How To Build A Successful Subscription Business
Regardless of whether you’re building a subscription business from the ground up, switching over a particular product or service to the subscription model, or overhauling your entire enterprise to take advantage of the booming subscription economy – building a new recurring revenue model is both a complex and rewarding challenge.
Whichever situation applies to your business, it’s important to recognize that a move to the subscription model requires extensive and transformative organizational change. It’s more than just a new way for customers to pay.
So what does it take to build a successful subscription business? How can you adjust existing business processes so that they align with this new model? And most importantly, how can you build a solid foundation for subscription-based services?
In this blog post, Subscription Factory’s Senior Business Consultant, Alexander Demes explains how an implementation based on Zuora’s Nine Key framework can help.
Getting started with the subscription model
There’s no doubt that when successfully implemented, the customer-centric subscription model offers competitive and financial advantages for businesses who get it right. The question for most business owners is how to get started.
In most established businesses, the subscription model is typically championed by either the C-suite or the marketing team. No matter who’s driving the change, successful implementation requires a cultural change within the organization.
Implementation of the subscription model needs buy-in from every department, every employee, and everyone within the organization. That’s because it requires new ways of thinking, and new processes right across the business, from accounting through to marketing.
The place to start is with your people.
Approach and methodology
Subscription models are emerging in every imaginable industry, from entertainment and education to consumer goods and healthcare services.
The potential applications continue to grow. Having a clear framework helps to break down what is undoubtedly a highly complex process into manageable and measurable chunks.
There are really two key phases, which will be familiar to anyone involved with change management or agile software development:
Phase 1
As previously mentioned, the process starts with people. It’s important for business leaders to understand the needs of stakeholders and clearly define the scope of the project. Simply switching to a subscription model because that’s the modern way to do business is not a good enough reason itself, and is unlikely to create buy-in from stakeholders.
That’s why it’s important to have a clear debrief before the project begins, before defining and validating user stories from an end to end perspective. It’s also crucial to have clear oversight of the end-to-end architecture and systems needed to run this new model.
Phase 2
The second phase involves building your solution using agile sprint development, iterating and testing until it’s ready to be deployed and go live. In order to get the solution right first time, the build often takes the longest. Once successfully up and running, it can be continuously improved to achieve excellence.
The Nine Keys provide a solid framework to successfully enable this transition. As a Zuora Trusted Partner, Subscription Factory uses this proven framework to underpin our approach to implementing the subscription model.
An overview of the Nine Keys framework
Like any business model, a recurring revenue approach has multiple moving parts which need careful handling in order to optimise their efficiency and provide a seamless and painless experience for users.
Putting Zuora at the centre of a solution centralises all the associated functionality, giving the business clear oversight and control over all the technical aspects, including: billing and payment processing, CRM and case management, e-commerce, and finance systems.
Here’s how Subscription Factory makes use of the Nine Keys:
1. Product pricing
There’s much more to pricing than simply deciding upon a fixed recurring fee. To ensure your product or service is competitively priced yet profitable, product pricing requires in-depth analysis.
For example, if you were previously offering a yearly licence agreement, do you now sell it on a monthly basis and simply divide that single payment by twelve months? Or should you offer different kinds of one-time payments on a recurring basis, like insurance? Would a pay-as-you-go, usage model work best for your offering? Have you taken account of applicable taxation rules within your pricing structure?
Deciding on the right solution requires careful consideration and market insight. If you’re trailblazing a new niche, like Netflix did all those years ago, how do you know where to fix your price points? Your price points or subscription types also require careful naming and/or coding, so they can be universally understood across your organisation.
Whichever approach you take, it’s essential to create a product catalogue and place it in Zuora as a single source of truth. That way, you can coordinate all your operations from one place, especially the front end of your self-service software.
2. Acquire and retain customers
How you currently sell, and how you plan to sell in the future, is another key consideration. There are three options when it comes to selling to your customers:
- Self-service through an online portal
- Via third-party sellers and resellers
- Through a traditional CRM and sales team model
There are two important development aspects to consider with your online portal. Firstly, a sign-up area. Secondly, an account management area where customers can get support, see their billing, upgrade or downgrade, buy additional products and so on.
3. Bill accurately
Any errors with billing reflect badly on your company’s reputation and can negatively impact your customers’ trust. It’s important that you get billing right from the get-go and solidify those decisions around when and how you bill. Is it the same date every month for every customer, resulting in part-billing, or do you make it a rolling monthly contract from their initial subscription date?
4. Automate payments
Perhaps the biggest difference between one-off billing and recurring revenue models is that way in which payment is made. Recurring revenue can be collected through a variety of channels, such as direct debit or PayPal. With a payment service provider, one provider can handle all your incoming payments at scale through Zuora.
The software can also handle reminders. As payments are made more frequently, typically on a monthly basis, it’s business critical to ensure subscribers can leave easily and happily, and keep the door open to the possibility of return. That’s why payment reminders need to be made gently and politely in order to minimise negative word of mouth publicity from disgruntled customers, and to leave the door open to their future return (when they do decide to make reliable payments).
5. Nurture customers
Once you’ve got customers within your subscription environment, it’s important to keep the relationship going by continuing to add value and provide anticipated, relevant, and valuable content such as special offers, free upgrades, and recommendations.
Upselling the customer on a subscription model is a much better move than upping your subscription costs. Focus on selling the next subscription package. This can be reinvented every few years or so, to strategically increase subscription prices.
Having a centralised product catalogue in Zuora enables you to ensure your self-service area can handle any changes to the subscription.
6. Account for revenue
Zuora is essentially a one-stop financial tool which can easily sync with your existing ERP to create a connected digital accounting landscape. You can set accounting codes, dimension codes, ledgers, and correctly configure segments. Any itemised information can be transferred and recreated in your ERP, giving you the clear oversight needed for financial reporting.
7. Measure revenue
With all the relevant data accessible and on hand, it’s much easier to gain insights into the financial health of your business. And a recurring revenue model requires greater focus on areas such as retention rate, recurring profit margin, and growth efficiency index. Using Zuora, you can easily set up a dashboard to track these vital subscription metrics from the get-go – something not always baked-in to comparative financial reporting tools.
8. Develop iteratively
By adopting an iterative approach to your subscription model, it gives you the scope to do more and experiment, playing around with pricing, add-ons, and special offers. This could be done with particular customer segments in order to ascertain the most effective strategies for upselling your offering.
9. Scale rapidly
Whether your growth target is 10% or 100%, the implementation of Zuora through Subscription Factory makes it easy to manage a rapidly expanding business. It gives you the right infrastructure to provide around the clock operations, and identify the gaps, provide support, and navigate customers, whatever the size of your business.
Implement Zuora with Subscription Factory
All kinds of businesses are benefiting from the subscription model, whether they’re B2B, B2C, start-ups, small or medium-sized enterprises (SMEs) or large corporations.
The Zuora Nine Keys, implemented by Subscription Factory, provides a tried, tested, and trustworthy framework for the subscription model.
