It’s safe to say that in 2022 almost everyone you know is subscribed to some sort of service. Whether it is a streaming service or a jewelry box, subscriptions have dramatically changed the way in which people consume products. The subscription business model is here to stay, and, what is more, it’s likely to grow steadily. Subscription-based e-commerce grew over 100% year-over-year between 2013 and 2018. According to Gartner, 75% of B2C companies will offer subscription services by 2023.
Why do companies choose the subscription model?
The subscription business model offers indisputable benefits to organizations, predictable revenues and building strong customer relationships being the most impressive of them. If you’re interested in rolling out a successful subscription business, apart from having a clear idea of what you’re going to offer, you also need to do deep research into your competition and target audience and create an attractive website that will be sure to drive users and streamline the billing process. Creating a website for your subscription business has now become more straightforward than ever before. Everything you need to do is to select a subscription website template that will best match your concept and upload the pics and descriptions of your offerings.
What is subscription billing?
Subscription billing is a charging method that allows businesses to collect payment from clients on a fixed schedule automatically. Typically, subscription billing takes place via automatic online payments, making billing cycles really easy to manage.
This requires the users to sign up for ‘auto-pay,’ thus allowing the vendors to access their payment data and charge their accounts. Businesses can invoice annually, quarterly, or monthly based on what kind of service or product they offer as well as their business needs.
Benefits of subscription billing: businesses
Fixed cash flow
Subscription billing allows organizations to predict the upcoming revenue accurately and use this information for more efficient cost management and adjusting business development strategy.
Repeat customers growth
Subscription billing suggests that organizations automatically have a pool of repeat customers. Without a doubt, this is an enormous advantage in terms of customer acquisition cost.
Streamlined billing
Automated payment processing eliminates the need to control customer payments constantly. Instead of reviewing payments at each billing cycle, it’s enough for companies to have the customer’s permission to charge a set amount at set intervals.
More cost-efficient processes
It goes without saying that automation also means lower processing costs.
Benefits of subscription billing: customers
Predictable expense
Obviously, it’s pretty convenient for the customers to know how much money they spend on the product or service each month, making budget planning more straightforward.
Extra convenience
Next, consumers derive convenience in each part of the subscription billing experience. Apart from having regular access to a product or service, customers don’t need to take care of the payment process and save themselves from the headache of forgetting to pay their bills.
Eliminating penalty fees
Again, with automated billing, consumers are deprived of the frustration of receiving a bill and forgetting to pay it on time. There are no late fees to cover.
Subscription billing models
B2C subscription billing
A B2C subscription model suggests that the customers start a relationship by making the first payment for a product or service, notified that they would be automatically charged on a fixed schedule. Once the initial payment is processed, the organization allows the user access to the platform or ships products that match the chosen subscription tier.
Today, B2C companies usually opt for one of the following subscription pricing models:
Flat-rate pricing
This subscription model charges consumers a fixed fee monthly or annually for all features and all levels of access. For instance, consumers who subscribe to the New York Times pay a flat rate per month or year. This pricing method is easy for consumers to understand and for companies to handle. When businesses want to enhance their offerings by adding new features or items, they simply raise the fee for the recurring subscription.
Tiered pricing
Businesses offer different packages with different features and product combinations at different price points within a tiered pricing model. Most typically, subscriptions have two to three pricing tiers. Higher tiers suggest access to additional functionality, more products, or advanced customer service. For example, Netflix offers three tiers to its users: Basic, Standard, and Premium. The Standard offers users to watch unlimited TV shows and movies on two screens, while the Basic allows subscribers to use only one screen. In addition, Standard enables watching movies in HD. The Premium plan will allow you to use four screens at the same time and watch movies in Ultra HD.
B2B subscription pricing
The subscription-based model is also getting increasingly popular in the B2B world. Most typically, B2B companies offer subscription memberships for accounting software, design services, cloud computing platforms, and marketing automation tools. Including flat-rate and tiered pricing, B2B subscription pricing models often entail the following approaches:
Per-user pricing
Within this approach, pricing scales evenly along with the number of users. Per-user pricing is easy for customers to understand, significantly simplifying the sales process. For example, Canva, an online graphic tool, charges users on a per-user basis for using the product.
Usage-based pricing
Usage-based pricing is more typical of telecommunications companies and IT services. Consumers are charged depending on how much of a product or service they use. A simple example: if you download 10GB of data in a month, you’ll be charged for exactly 10GB.
Final Thoughts
Choosing the right billing approach requires a lot of research and analysis, and pricing is a permanent process that needs to be revised as your business grows. Today, it’s easy to manage the subscription billing process thanks to customizable platforms like Subbly that can adapt to any pricing model.
