Growth in subscription-based revenue generation is showing no sign of slowing as increasing numbers of businesses come to realise the benefits the approach offers.
Whether it’s streaming entertainment, productivity software, or exercise tutorials, consumers are voting with their wallets and shifting from one-off payments to subscriptions. They like the idea of paying for a product or service for as long as they need it without a hefty up-front charge.
For businesses, subscriptions help to make customers more ‘sticky’ to a brand. Businesses are also better able to monetise long-term customers by creating an ongoing relationship over an extended period.
As well as increasing in number, subscription services are also finding their way into a broader range of businesses. Recent examples have included home-delivery meal subscriptions and a car manufacturer offering subscriptions for new vehicles.
Potential implementation challenges
While they do offer some significant benefits for both consumers and businesses, subscription models can also present several challenges. One of the most significant is the changes subscriptions bring to a business’s relationship with its customers. Rather than there being a single large transaction, there are a series of smaller transactions with the customer usually having the option to stop paying at any time.
This means businesses face the challenge of maintaining longer-term customer relationships. Failure to constantly delight customers is likely to result in them looking elsewhere. Options can include offering discounts for long-term subscription holders or making additional features available at no extra cost.
The role of automation
As businesses look to technology on their path to implementing subscription-based services, they’ll be wise to consider automating other internal processes to improve efficiency and reduce operational costs. Automation can help to reduce manual errors and ensure subscriptions are as easy to use as possible for customers.
Automation is also important when it comes to managing tax compliance when using a subscription model. Achieving compliance using manual methods is not practical and, as numbers grow, becomes essentially impossible. These challenges become particularly acute when a business begins offering subscriptions in multiple geographic locations. It is essential to comply with tax regulations in each taxing jurisdiction, which today demands tax compliance automation tools.
For instance, companies selling online into the U.S. are faced with managing tax compliance across as many as 13,000+ jurisdictions, thanks to newer economic nexus laws across U.S. states. It’s no longer a question of whether or not tax calculation and compliance can possibly be handled manually – technology is essential. By implementing subscription-based services technology that’s integrated with essential business applications including tax automation capabilities, businesses can streamline their operations and better manage risks associated with international expansion.
Beginning the journey
For a business embarking on the subscription revenue path for the first time, there are a range of critical steps that will need to be taken. The first is undertaking thorough market research to ensure there is sufficient demand for what the business will be offering.
A next step is to get finance and compliance teams involved in the preparations. This will ensure that the resulting offering will have the best possible chance of driving fresh revenue for the business and meet regulatory compliance requirements.
A business should then take time to carefully select the most appropriate software to support the new subscription model. This software needs to be scalable, reliable, and able to evolve as market conditions change. Work with a trusted technology partner to ensure the best choices are made.
At this point the business will need to confirm pricing for the new subscription offering before launching to the market. It’s important to carefully assess any competitive offerings and ensure the chosen price structure is in line with market expectations.
Constant evolution
Once the new subscription model is live, it is important for a business to constantly monitor its performance. As well as adjusting pricing, changes to elements such as the user interface may be required to make the service offering more intuitive for customers to use.
Attention also needs to be given to the back-end tech stack that supports the product or service being offered as well as the all-important billing and revenue collection channels.
By remaining nimble and constantly evolving to match changes in customer demand, businesses will be able to create and maintain a valuable new source of revenue that helps to drive growth in the months and years ahead.
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