Why is subscription commerce and recurring billing so popular as a business model?
The answer is multi-faceted. Subscription commerce benefits businesses because it produces predictable income, casts a larger net for attracting customers, provides flexibility in product offerings, and facilitates scalability.
From the seller’s point of view, the flexibility of this model gives them a foot up on their competitors. Moving to a recurring billing business model means the seller is ensured customer loyalty, and no longer needs to wrangle their competitors for business. In other words, the retention-based nature of subscriptions guarantees repeat business.
On the other side, customers enjoy the opportunity to benefit from products and services for reduced upfront costs. Customers that pay-as-they-go or pay per month may also find that businesses focus on customer retention, rather than the initial transaction, by ensuring long-term customer satisfaction. If a business is unable to earn customer satisfaction through the recurring billing cycles, they stand to lose the customer.
What this all means is product ownership is now an increasingly obsolete idea, as business and consumers embrace subscription commerce.
Even manufacturing behemoths like Caterpillar offers machinery and services on a subscription model.
So what industries can benefit from subscription-based billing? Truly, the sky is the limit.
Think about pretty much any area of your life and there is most likely a subscription-based product or service available.
- Medical devices. In 2016, Americans spent $3.2 trillion in healthcare and a large part of that figure is in costly medical equipment. With soaring prices, it can be difficult to afford necessary, sometimes, life-sustaining equipment. This holds true for both medical facilities as well as individuals.
However, by offering payment plans with a recurring billing approach, the cost is more manageable. For example, seniors and critically ill patients can maintain their independence with devices such as Lifeline.
Additionally, warranties on these devices can also be managed through recurring billing platforms.
- Childcare/pet care. Parents of both 2- and 4-legged friends know the struggle of finding reliable care, whether it’s a date night babysitter or someone to walk your dog every day. Businesses such as care.com offer subscription plans to people who are searching for reputable, reliable care for kids, pets and seniors.
- Food. One of the fastest growing trends in foods is in meal preparation subscriptions such as Blue Apron but recurring billing isn’t just attracting food and beverage companies that mail their goods directly to you. With Meal Pal, customers in metropolitan areas such as New York City, Toronto and Boston can skip the meal preparation altogether and purchase take-out meal plans, for lunch, dinner or both meals.
Have kids? Parents don’t even have to worry about writing checks to pay for school lunches or worrying that payments get lost in the abyss of the school bag. Companies such as My School Bucks solves the lunch payment dilemma for both parents and schools, creating a medium for automatically deducting payments for school lunches, when the reserve is getting low.
- Extracurricular activities. Balancing family and work is rough enough before adding in after school activities. There are businesses that have set up shop by tapping into the recurring billing trend to simplify paying for these activities. For example, Dance Studio Pro allows caregivers to make tuition payments for their children’s dance lessons and Active Network facilitates recurring payments for sports activities.
- Subscriptions galore. We’ve all become aware of monthly subscriptions such as the Dollar Shave Club that promises that you will never have to face a dull razor again. But subscriptions are popping up in just about every industry imaginable.
It’s no secret that teachers often use their own money to buy additional supplies for classroom use, for example, but now they can skip a trip to the store and subscribe to a monthly box such as the Kindergarten Crate, which delivers essentials for the younger students.
Why own a castle when you can rent one?
It’s clear that the subscription-based model is becoming the new normal for online shopping. A report earlier this year from McKinsey&Company noted that
The subscription e-commerce market has grown by more than 100 percent a year from 2011 to 2016.”
While there are subscription-based offerings to fit just about every niche, including non-traditional products such as of Harry Potter toys and varieties of moss, there are also plenty of traditional products available through subscriptions, including health and beauty aids (such as the Dollar Shave Club and Birchbox) and clothing (including Armour Box and Stitch Fix).
However, consumers are not always enthusiastic about signing up for subscriptions, because the long-standing preference has been for to purchase and own a product once and for all.
Consequently, businesses rely on the benefits from providing more personalization or inherent cost savings, all wrapped up in a package of impeccable customer service and continued product improvements, like in the case of SaaS software.
