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The Subscription Model: The Way Forward for Every Business

The subscription economy, consisting of the recurring payment for products or services, has been around for ages and is more prevalent now than ever before. When we talk about subscription, what may come to mind is online streaming, newspapers, cable service, and our milkman. The subscription model is not limited to retail or media. It’s used to drive revenues across many different industries.

If your organization uses a traditional one-off purchase model, it's time to evaluate the benefits of recurring subscription models. What makes subscription services a successful and thriving model is how it can be adopted by any business to create connections with customers.

Salient features of subscription models 

Smart brands appreciate the many features of subscription models, such as:

  • Sustainability: Subscription models give the organization a steady volume of recurring revenue, which helps management plan into the future with a certain level of confidence. The sustained relationship with the customer gives organizations an edge in understanding their customers' needs and behaviors and consequently allows them to serve their customers better and form deeper bonds.
  • Scalability: Armed with a better understanding of their customers and the ability to accurately predict customer lifetime value, organizations can upsell and cross-sell with a higher success rate. Subscription models provide organizations the right data to gauge customer interest for new offerings and new price models. 
  • Convenience: Subscription models give customers greater control over what they use, altering their service plans as needed, and choosing the desired offerings from a wide variety of options. 

Challenges subscription models face

The subscription model's inherent flexibility brings with itself complex challenges that organizations should plan for while deciding on the scope and features of their offerings. 

  • Customer experience: Customer inclination towards subscription can be partly attributed to its flexibility in browsing the various plans, selecting what fits them best, and personalizing the offerings. To continuously maintain a premium customer experience can prove a daunting task. 
  • Revenue management: As the service offering moves from one-off transactions to recurring and consumption-based transactions, accurate billing challenges increase. Different rates for different tiers of usage, overage fees, and custom plans make tracking and billing difficult to manage with outdated billing systems or spreadsheets. 
  • Contract management: Subscriptions can be renewed, suspended, and amended by customers at any time during the billing cycle for a particular product, service, or for the entire subscription. These changes must be incorporated in your billing and revenue recognition solutions. 

Finding the right technology partner 

Subscription models impact customer-facing systems, billing solutions, invoicing, and order fulfillment systems. This calls for a shift in how customer lifetime value is identified, and what parameters should be tracked to define business success. The technology systems in place to handle subscriptions must provide complete sales information to billing support by assisting in: 

Customer experience: A self-service solution where the customer can easily select and start subscriptions, modify products, term, and frequency, and upgrade & after subscription easily in one place is needed. Organizations should be able to check on usage and performance of different offerings and determine the lifetime value of customer

Revenue management: Complete control of your billing and revenue recognition by having an automated invoice creation mechanism and consolidated revenue recognition. The system should be capable of handling the complex pricing logistics of subscriptions. Organizations need easy access to reports on recurring and consumption billing to have better control over revenue.

Contract management: Amendments, renewals, and suspension logic are enabled in the system to allow flexibility to customers. Automated renewal creation capability ensures that no revenue is lost and the sales rep’s time is not consumed in looking for working for direct renewals. The system must allow organizations to view pending contracts and review current subscriptions.

Conclusion

Subscriptions have seen continuous revenue growth in recent years and have stood the test of the recent COVID-19 crisis. While choosing the right subscription model, organizations must be mindful of:

  • • The customer-centricity and experience of the offering
  • • The financial impact of price flexibility and billing complexity
  • • Having the right technology ecosystem in place to support creation to fulfillment flow

Organizations require a partner that understands the complexity of moving from an ownership model to subscriptions. Learn more about Oracle’s subscription management solution here.

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