Sean
Daniel
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Feb 22, 2022“To create a successful subscription revenue model, organizations need to pay attention to the details and understand how a subscription business works. Otherwise, they will be driving churn rather than revenue.”
- James Messer, founder, and CEO, Gotransverse, in Forbes
Recurring revenue is an attractive prospect in just about every industry. Subscription models empower businesses to forecast revenue and growth better, which both company leaders and investors like to see. However, successfully implementing and managing subscription models is easier said than done and far from the "set it and forget it" ideal that many leaders envision in the beginning.
Gotransverse founder and CEO James Messer was featured in Forbes last week discussing why subscription models are more complicated than they may initially appear and what CEOs who want to do them well must keep in mind.
“To implement a successful recurring revenue model that attracts customers and drives revenue requires laying the proper foundation,” says Messer. And he shared five considerations for building a successful subscription business.
We encourage you to read the full Forbes article, but we’ll share the highlights here:
Automation Powers Recurring Revenue
“Any transaction, including subscriptions, requires processing by various departments, from the initial quote from sales, the legal department responsible for the contract, the fulfillment team, and the finance team responsible for invoices and collections,” says Messer.
In other words, there are a lot of cooks in the subscription kitchen, and they’re often working in silos, unable to see exactly what their counterparts in other departments are doing. Unfortunately, these isolated processes lead to communication breakdowns, errors, and delays, frustrating customers and jeopardizing retention, revenue, and reputation.
Customer Retention Relies on Frictionless Renewals
“While subscription revenue models aren’t ‘set it and forget it’ for business owners,” says Messer, “they should be for customers.” We've all been there: a subscription service we love comes up for renewal, and suddenly it takes a lot of work—updating payment methods, haggling with unexplained price increases, or chasing down the vendor to correct a service gap or delivery delay. Suddenly, that subscription starts to feel like more trouble than it's worth.
For businesses, the goal is to make it easy for customers to stick around. Automated payments and proactive renewals, driven by sophisticated collection systems, are essential to keep customers engaged and satisfied, especially as customer volume increases and manual processes become unsustainable.
Even in Recurring Revenue, Agility Is a Must
It may seem counterintuitive to focus on agility when discussing predictable, steady revenue streams, but subscriptions don't make any business immune to disruption. As markets evolve—due to pandemics, changing customer expectations, new competitors, or anything else—companies that want to stay ahead have to adjust quickly. And that requires sophisticated billing platforms and processes, according to Messer: “When there is a disruption, running your business on spreadsheets and static billing systems is a liability. Agile billing systems that promote flexibility and transparency make it easier to adapt and remain competitive.”
To pivot can be the difference between sinking and swimming when changing tides make it impossible for standing subscription models to keep businesses afloat.
Subscription Performance Monitoring Requires Its Own Metrics
Companies operating on simple, one-time-sale models can use fairly straightforward metrics to track performance. But subscription models, Messer says, require their own set of metrics: “With a subscription or recurring revenue model, there are additional indicators you need to consider to map your growth, such as monthly and annual recurring revenue, average revenue per user, renewal rate, days sales outstanding, and more.”
You can read more about the key metrics subscription business need to track in our recent blog post.
Simple Subscriptions Are Only the Start
Finally, warns Messer, simple subscriptions alone leave a lot of revenue potential on the table. While their predictability is a significant advantage, they impose a false ceiling on growth. To combat that—maintaining the much-desired predictability while also driving limitless growth—Messer says, “Many businesses are adopting consumption-based pricing to provide more flexibility and profit potential.”
By combining the two models, allowing customers to pay lower rates for basic subscription and then additional fees for additional goods and services as needed, businesses can lower the barrier of entry, provide better value for customers, and generate significantly more revenue than with subscriptions alone.
Growing a successful subscription-based business is more complicated than it sounds. Messer’s insights in Forbes are a great place to start strategizing the search for the right partner to implement the processes and systems you need to drive growth through subscription and hybrid models. At Gotransverse, we’re committed to empowering our clients with a sophisticated billing platform that enables automation, agility, transparency, and growth. To learn how Gotransverse makes subscription 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.