Your Step-By-Step Guide To Implementing A Subscription Revenue Model
Jan 20, 2022
The subscription economy is well and truly upon us. More and more businesses - B2C and B2B - have been making the shift to a subscription-based model.
And the ones who haven’t? They’re thinking about it. In fact, over 90% of technology companies are planning to shift to a subscription-based model.
The subscription revenue model is based on a simple concept: clients pay a regular fee in exchange for ongoing access to the SaaS they need.
You’ve got to see the advantages: with a subscription revenue model, SaaS companies can offer uninterrupted services to their users. For companies, it means recurring payments, a more predictable revenue stream, and no payments gap.
By fostering their relationship with their users, SaaS companies can also count on better customer loyalty and higher revenues. This is a great way to apply the concept of customer retention over customer acquisition!
However, making a shift towards a subscription revenue model needs to be well-thought-out:
Which type of subscription model do you pick?
How will it benefit your business?
How to successfully implement a subscription revenue model in your SaaS company?
Keep reading to find out!
The Different Types Of Subscription Models.
You have 2 kinds of subscription revenue models for SaaS companies:
Monthly SaaS Subscription Model: undefinedundefinedundefined
Term SaaS Subscription Model: undefinedundefinedundefined
How Can A Subscription Revenue Model Benefit Your Business?
Subscription revenue models work, for several reasons:
Predictable Revenue for your SaaS
Having a customer base subscribed to your SaaS means having a recurring revenue stream, measured with MRR (Monthly Recurring Revenue) and ARR (Annual Recurring Revenue).
These recurring revenues mean predictability, and being able to forecast your revenues means better cash flow management.
Lower Involuntary Churn
Your customers pay a regular fee to have access to an ongoing service. It means they just have to subscribe once to enjoy your SaaS benefits over and over again.
They can forget about renewals since it’s all automated, which lowers your involuntary churn rate. With a subscription revenue model, they can focus on what your platform allows them to do instead of the admin.
For your SaaS, it means fewer gaps in payment. Your users are paying you on an ongoing basis which increases your Customer Lifetime Value.
Easier to Scale
Since having a subscription-based model requires you to have clearly defined subscription products, it becomes easier to scale up.
A subscription model gives you the flexibility to experiment with different subscriptions plans and offers as your customer base grows.
Regardless of your subscription model type, you now have a streamlined approach that makes it easier for everyone: easier for your client to get the right offer they need at the right moment, and easier for you to offer this flexibility.
Plus, using subscription management software helps you automate some of your most repetitive processes while supporting your growth.
All of these factors contribute to making your SaaS with a subscription revenue model more scalable.
Improved Customer Relationships
In a purely transactional sales model, you have one sale transaction, and then you’re done. Even if you have another sale, or several, after this first one, they’re still a succession of “one sale”.
With a subscription revenue model, however, the process is longer. Month after month, year after year, the profits from your customers get compounded. That increases your Customer Lifetime Value as well as your cash flow.
For your customers, it means an improved and seamless experience, as well as more flexibility: they can choose the offer that most meets their current needs. Fostering your relationship with your users means better loyalty as well as better feedback over your subscription product.
All in all, implementing a subscription-based revenue model has many advantages, for your SaaS as well as for your clients. The next question is: how to do it?
How To Implement A Subscription Revenue Model?
Implementing a subscription revenue model means making a few adjustments to your already established business model.
And if you already have adopted a subscription-based business, you know that it’s not a “one-time thing”. There are always improvements to be done to be more efficient.
It can be done, of course, following these steps:
1. Validate your product/market fit.
Before jumping, you need to confirm that:
Your product/market fit has been validated, and
A subscription revenue model is the right one for your SaaS.
Indeed, if you’re still looking for your target market, switching to a subscription-based model isn’t going to solve all your current challenges. Concretely, it means having more than a proof of concept and already a set customer base - ideally, you’re already established in your market.
Also, not all SaaS is made for this business model. SaaS that offers services to government agencies for instance might have to deal with strict contract terms that don’t allow for automated renewal.
