Subscription Business 101
Not long ago, the word “subscriptions” brought to mind magazines that came in the mail or a mystery box from a fruit-of-the-month club. Now you’re more likely to think of a streaming service like Hulu that offers you thousands of entertainment viewing options. Or a personal styling service such as Stitch Fix, that sends clothing to your door tailored to your budget and personal taste.
In the last few years, companies of every type and size that were historically focused on one-time purchases have been quick to adopt subscription models. Software publishers such as Microsoft and Adobe led the pack with SaaS (Software-as-a-Service) offerings. This evolved into XaaS (Anything-as-a-Service) — establishing the subscription model as the ideal way for businesses to build and grow long-term customer relationships. And these relationships have compounding value. As long as your customers see a benefit in what you provide, they’ll continue to pay for it.
The value to your customers
One of the biggest values a subscription model offers is price. For products that you buy every few weeks, such as dog food, you can subscribe on Amazon at a lower price than if you continue to purchase it separately every time you need it.
Convenience is a huge driver here, too. Subscription deliveries are made right to your door, saving you a trip. Bumper gets to enjoy his normal routine of barking at the Amazon driver, with an added bonus that this delivery is actually for him.
Personalization is another reason that subscriptions have become so popular. With FabFitFun for example, you get a seasonal selection of beauty, wellness, fashion, fitness, home, or tech items that are curated to your personal tastes.
Curation is also a big customer draw with subscriptions, enabling you to benefit from someone else’s expertise. With Stitch Fix, a personal stylist uses recommendation algorithms and data science to choose clothing items just for you.
Finally, subscriptions are a great vehicle for product introduction. Based on your profile and order history, you can try out new products you’re likely to enjoy, or new items that complement something you’re purchasing or have already purchased.
Over the last ten years, subscriptions have become predominant in ecommerce at a rate that doubles every year. — Forbes
The value to your business
These are all great things to the customer. But what does it mean to you?
In essence, the subscription model changes the entire digital commerce, commerce-to-cash, customer lifecycle. And that’s great, because it introduces a way of creating a recurring revenue stream that will only continue to grow as you attract more subscribers.
Subscriptions keep customers focused on you instead of your competitors, creating higher margins. Lower prices and easy access help build customer loyalty and provide an easy way to introduce products. And building long-term relationships gives you better customer data for innovation and growth.
Subscriptions orient your entire business around the customer, extending the customer-first systems you have in place. But to make them work, you must be equipped to handle product selection, solution configuration, price negotiation, and quote generation for any mix of products and services — all the way through to fulfillment, billing, and renewal.
How do you do all of this within a complex system of products and services, managed by complicated processes, many of which are manual? The answer probably won’t surprise you: CPQ.
Making subscription models work with Configure, price, quote (CPQ)
Get started with Subscriptions
Achieve your subscription goals by ensuring that your service provides the best experience possible:
- Creation/amendment — Initiate a transaction and update quantity, duration, or product as needed
- Pricing — Set and update subscription pricing based on factors you determine, including bulk purchasing, usage levels, rewards for loyalty, etc.
- Acquisition — Allow customers to sign up quickly and easily from wherever they interact with your business — mobile or online
- Billing — Eliminate the complexity involved with a subscription service with billing that’s accurate, straightforward, and branded to favorably reflect your company.
- Metrics — Measure how well subscriptions are performing with key insight into profit margins, retention rate, and growth
To get your subscription model started off right, integrate CPQ into your entire, end-to-end sales-to-order process. Here’s what this allows you to do:
1.Reimagine your products: A CPQ solution enables you to redefine your product structure by consolidating your SKUs and using pricing rules to generate SKUs during the ordering process.
Next, you can re-evaluate your product delivery. With a self-service model, you need to be able to provision products for immediate access, with the ability to automatically activate licenses. CPQ makes this possible.
Finally, with product usage monitoring, you can learn how customers are engaging with your product so you can understand their needs and what they use most, enabling you to systematically add more services.
2.Create a holistic customer journey: Subscriptions require you to reimagine the customer lifecycle from acquisition to renewal. To make this happen, you must form new cross-functional partnerships to create a more seamless customer journey. CPQ has you covered.
3.Build on your technology capabilities: CPQ makes subscription renewals easy to manage, enabling you to set a subscription start date, term, and any additional discount for automatic renewal. You can generate orders, assets, contracts, and subscriptions based on your quote terms.