In this video, cleverbridge Co-Founder Craig Vodnik explores the subscription business model and its many types. He explains that the subscription business model is more complex than simple monthly or annual renewals, and he lays down a challenge to your Marketing, Finance and IT teams.
Transcription
There’s a lot of talk out there right now about subscriptions … from the sense of monthly or annual, right? You’re billing your customers on a monthly basis or an annual basis. What you may not be thinking about (and I want to challenge you today) is are you thinking about not only subscriptions, but other options for billing your customers? Whether it’s on-demand [billing] whether it’s a specific additional one-time transaction with the subscription that the customer’s buying. Because what that does to your business, it makes it much more complex for you to find the right partner or find the right solution to solve your problems.
If you think about Uber, it’s all on-demand billing. But what that on-demand billing does with Uber, is it’s really a subscription in the sense that you have a relationship with that customer. And where Uber will go, it may turn into a subscription model as well, and you may have a little bit of everything.
That’s a very complex scenario and if you’re in that situation you really need to evaluate closely what you want your business to be selling and how you want to sell it and find the right solution for that problem.
Analysis
As Craig noted in two previous videos, Subscription Billing and the Era of Customer Experience and Disrupt or Be Disrupted: Subscription Models for Your Business, we’re in a new era of digital monetization. Companies selling digital goods or services through subscriptions have to deliver superior customer experiences. This is not just about product. The billing experience also has to be valuable to the customer.
Different Types of Subscriptions
The subscription business model at its most basic involves relatively simple monthly or annual renewals. But take a look around the market, and you will see that the subscription world is actually quite complex. For example, other types of subscription models include:
- On-demand
- Usage-based
- Base and overage
- Tiered
Let’s say you’re thinking about different ways to grow your business. If you currently monetize with a simple term-based subscription that renews at regular intervals at the same price, it’s worthwhile to consider different opportunities. A more complex billing model can help:
1.) Disrupt your business before innovative competitors do it for you (see: Disrupt or Be Disrupted: Subscription Models for Your Business)
2.) Create stickier relationships with your customers (see: Subscription Billing and the Era of Customer Experience)
Craig cites Uber as a good example of a company with an opportunity to explore the complexity of a subscription business model. Uber currently uses on-demand, usage-based billing, but their strong customer relationships give Uber the ability to pivot in the future. Similar to what Craig says in the video above, this blog post from ChartMogul explores what it would mean for Uber to disrupt itself by evolving their on-demand, metered billing model to a more complex subscription. There are many ways for them to try out new methods for delivering value to their customers and their business. They could use fixed monthly prices with different tiers ($20 for 10 miles or minutes; $40 for 30; $75 for 100), or they could implement a base and overage every month ($20 plus $.50 for each mile).
As the ChartMogul article points out, you have to keep in mind that there are pros and cons to each option. What makes sense for one business may not make sense for another. Just because a digital service like Amazon Prime combines a term-based subscription with on-demand billing to increase their annual recurring revenue and customer lifetime value, doesn’t mean that Uber will.
Subscriptions succeed when the product or service is capable of creating that long-term customer relationship. It’s not about growing the number of new subscribers. It’s about retaining them for as long as possible. It means delivering an exceptional customer experience through product, price and billing. It does not mean hoping people subscribe, then forget about their product/service, while the business sits back and collects automatic renewals until the customer cancels (once again, see Subscription Billing and the Era of Customer Experience).
Finding the Right Solution
Craig ends by discussing the difficulty subscription businesses have finding the right solution for managing these complex scenarios. When a business adopts complex billing and pricing models, the technology needs to be flexible enough to support everything related to customer signups, renewals, next billing dates, next billing amounts, active accounts, canceled accounts, payment information, customer self-service and many other things besides.
If you’re an IT professional, this stuff can get out of hand pretty quickly. You need to worry about managing disparate systems and capitalizing on existing technology. You need to manage your customer relationships with up-to-date data sources and also enable customer self-service. Finally, you need to integrate quickly, not spend years developing the technology in-house or waiting around for your solutions provider to respond to your questions.
Keystone
The foundation of subscriptions is providing valuable customer experiences and building long-term customer relationships. When a company disrupts their own business by looking for better ways to monetize those relationships, they must ensure that they have the right technology and the right partners in place to support their initiatives.
To learn more about finding the right solution for complex subscription types, check out our illustrated ebook, Navigating the Solutions Landscape.