To set up a subscription revenue model, you need to understand your clients’ needs and expectations very well. You’ll need some data and marketing insights to move forward with it.
2. Set clear goals.
As with any strategy implementation, it is good to set up clear, tangible, and trackable goals for your subscription revenue model.
What do you want to achieve with a subscription model?
It can be for example faster growth or revenue goals: select a revenue target to achieve in a set period of time, either a cash flow, profit margin, or MRR.
This way you’ll be able to measure the success of implementing the model and identify whether it suits your overall business strategy.
3. Define Pricing and Product Offerings
Before starting to sell subscription packages, you need to decide and define what these packages are, exactly.
There are a lot of different pricing models for subscription revenue model:
With add ons
When you’ve selected the pricing model that works best for you, you then need to create your pricing packages and decide:
What fees you are going to charge,
Which features are included,
How many users are in each plan,
How often your customers will be charged,
Any incentive you’d like to offer if they sign up for a longer period.
Admittedly, there is a bit of trial and error going on after that. You can start by crafting a baseline offer, which contains all the necessary features and options required to achieve what your SaaS allows.
Once you have this standard package, your pricing model can evolve over time as you grow: you can decide to add options, other tiers, to opt for a freemium or a free trial, etc.
A good way to know which features your clients want is also to ask them. Start the conversation with your current users or prospects to inquire what they’d like to see in your subscription products.
4. Reinvent your sales process
A subscription revenue model means predictable revenues from a loyal customer base. However, there is still a variable income that can come from:
New customers: This is why you need to focus on your conversion from free to paid product (if you have free trials or a freemium subscription type) or on lead generation and customer acquisition in general.
Upselling: letting your clients upgrade their subscription, either with more users, usage, features, or upgrading their plan in a tiered subscription model.
Cross-selling: selling your existing users add-ons or complementary services to your main subscription product.
The one thing you need to focus on to be successful is your approach: it needs to be customer-centric! The whole process of signing up, paying, and upgrading needs to be done in a way that is easy for your customers.
That includes making sure your billing and payment terms are aligned with what your clients want.
This customer-centric approach is needed throughout their entire relationship with you. You need to make sure they are on-boarded properly, that they receive quality customer support, and that they are happy with your subscription product.
Tracking usage can ensure adoption, so can creating different touchpoints in their customer journey.
Lastly, make sure the data is shared throughout your company so different teams can access it whenever it’s needed. In a subscription revenue model, the sales team should be aligned with the marketing and success teams.
5. Set Up Your Payment Plan And Recurring Billing.
The last step of implementing a subscription revenue model for your SaaS is to set up the payment aspect. It needs to be as clear as possible.
Transparency with your clients and prospects builds trust, which will help your relationships in the long term. That means being very clear about your payment terms, processes, and also your cancellation policy.
Users like to know they can cancel at any time and that it will be relatively hassle-free.
On your side, you need to set up a subscription management software that’ll allow you to manage all the sign-ups and modifications as easily as can be. It’ll be nearly impossible to manage subscriptions and scale without adequate tools.
Pick a software that fits your needs while planning for your growth. Make sure that it fits into your current ecosystem and integrates with your other tools too.
While it is tempting to add new tools to your stack as you need them, it is more efficient to take a step back and be proactive about your tech needs.
You’ll need to choose a finance stack that will help you improve collaboration within your teams and give you a more accurate picture of what is happening in real-time.
A subscription revenue model means: undefinedundefinedundefinedundefined
Knowing your market and your customers, as well as their needs, is important for a subscription model to be successful. It’ll help you define your subscription product(s) and pricing.
Implementing a subscription model means reinventing your whole sales process, to make it as transparent, seamless, and customer-centric as can be.
Aligning your internal marketing, sales, and customer success teams is key to fostering the adoption of your SaaS, improving loyalty, and getting more revenues through upsells and cross-selling.
Your subscription product sales will need to be supported by subscription management software that fits in your current ecosystem and tailors to the accounting specificities of this model. Remember to choose the right finance stack for your business today and tomorrow.