Software providers have been moving away from one-time downloads and toward a subscription business model for the past several years. This can be a win-win for both the seller and the consumer because a subscription model can be highly beneficial for both parties.
SaaS Companies are a Better Investment
The biggest advantages of subscription revenue: more consistent cash flow combined with the ability to predict recurring revenue—whether monthly or annually.
This usually means that the company is valued higher, according to John Warrillow, creator of The Value Builder System, who states, “The more guaranteed revenue you can offer a potential acquirer, the more valuable your business is going to be.” He also noted, “Because a high percentage of the revenue of a subscription-based business is recurring, its value will be up to eight times that of a comparable business with very little recurring revenue.”
Based on a predictable recurring revenue model, subscription-based companies can:
- Calculate the lifetime value of a customer
- Analyze the cost/benefit ratio of new customer acquisition and retention
- Manage inventory
- Simplify pricing models
- Quickly respond to software “issues” with downloadable updates
- Offer incentives for add-on purchases
Improved Customer Loyalty
Subscription-based pricing allows providers to constantly improve their product and offer software upgrades to users through web-based downloads. This benefits the provider because it builds customer loyalty while saving the provider tech support time spent with unhappy customers who may be using software incompatible with current operating platforms. If the customer is on a subscription and is sent emails urging updates, it lowers the chances of using out-of-date software.
The Price is Right
Attracting customers and keeping them can be challenging in any business, subscription-based or not. Subscription can be a great “try it before you but it” way to attract buyers.
Many SaaS companies offer a free or low price option for a basic subscription package, and, if the customer wants it, adding additional features onto that package for an extra charge. Determining the correct pricing for subscriptions depends on your product and user base.
Tracking subscription payments requires time, software, and staffing unless the provider decides to use a third-party service to handle the new functions. And it is important to note that subscription management goes beyond pricing—there are customer service issues, technical support, and licensing questions. A subscription management solution, such as the one offered by FastSpring, can provide the ability to offer its customers faster access to software updates, easier set-up, and lower initial costs.
FastSpring’s platform provides an all-in-one solution for subscription management that includes powerful subscription notifications that can be customized, localization in multiple languages, and an array of payment methods supported in more than 15 currencies. FastSpring also offers a wide variety of recurring subscription cycles, reporting, prorating, free, or paid first periods.
Learn more about transitioning your business to a subscription model on our FastSpring Subscription Management page.