5 Things Every CEO Needs to Know About Subscription Billing

At first glance, subscription models appear to be a simple, surefire way to drive recurring revenue. What could be complicated about recurring payments for a steady stream of goods and services? But in reality, while subscription models are a powerful driver of predictable, recurring revenue, they’re far from the “set it and forget” simplicity many businesses expect them to be. And when a new business — or a business that’s just begun embracing this model — takes that simplicity for granted, sooner or later, the only thing the subscription model will be driving is churn.

Want to successfully implement a subscription model that attracts customers and grows revenue year after year? Here are five things to keep in mind.

1. Internal Automation Leads to External Success

Subscriptions—like all transactions—require input and effort from a wide range of business departments: the sales rep who provides the initial quote, the legal team who puts the finishing touches on the contract, the fulfillment team who ensures the client receives the goods or services purchased, and the finance team who sends out invoices and collects payments, for starters.

When these teams are operating in silos, communication breakdowns can lead to errors, delays, and unhappy customers. For example, maybe the sales rep offers the client a discount for the first three months, but that information is lost or muddied somewhere between the sales office and the finance desk. Either customer doesn’t receive the promised discount and feels lied to, or the discount stays active after it should’ve expired and the company experiences revenue leakage.

Rather, a strong subscription model requires complete transparency among different facets of the business, as well as automated workflows that minimize the risk for data duplication, missing information, or other potentially costly errors. While outdated and legacy billing platforms often struggle to integrate with other systems—especially as customer volume increases—an agile billing platform designed with growth in mind can be a powerful asset to a subscription-based business.

2. Frictionless Renewals Are Key to Customer Retention

We said above that a subscription model isn’t as simple as “set it and forget it,” but for the customers, it should be. One of the top benefits of a subscription model is that it increases customer lifetime value by keeping users coming back over and over again, paying for their goods and services on a regular basis.

However, if “coming back” becomes too difficult — if renewals are complicated for the customer, if it’s on them to remember to pay each month or quarter, if their payment method doesn’t work, or if their goods or services are interrupted at renewal time — they aren’t likely to stick around.

To minimize customer churn, subscription businesses must be proactive about renewals, and the best way to do this is through a sophisticated collections system. This includes setting up personalized renewal notices, automating recurring payments, reminding customers in advance to update expired credit card information, and setting up fail-safes like payment retry schedules in the event of a payment error.

As with most aspects of billing, maintaining this collections system manually is a tall order. While it may work in the early days, when the client list is small and transaction volumes are low, it becomes impossible to juggle communication and collection activities as a business grows. While manual or outdated systems will inevitably lead to more and more revenue leakage and churn, automating the processes can make revenue collection — including subscription renewals — simple for both business and customer.

3. Even With Recurring Revenue Models, Agility Is a Must

Nothing sounds steadier than a simple subscription, right? The customer pays the same price for the same goods or services every period. However, subscription billing models don’t make companies immune to disruption caused by shifts in the market and/or customer preferences.

In an environment where the only certainty is change, businesses that want to succeed have to be agile enough to pivot on a dime. Should a global pandemic, for example, turn the market on its head, that steady subscription may no longer be a viable option for many loyal customers. A business that can pivot its offerings, prices, and models quickly is much better equipped to stay afloat than one whose only option is to stay the course. Again, manual processes, excel spreadsheets, and outdated billing systems are a true liability in times of disruption. The right systems, on the other hand, empower businesses to be flexible and agile, easily keeping up with whatever the market throws at them.

4. There Are More Metrics to Track Than You Might Think

Companies offering simple, straightforward business models such as one-time purchases or perpetual licensing, can use simple, straightforward metrics in their financial reporting. But tracking performance under a subscription billing model is a little different, and companies adopting these models will need to look at a new set of indicators to ensure they're on the growth path. Read our recent blog post for ten key metrics subscription-based businesses must track.

Sophisticated tracking is critical to driving growth and improving financial performance for businesses working with subscription-based offerings. However, as you may have guessed, successful tracking requires a billing system that can handle high volumes of variable data with crystal clear transparency and in near real-time.

5. Subscriptions And More…

As we wrote last month, simple subscriptions are far from the end-all, be-all when it comes to recurring revenue. While predictability is a huge advantage, subscriptions on their own can put a hard ceiling on revenue potential and drive away potential customers who aren't convinced they'll get as much value as they're paying for from a simple subscription.

Rather than rely on simple subscriptions alone, many savvy businesses are adding consumption-based models that allow customers to pay a lower rate for a basic subscription and then add on additional products and services as needed. This gives businesses both the predictability of the simple subscriptions and the limitless growth potential of usage-based models while reassuring the customer that their money is being put to good use.

Growing a successful subscription-based business is more complicated than it sounds, but at Gotransverse, we’re committed to empowering our clients to do just that, with a sophisticated billing platform that enables automation, agility, transparency, and growth. To learn how Gotransverse makes complex billing a snap, we invite you to take a tour of our platform today. Then, when you’re ready, request a demo to learn whether Gotransverse is the right billing platform for your organization.