce costs and improve profit margins across your business.
The better the profit you generate the happier your investors will be and you will achieve greater growth.
Key Point Number Four: It Will Guarantee Customer Acquisition Costs
When you have a customer on a rolling contract, they can cancel your services at any time. This means that you have to keep a good eye on your monthly subscribers and ensure that the number is continuously growing. If you let it fall too low you’ll end up with limited incoming revenue that will result in a loss if you don’t reclaim your customer acquisition costs.
Alternatively, by getting them to commit, you are assured of a large fee that will cover their acquisition costs.
Key Point Number Five: It Can Lower Costs
Every time a payment is made to your account it is likely to cost you a small transaction fee. By having customers pay once for a longer period you can reduce transaction costs and therefore allow for a higher profit margin over the longer term.
Key Point Number Six: It Removes Flexibility
One reason why consumers like subscription services is that they offer flexibility, increasing or reducing their plan as required. If you set them on a long term payment package it reduces their ability to adjust their package. This may infuriate customers if they realise they need a different plan and they have to pay more money to receive extra benefits.
Key Point Number Seven: It Makes Charging For Upgrading And Downgrading Difficult
When you have numerous options and your customer wants to swap plans, you’ll have to calculate what the customer has to pay. This can get complicated as the customer may not agree with the extra payment upfront and taking it a small bit at a time might be too costly for your business.
Offering your customers a discount for long term contracts, is one way to ensure your business can attract and retain customers more effectively, while covering customer acquisition costs. However, some businesses might find there are difficulties with offering this. You should consider your business and make an informed decision based on your consumers’ behaviours.