Blueprint for Subscription Success
It’s said that the only constant in the world is change. New business models supplant established practices, creating new opportunities to monetize existing solutions and new ways to meet customers’ needs.
The subscription model illustrates this concept, and its popularity and effectiveness have made it one of the fastest-growing e-commerce categories. Businesses that choose to add a subscription component benefit from a consistent recurring revenue stream as well as customer loyalty and ongoing insights that the subscription model can produce.
The advantages of the subscription model are not lost on today’s enterprises. Gartner, a leading information technology research and advisory company, estimates that 35% of Fortune 2000 companies generate revenue via subscriptions. Recurly’s recently published research on the 2016 holiday shopping season also demonstrates the growth and staying power of the subscription model, with shoppers spending more on subscription services (as measured by same-store sales) than on e-commerce in general. These purchase decisions showcase the convenience, efficiency, and sometimes sheer delight that subscriptions deliver.
Subscription businesses need to provide an excellent product or service, delivering a consistently positive customer experience to realize high rates of customer lifetime value. Operational excellence is an equally important requirement for sustained growth, especially in the form of an effective billing process to ensure continuity for customer relationships.
A critical first step to achieving operational excellence in billing is to build upon a strong foundation, one that is specifically designed for today’s high-velocity recurring-revenue businesses. The ability to scale, especially under peak loads and high volumes, the ability to capture revenue and also recover revenue from failed transactions, a highly secure environment and a robust infrastructure—these are crucial components that support growth. Businesses that choose a platform with these characteristics reduce the risk inherent in accepting payments and processing recurring transactions.
But recurring billing is complex and requires expertise in a number of areas. The customer experience is especially key, and excellence here is based on a variety of factors. This means providing a frictionless checkout experience via a straightforward sign-up process and a checkout page with a well-designed interface. Customer service teams also need accurate, easily accessible customer information so they can respond quickly to inquiries and issues. And the business needs to understand trends in the subscription lifecycle so they can anticipate what may best serve the customer and seize upsell opportunities.
Expertise in billing involves knowledge of regulations and taxation to ensure compliance, and high levels of security are crucial to successfully processing payments. Experience working with different payment gateways, payment types, and currencies is also required. Extensive billing expertise plays a critical role in minimizing churn, especially involuntary churn, where knowledge of how to rectify failed payments can make a significant contribution to the bottom line and help retain customers. Finally, in all the above areas, knowledge of accounting and finance requirements is critical to supporting efficient operations.
Recurring-revenue businesses are built around customer retention, but customer acquisition is vital to growth, too. Subscription businesses need expertise in determining the optimal offers and pricing. They also need flexibility in creating new plans and testing different offers, in order to understand which plans yield the customers with the highest lifetime value.
Subscription billing done well provides a genuine competitive advantage. Customers are less likely to churn when their payments are consistently successful. A frictionless experience also means higher customer satisfaction. And knowing that sign-ups and payments are being handled seamlessly and effectively allows a business to dedicate its time and resources to the strategic and tactical aspects of growing their business rather than to the billing process.
“The first rule of any technology used in a business is that automation applied to an efficient operation will magnify the efficiency. The second is that automation applied to an inefficient operation will magnify the inefficiency.” —Bill Gates
When it comes to business success, the formula is simple: address a customer need better than your competitors currently address it. But while the formula may be simple, the execution of that essential goal is anything but. How you will set up and operate your subscription business to deliver your product or service better—more efficiently—than your competitors is one key to your success. Automation of key tasks and the flexibility to adapt to changing demands, along with security and scalability can make the critical difference. Fast time-to-market lets you seize opportunities and gain a competitive advantage.
Modern enterprises need to be highly efficient. Efficiency in subscription commerce demands automated functions for key processes such as billing for recurring charges, calculating taxes, and processing payments. Automation reduces the time and resources needed to complete these and other tasks and increases the accuracy of your data by eliminating the possibility of human errors. All this adds up to savings in both time and money.
Finance departments require solutions that provide efficient and accurate revenue reporting. A subscription platform that integrates with leading ERP and accounting solutions such as NetSuite and QuickBooks Online is crucial, especially in terms of meeting revenue recognition requirements. Recognizing revenue in subscription businesses is complicated, and a subscription platform with automated tools to calculate these results can eliminate some of this complexity.
In e-commerce, transactions can fail for any number of reasons, and every time a transaction is declined, the business loses revenue. With subscription businesses, the problem is compounded by the fact that subscription revenue is recurring revenue. This makes effective management of billing and payments especially critical: any time a transaction fails, a customer can churn.
Subscription businesses need a platform that can solve many of the most common reasons for transaction declines. Every transaction that can be salvaged—by updating the card information for example, or other automated method—means more revenue gained or “recovered.” Handling declines programmatically eliminates the need to contact customers manually when payments fail, which is not only inefficient but also inconveniences the customer.
When considering a subscription management platform, look for a platform that provides robust, automated, highly effective decline management and revenue recovery tools that will increase your transaction success rate and minimize churn, ensuring you’re getting the revenue you’ve earned and keeping the customers you’ve won.
“The best way to stay consistent is to change with the circumstances.” —Winston Churchill
Where will your business be in six months? How about two years? Changes in technology or regulations, shifts in consumer preferences and behaviors, innovation from competitors, even political and cultural shifts—all these things can influence the market and your business’ unique position and value proposition.
