Source: Vindicia
Today, consumers prefer subscriptions. Be it software or content, cosmetics or cars, consumers prefer to experience a product or service for a low monthly fee, rather than own it for a higher price. As a result, more and more businesses are looking to better understand how they can adopt and succeed with subscription business models.
The subscription lifecycle is a framework for describing the needs, processes, capabilities, and knowledge that subscription businesses require as they acquire, bill and retain subscribers; grow their operations; and, achieve financial success. Subscription business success requires intelligence at all phases of the subscription lifecycle. Those that excel at all stages of the lifecycle stand the best chances to succeed!
AQUIRE
Source: Vindicia
The Acquire phase includes activities such as product and offer definition, segmentation, personalization, pricing, packaging, promotion, campaigns, testing, iteration, onboarding, and entitlements.
Mckinsey’s famous contention that companies must either “grow fast or die slow” translates into a minimum annual growth of 20 to 30 percent, so customer acquisition (and retention, see below) is a “do or die” activity. Two essential capabilities that drive acquisition are:
- Go-To-Market Flexibility: The ability to rapidly define any package that your marketing and sales teams dream up – unrestricted by software, IT, cost or time limitations.
- Agility: Ultra-fast time to market for new products, and the ability to rapidly iterate to experiment and fine-tune offers (e.g., changing price and adding features).
ACQUISITION TIP: At what stage should you ask a customer for payment details? Before a free trial or after? You might assume that asking before the trial would discourage sign-ups. However, our data reveals that in the long run, conversion increases if you take payment data at the beginning of the free trial.
BILL
Source: Vindicia
The Bill phase covers billing, invoicing, payment handling, tax calculation, fraud detection, chargeback management, accounts receivable, revenue collection, revenue recognition and reporting.
Billing is not just a technical or logistic necessity; it is a strategic weapon for acquisition, income and retention. Flexible billing enables innovative marketing. For example, CashBox offers multiple pricing strategies to attract buyers with different preferences, like usage-based billing, recurring charges, discounts, tiered options, virtual currencies and more.
You don’t want to swap your billing platform frequently. Billing is core to your financial management. Make sure your billing platform is designed to support your growth and expansion. Make sure it is highly scalable, supports global currencies, global taxes and traditional and alternative payment methods, including national credit cards and digital wallets such as PayPal, Apple Pay, Amazon Pay, and so on.
BILLING TIP: The more payment methods you offer, the better, right? Wrong. Our data reveals that there is an optimal number and mix of payment methods that strikes the best balance for customer acquisition.
RETAIN
Source: Vindicia
The Retain phase starts from the moment a subscriber signs up. It encompasses customer engagement and loyalty programs, as well as ongoing challenges such as churn prediction, churn prevention, retry, dunning and crucially, recovering failed transactions.
Retention is high stakes for subscription companies. The cost of retaining a customer is one fifth (some say one-tenth) the cost of acquiring a new one, so smart businesses invest in customer relationships and retention from the moment a customer converts.
There are two types of churn – active churn and passive churn and each needs to be combatted differently.
- Active Churn: Active Churn occurs when a customer is disappointed with your service and leaves by choice. Businesses should protect themselves from active churn by modifying the product or pricing, improving the communications of the value of the product, offering loyalty points, bonuses, and other tools to encourage customer engagement.
- Passive Churn: Passive Churn is when a customer leaves your service not by choice but as a result of a glitch in the payments network resulting in a failed credit card transaction. The traditional tools for combatting passive churn are limited to retry, account updater and dunning.
RETENTION TIP: Focus on reducing both active and passive churn is the #1 area ignored by subscription companies and the “lowest hanging fruit” to look at for increasing revenue and profitability. Our data reveals for example that subscription companies can easily reduce involuntary churn by 15-30% and boost revenue from those efforts by 3-5%
EXPAND
Source: Vindicia
The Expand phase is about extending your horizons and vision. It includes core processes such as cross-sell and up-sell, but also daring to launch new products, new properties, and expand geographically.
Revenue growth is the life-blood of subscription businesses. Revenue growth funds acquisition, expansion, and innovation. Expansion is primarily in two dimensions:
- Grow Existing Revenue: Build up by attracting more customers and then cross-selling and up-selling to your customer base.
- Grow New Revenue: Expand your area of operations to new products, new lines of business and new geographies. CashBox’s wide-reaching support for languages, currencies and global tax compliance make it easy for subscription businesses to expand domestically and internationally.
EXPANSION TIP: Renewals are key to expanding and growing your subscription business. Our data shows that the optimal way to design and communicate a renewal offers varies by subscription segment and subscriber profile, so make sure you test and look at your data as you develop your strategy.
Succeed
Source: Vindicia
The Succeed phase includes one-off activities such as implementation, integration, and migration, but more significantly, also ongoing optimization driven by consultation, benchmarking, analytics, and business intelligence.
Great products and great service do not guarantee success. Subscription business success necessitates excellence at all phases of the subscription business lifecycle. You need business acumen. That means domain expertise – in subscriptions, payments, marketing, sales, financial management and more. If you have any questions about how Vindicia can equip you with all of the capabilities you need to help you succeed and grow, please let me know.
