8 Ways to Optimize Your Subscription Business Model

August 28, 2019

8 Ways to Maximize Revenue in the Subscription Business Model

Running a successful subscription business means maximizing what you’re earning from every customer. Fortunately, there are several techniques you can use to increase revenue, enhance retention rates, reduce churn, and ultimately boost your profit margins. We’ve shared some practical approaches to help you boost your customer numbers and subscription charges so your business can continue to grow and thrive.

Every subscription business is unique, whether you’re offering a SaaS tool, a subscription box, a membership, or some other type of product or tool. Regardless of the type of subscription business you run, there are two critical, related areas that should always be top-of-mind: customer retention rate and churn risk. 

A successful subscription business model doesn’t just attract new customers, it keeps the ones it already has. The approaches below do focus on maximizing retention rates, but implemented well, they’ll also help you attract and convert new customers. You’ll need to customize each approach to your specific business, but try them one at a time, see what works, and build it into your operations. 

Identify, Measure, and Analyze Your Customer Retention Rates and Related Statistics

Subscription business models have a substantial advantage over other types of businesses—data. You can gather all sorts of information about customers, from demographics and firmographics to sign up periods, and from sales team approaches to retention rates. Identifying your key performance indicators for customers and analyzing how they translate into revenue is critical to tweaking and optimizing your subscription business. 

Carry out a deep analysis on the statistics that matter and tie them back to churn and retention rates, likelihood of signup, ongoing revenue, and lifetime value. Establish a good benchmark across your business, and each time you make a change, understand how that enhances or damages your baseline. That way, you can tweak approaches and initiatives over time, always driving toward the changes that have the greatest impact on your revenue.

Offer Multiple Price Points for Subscription Services

Pricing psychology is as important to subscription businesses as it is to traditional or online retail. One way to take advantage is to offer three or four price points for your subscription services. That helps you to “anchor” the price, making it more likely that a subscriber will choose one of the options. Be careful not to offer too many options though—analysis paralysis, where you give consumers too many choices, can result in them not making a choice at all.

Lock in Customers for a Longer period

One way to significantly reduce churn is to lock customers in for a year, rather than a month. Although you’ll typically offer a lower price point if a customer subscribes for a year in advance, that slight loss of revenue can be offset by the knowledge that you’ll have a guaranteed subscription for longer. As part of your analytics, be sure to understand how and why a customer churns after being locked in for a year, versus your month-to-month subscriptions, and where the break point is in terms of offering discounts. 

Train Your Subscription Sales Team in Best Practices

The sales cycle for ongoing, subscription software is often longer than for one-off purchases of products or services. Make sure that you provide proper training to your sales and relationship management teams and carefully track successes within your CRM software. Look at the successful techniques that your sales team uses to close deals, and tweak and refine those approaches over time. Experiment with different outreach methods and communication, and split test different sales approaches to see what works best. 

Cross-Sell and Upsell Within Reason

Your sales team will need to strike a delicate balance between providing good value to your customers and promoting and upselling other products. Identify where your services can add more value for your customers and get your sales team to engage and promote those benefits. It’s important not to oversell your products as this can result in your customers feeling like they’re just being marketed to. 

Invest in Continual Improvement and Innovation

The best subscription businesses never stand still. Use analytics from your subscription service to learn where and how customers are using your products. Identify what’s working well and what you can improve. Talk to customers directly to see what they do and don’t like about your products. Dedicate part of your development resources to continual improvement—making small, incremental changes over time that gradually improve the value of your product or service for all users.  

Invest in Customer Success Outreach

Customer success helps users get more out of your tools. Ideally, you should have a dedicated customer success team, or build it into your sales team as a best practice. Setting up a customer success function means identifying the unique needs of each customer and then creating resources, guides, and relationship management tools that help them meet their needs. Clearly demonstrating the value of the tools and services you offer is a great way to reduce the likelihood of churn and boost your customer retention rate. 

Provide Best-in-Class Customer Service

The biggest “moment of truth” for your customers is likely to happen when something goes wrong. That’s when you need an awesome customer success team that can focus on getting your customers up and running as quickly as possible. This means investing in the best customer success agents, giving them the right technology to track and resolve issues, and training them in effective, proactive communications aimed at moving the customer along the product adoption maturity curve. You’ll also want to link your customer success function into continual improvement, so you can identify common issues and develop solutions to mitigate them. 

Using these approaches can make a huge difference to the success of your subscription business model. Implement each change, one at a time, and track the difference that it makes. That way, you’ll always build on a successful foundation that will help you retain existing customers and sign up new ones as you continue to grow. 

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