Given that change is constant, the framework upon which your subscription business is built needs to be nimble and flexible. This will allow the organization to adapt to changing market forces, innovate, and make necessary adjustments quickly and easily. You also need to be able to easily create new subscription plans or update the pricing of existing plans to better meet customers’ needs or to react to changes in the market. Customer service teams also need to effectively manage upgrades and downgrades and accurately handle the associated pro-rating of charges.
Effective customer acquisition also requires creativity and flexibility. Perhaps you’d like to use coupons to offer discounts that will entice prospects or upsell to current customers. Perhaps you’ve decided that a different billing model will better align the value of your product or service with your customers’ expectations. Be sure that you have a subscription management platform that lets you readily make the changes you need to support growth.
The foundation which underpins your business, its systems and its environment, are like the foundation of a house: flaws, weaknesses, and poor construction can send the whole thing tumbling down. You need to build your business on a platform that is stable and secure, one that you can rely on to support your business every single day, especially those days when traffic peaks—for example, as a result of a special promotion or during an event streamed live around the world. A business needs to know that regardless of how much traffic or demand it generates, customers will always be able to sign up and access the service.
Subscription businesses also need a foundation that will meet not just today’s needs, but future needs and volume as well. The best technology platform in the world is of little use if, when the business needs to scale, the platform cannot support this growth. And not just support growth, but do so with ease, without it having to be completely reconfigured from the bottom up.
And of course, a solid foundation is one that’s secure, with tools, systems and a framework that aren’t easily compromised or corrupted. Recurly’s environment is PCI Level 1 and SSAE18 SOC 1 Type 2 compliant as a merchant service provider, and we maintain a highly available, N+1 redundancy throughout our entire infrastructure stack.
Successful businesses are able to seize opportunities and run with them. Whether moving off a platform that you’ve outgrown, transitioning an existing business to a subscription model, or launching a new subscription business, the solution you choose needs to provide fast time-to-market.
In the realm of subscription billing and management software, there are a breadth of options. Some are easy to get up and running but are not very flexible or feature-rich. Others have many advanced features and functions but are inflexible, bloated and “code-heavy,” with complicated data models. Many businesses have discovered too late that these systems often require many months and significant professional services fees to implement and are difficult to maintain and update.
Fast time-to-market is crucial to success in today's demanding business climate. Subscription business can’t spend months and months (or up to a year!) deploying their subscription software and integrating it with their other business systems in order to finally launch their business or transition their existing business to a new platform. A solution that’s easy to deploy is one that is created with developers in mind. It has an API that’s comprehensive, easy to understand, and that comes with well-organized documentation.
“The purpose of software engineering is to control complexity not create it.” —Pamela Zave
The ecosystem for business systems has changed over the years. The cloud, along with providers such as Amazon Web Services, have revolutionized how technology is brought to market. And rather than one all-encompassing solution, new, more lightweight and specialized point-to-point solutions are being built by best-of-breed vendors to solve specific problems. But, to create a system that’s effective and cohesive, all these solutions need to be integrated.
As mentioned, some billing systems are bloated, inflexible, and not easily implemented. They’re also difficult to integrate with the many available specialized solutions out there. And their complexity takes engineering resources away from working on other more strategic initiatives that would help the company grow. Instead, businesses need a system that’s lightweight and easily embedded into their existing architecture, providing multiple advantages such as streamlined interactions with other solutions, like CRM or accounting systems.
“Measurement is fabulous. Unless you're busy measuring what's easy to measure as opposed to what’s important.” —Seth Godin
Running a business well, making smart strategic decisions, and knowing that the changes you make are resulting in greater profitability—all this is dependant in large part by having accurate and easily accessible data and the ability to test, learn, and iterate.
You need to know which plans are succeeding, which are faltering—and why? Which prospects convert better—and why? Which customers tend to churn—and again, why? The answers to these questions provide the key to finding the optimal customer acquisition cost, improved customer lifetime values, and ultimately creating and maintaining a profitable, growing business.
This intersection of customer events, billing events, and marketing events provides critical strategic insights, but the data that provides these insights is often siloed in multiple separate systems. This makes getting the comprehensive, detailed data difficult, often requiring heavy lifting by a data analyst. But without such data, today’s businesses cannot compete effectively.
To make informed strategic decisions that propel growth, businesses need a subscription platform that provides this analytic insight. And not just data, but data with enough detail for marketers, product managers, financial analysts, and others to monitor trends, see results of promotions, and make necessary decisions that will continue to improve sales and revenue.
“Success is neither magical nor mysterious. Success is the natural consequence of consistently applying basic fundamentals.” —Jim Rohn
The key to success in subscription commerce is to eliminate the complexities of recurring billing while of course delivering high levels of customer satisfaction. Meeting the demands of rapidly changing markets requires a subscription management platform that's easily implemented so a new or transitioning business can get to market fast and seize opportunities. The platform should be nimble and flexible, so businesses can respond to market changes with ease. It should also support efficient, automated processes, be highly scalable, and designed for streamlined integrations with other solutions.
Strong decline management and revenue recovery processes are key requirements, as these help to ensure customer and revenue continuity along with customer satisfaction. Also critical are robust analytics that bring clarity to key metrics and provide insights on how customer, billing, and marketing events are driving the business forward.
And of course, any subscription management platform should be highly secure and stable, and be able to handle high traffic volumes. It should not just meet but exceed PCI compliance requirements.
A platform that meets these fundamental requirements will unlock the power of subscription commerce, unleashing a thriving, growing business.