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Subscriptions form the backbone of many SaaS business’ revenue streams. However, as important and profitable as they can be, the implementation of subscriptions is a complex process. There are multiple factors to consider, such as pricing, licensing, discounts and incentives for potential customers. With this in mind, FastSpring will be publishing a three-part blog series with the aim of highlighting the benefits, challenges, and ways to implement a subscription model. We’ll take a look at subscription trends in the market, as well as some of the advantages of using a subscription model.
Subscriptions are the Future
Over the past few years, there has been a huge increase in subscription services. More and more software providers are moving away from boxed products and towards a reoccurring subscription model. Why is this? What is causing the market to shift so heavily in this direction?
Although there is there is a case to be made for having a reliable, physical product in hand, the massive benefits of the subscription model cannot be overstated. And just what are those benefits? Chief among them are ease of distribution, reliable revenue, and a pro-consumer structure. We’ll discuss each one and see how they’re driving the market.
Ease of Distribution
Distribution has always been a challenge for the selling of software as a physical product. To do so, you’ll need to take shipping costs, buyer location, and cost of the product itself into consideration. Not only that, but customers will be expecting support for more physical shipping, and your business will need to repeat the process each time you release a new product. Depending on the popularity and success of your business, the costs and time spent on physical products can add up and impact your growth negatively.
The subscription model solves all these problems in one swoop. Without the need for a physical copy, you can ship your product instantaneously to your customers. Each subsequent release of your product will be in the hands of your customer in the same amount of time, guaranteeing that each of your customers will possess the same product. Depending on your business’ ability to accept and process payments, global markets may become more easily accessible. No longer affected by shipping costs, your business can then redirect its resources to other important areas.
One of the largest benefits of the subscription model is its ability to reliably predict revenue that your business will receive. This translates into a more consistent cash flow and a higher predicted value for your business. Subscription business models can be set up as a monthly or annual billing. Given that customer payments are typically tied to the credit card they used for the purchase, there is a much higher chance that the renewal fee will be approved and processed without any issues.
While there may be challenges in transitioning from a physical distribution system to a subscription model, the subscription model is ultimately pro-consumer. By continually updating and providing their base product, your business can ensure that customers do not have to worry about possessing an inferior or outdated product. By ensuring a customer’s product is always up to date, your business will, in turn, be building up a solid foundation of loyal customers.
The Challenge of Subscriptions
However, the benefits of the subscription model do not necessarily mean the system is without its challenges. Customer incentives to subscribe, retention, and cancellations are continual hurdles that SaaS subscription businesses must face. In our next blog, we will be discussing those very challenges and ways your business might be able to address them.