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7 Tips To Optimize Your Subscription Business Model

December 14, 2022
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1
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7 Tips To Optimize Your Subscription Business Model

The subscription-based business model is popular because it provides predictable revenue that grows over time. That is, as long as your churn rate isn’t too high. However, as with any other business model, there are challenges to running a tight ship with a subscription product.

If you’re a subscription business owner, it’s worth evaluating your model’s current performance and considering ways to optimize your process.

How To Elevate Your Subscription Business Model

There are several moving parts in a subscription-based business model, and every one of them may need at least a small optimization to make your company as efficient as possible. Here are seven tips to get you started:

1. Focus on the Customer Experience

Subscription model businesses rely heavily on happy customers. Bringing in new customers each month is a great way to grow your business, but successful recurring businesses have mastered the art of building long-term relationships the stand the test of time.  

So, your customer should be your first area of focus.

Think of the process your customer goes through to sign up for a subscription plan and the things you can do to make the process easier. Also, consider how the customer uses your services and what you can do to streamline the process for them. Anything that could result in a better customer experience could provide you with more revenue stability and increase your revenue over time.

2. Leverage a Freemium Model to Flood Your Funnel

As a subscription business owner, giving your services away for free probably doesn’t sound like the route you want to go, but “freemium” is becoming increasingly important in the subscription economy.

Consider offering a limited solution that gives potential customers a small taste of what you offer and give them a free subscription box to click on and sign up.

Oftentimes freemium offers delay initial revenue but generate more customer lifetime value and in turn, more revenue overall.  Freemium models flood your funnel with prospective consumers.  Some of these consumers would never have signed up and likely will not monetize;  however, many of the consumers that were scared off by up-front billing will love your service and ultimately enroll in your paid service.  Freemiums increase your available market, prove your value, monetize more customers with larger lifetime value.  

A quality payment processing solution can help you transition to or test a freemium model and determine if it can lift revenue in your business.  

3. Evaluate Subscription Pricing Structure Based on Revenue and Churn

The price you charge is crucial, regardless of the product type or service you offer. You’ll scare off potential customers if your price point is too high. You’ll starve your business of needed profitability if it’s too low.

Use your revenue as a gauge to determine if you should raise or decrease the price of your subscription offerings.  Consider the point of the freemium offer, it’s easy to make adjustments when your funnel is flooded with leads.  Likewise price testing vs. value of your product is foundational to your company's ability to scale.  To start evaluating your pricing structure, look at the various levels of your subscription, paying close attention to the one that generates the most revenue over time (Highest Customer Lifetime Value).  A high-price subscription may generate lots of immediate revenue, but leave more customers abandoning your checkout, or canceling early.  Likewise an inexpensive mode may keep customers for longer periods of time but fail to generate revenue.  The best revenue generator is likely the point of inflection between revenue and churn.  

Consider what makes the offering attractive to your customers and adjust your other offers to follow suit.  

Don’t go at it alone, though. Quality payment processing solutions and billing platforms can provide data that makes assessing your options by revenue easier.

4. Consider Adjacent Services with Embedded Finance, and Integrated Payments

Creating more services that relate to your core offering is key in adding value and creating ongoing customer interaction. The more services you offer, the more opportunities you have to make money. Some of the best subscription model businesses are constantly innovating and adding to their product lineups at every opportunity.

Think of the different services you could incorporate into your subscriptions or even offer bolt-ons to your base subscription offerings as a one-time purchase.

Developing your own products can be time consuming and expensive so consider partnerships with existing companies that can provide value to both organizations.   

When looking at Embedded finance products consider things you or your business model need to operate, or what your consumers can’t do without.  Running events? Look at ticket, event, or cancellation insurance as a way to increase average transaction size without large costs.  

Other methods of embedded finance include loan options for high ticket items, installment plans, or Buy Now Pay Later support.  Even suggestions of items/packages frequently bought together or that are dependent on each other can help create better customer experience.  

All of this needs to be wrapped up in a frictionless way to checkout and pay.  As you expand your internal offering or use of third-party partnerships, removing the friction to pay is critical to your success. Integrated payments allow a merchant to offer payment options the consumer prefers including mobile wallets and debit transfers. Making sure your user interface is clean and by presenting payment options the customer has enabled and becoming credential on file reduces friction.

5. Build a Loyal Customer Base

Loyal customers are the only customers that provide recurring revenue. The longer your customers stick around, the longer you can count on reliable residual income from them – but loyalty has to go both ways.

There are several ways to build a more loyal customer base. Consider launching promotions that reward customers with discounts based on how long they’ve been members, sending happy birthday email messages with exclusive gifts, or simply making yourself available personally if your customers have questions.

A quality payment processing solution can also help by reducing payment failure rates - thereby reducing customer churn. Nobody will be loyal to you without a reason to be; frictionless payments gives you more control and makes the customer experience lay solely with your products and/or services.  

6. Monitor Customer Attrition and Customer Retention

Customer retention relates to how long customers stay with your services, while customer attrition relates to how quickly they cancel. Of course, you want high retention and low attrition rates, but if you’re not keeping an eye on attrition and retention rates, you don’t know where you stand.

Dig into your customer attrition and retention rates at least once quarterly to understand how you’re doing. A quality payment platform should make this a relatively simple process.

If you make a change and notice that customer retention rates are rising, the data validates your move, and it’s time to solidify it. On the other hand, if customer attrition rates rise, it’s clear customers didn’t like the change you made.

7. Offer Competitive Pricing and Prevent Failed Payments

As mentioned previously, pricing is crucial in any subscription revenue model. Customers are only going to look at your subscription fee once. If they like what they see, they’ll consider signing up; if not, you lose the opportunity to make the sale.

It’s critically important to ensure that your price point is competitive.

Look at other subscription model examples across your industry and determine a fair price that’s not too high or too low. As you compare, be honest with yourself about the pros and cons of the options. Then, evaluate where yours lies among the competition in terms of value. Price your offering to match the value it provides.

It may also be a good idea to test a few different pricing models over time to determine the most attractive price that also puts plenty of profits in your pockets.  Should your product lack value compared to the price, consider adding adjacent services as mentioned previously in this article to hit the critical mass of cost vs. value.   

Finally, incorporate strategies to stop failed payments. For example, send customers automated emails the month their credit cards expire, asking them to update their payment information and use other payment processing and automation features to keep data up to date.

Invest in a Payment Optimization Solution for Your Subscription Business

Monthly subscription revenue takes much of the cyclical nature out of business, generating reliable revenue over time. If you’re a subscription business owner, you could benefit by bringing technology into the fray.

A payment optimization solution can help you avoid failed payments and build and analyze data to help you improve the overall performance of your subscription business. Request a free demo today to see how payment optimization tools can streamline your revenue stream.

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