A good chunk of all the digital and physical services we use today are subscription based.
Dollar Shave Club or Birchbox at home. Slack, AWS or LinkedIn Premium at work. A food or salad subscription for lunch at the desk. Spotify or iTunes for a workout. Gmail for work emails. Netflix, Hulu or Amazon Prime Videos to wind down.
SaaS companies, media outlets, education portals, eCommerce sites and many other businesses see the value of turning one-time customers into recurring subscribers. Adopting this pricing structure has led to big changes in the way they build revenue, often providing more stability and confidence in their projections.
And when recurring revenue spurs growth, retention becomes one of the most-watched metrics in a business and subscription management comes into stronger focus. But what exactly is subscription management?
Every business that has a subscription-based pricing structure keeps track of customers, processes payments and cancellations, records buying history, sends invoices at the right time, triggers payment failures, and much more. But it’s not necessary that one solution service all of this.
This is what subscription management is NOT:
Recurring Billing: A ‘bill’ is typically defined as a printed or written statement of the money owed for goods or services. Recurring billing is an automated process involving the customer, the merchant and a way to keep track of a periodic transaction between the two. At its simplest, it takes care of invoice accounting for factors like proration and regional taxes.
Recurring Payment Processing: This involves storing sensitive payment data and facilitating the secure transfer of funds between the customer and the merchant. Some popular payment processors are Stripe, Braintree and PayPal.
A subscription management solution works on top of a payment processor to support recurring billing and allows teams to take actions that cannot be automated.
In other words, it allows you to address many of the customer-related actions that come into the picture when payments recur. But why do businesses need it? The fact is, when customers return to you week after week, month after month, your relationship changes from being a simple transaction into a long, involved conversation.
Let’s look at why subscription management is vital with three scenarios from a typical customer lifecycle:
A customer signs up. Have they signed up for a trial? If they are undecided whether to continue using your product after this period, are your customer service executives empowered to extend the trial period? With subscriptions, making people stay after a sign up is just as important as getting them to sign up in the first place.
A customer’s using your product or services. Customers need a host of billing-related services when they are actively using your product. They may need to upgrade or downgrade. If this happens in the middle of a recurring billing cycle, is this reflected in your System of Record? (Which is just a fancy way of saying, ‘Is this data updated everywhere it needs to be in your master digital ledger?’) Can you initiate a conversation at this point, to calculate credits, track ad hoc charges or provide discounts to a plan you want them to switch to instead? Subscription management takes the manual labour out of keeping accurate records of the many billing conversations you have with your customers.
A customer leaves. The loss of a paying customer when you have a recurring billing pricing model is a loss equivalent to the Lifetime Value (LTV) of that account, not the loss of a single sale. The impact of churn is much larger, making it important to understand what requests were made, how they were handled and if recurring billing was augmented with a layer of subscription management.
Recurring billing and subscription management are always tightly integrated with each other, one offering automation and intelligence, and the other, flexibility and more control.
So when subscriptions are poorly managed, customers lose trust in the business and stop wanting to deal with them. Prove that payments happen securely, responsively and seamlessly on the business end, and customers forget about billing, focussing on the value and the experience you provide instead.
The basis for the success of any recurring business is its ability to build strong, positive relationships with its customers. With a well-built subscription management system, every sign up can be the start of something beautiful, instead of an operational headache.
More insightful reads on the nature, nuances and necessity of a subscription management solution:
What separates the leaders and the stragglers in the subscriptions game? Some excellent practical advice on how businesses built on subscriptions aim for success. Subscription business models are great for some businesses and terrible for others
The list of things we said a subscription management solution will enable your business to do? We talk about them in more detail here. Getting started with subscription billing and management software — A definitive guide
What happens when you start paying attention to your billing infrastructure as you scale? You find that subscriptions can become quite...complex. Scaling SaaS billing: How to plan for the insanity