Subscription e-commerce necessitates the use of subscription management platforms
While subscription commerce has gained traction and promotes an individualized experience between the customer and a business, whether it's a SaaS company or a subscription for traditional goods, that intimacy needs to be maintained and nurtured. The focus is no longer on a company’s product. Instead, the key to consumer satisfaction is in shifting the focus to the customer’s needs. And the subscription management process plays a big role in customer satisfaction and retention.
At Fusebill, we've noticed when many a business makes the transition to a recurring billing subscription model, they maintain their billing system by using the same process as they did when they sold single items. The businesses often start off with just Excel spreadsheets or software developed in-house for their subscription billing.
However, there can be several challenges to managing a subscription business with inefficient legacy processes.
- Unless you're a start-up with a small number of customers, billing management through accounting software or spreadsheets can be problematic. It can take an enormous amount of manpower to send out statements every month and keep track of who has paid or not paid.
- Any time a manual adjustment is made, businesses run the risk of creating errors, whether it's accidentally billing a customer twice or by entering the wrong amount to charge. And what happens when billing information changes? Keeping track of all those changes is a recipe for a huge headache every month. What about intelligent retries of failed credit card payments? And this is just the tip of the iceberg when it comes to the intricacies of running an effective subscription billing system.
- Further, to attract a subscriber to your business, it’s critical to offer choices, options, and flexibility, both in the initial presentation to capture their attention and during the entire lifecycle of that subscription.
If the subscription management process doesn't offer the customer the flexibility to upgrade or downgrade their subscription plans easily, or be reminded of failed payments or credit card expiry dates, the business could lose the customer—even if only due to the customers own complacency in failing to update credit cards.
These and similar other complexities surrounding subscription management can lead to one of the biggest issues a subscription business faces: churn.
Companies using the recurring billing model are successful because their ongoing customer relationships produce predictable revenue and valuable consumer insights, but that success is eroded when churn rears its ugly head and they lose subscribers.
There's a viable solution to the billing complexities. Specialized subscription management and recurring billing platforms can make the difference between a business sinking under these challenges or swimming to success.
Checklist for subscription management and recurring billing platforms
There are a number of different systems that can manage your recurring billing for you. When looking at the different options available, here is a handy checklist we developed at Fusebill for you to keep in mind:
- The platform has the flexibility to change pricing plans easily and when I need to.
- The platform handles multi-currency billing.
- The platform handles discounts, promotions and coupons.
- The platform allows me to add my corporate branding on invoices.
- Finance has been a part of my selection process.
- The platform allows my customers to choose their preferred payment method.
- The platform is PCI compliant.
- The platform will automatically retry failed transactions.
- The platform handles deferred and earned revenue.
- The platform can implement dunning management best practices.
- The platform provides the option for me to offer a customer self-service portal.
- The platform allows for multiple payment types.
- There is a hand-held approach to onboarding.
- Customer support is readily available.
- The cost of the platform enables me to predict my expense for the year. No hidden costs or percentages of sales are charged to my business.
- The platform has the flexibility to add, remove, and change products on subscriptions.
- There is flexibility to customize payment and billing plans for my customers.
- Reports are readily exportable in CSV full data.
- The reports provide a glimpse into all financial activities that occur on any given day.
- For SaaS companies - Key SaaS metrics can be tracked and reported.
Complete Guide to Subscription Billing. The above checklist and more.
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Adaptive recurring billing management for fast-tracked business success
By stepping into the recurring billing arena, businesses across many different industries have been expanding their customer base and improving their fiscal health.
For both businesses and their customers, a subscription is a relationship. It’s ongoing and fluid. It needs to be nurtured.
From a consumer standpoint, it needs to grow and improve. From a business standpoint, you need to highlight those improvements. Think about the emails you get from Netflix with the subject line: “We just added a movie you might like”. Or from Amazon Echo: “What’s new with Alexa?”
They pique your interest and show they're always adding things to enhance your subscription experience.
Now, the customer expects to be the central point in a subscription purchase and they've been primed to expect improvements throughout the relationship with a vendor. If they don’t see tangible proof of beneficial outcomes they'll churn.
Subscription commerce can be the fast track to business success. Make sure your recurring billing and subscription management process remains strong with a solid focus on the customer experience along with checks and balances to ensure continued satisfaction while reducing churn.