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Subscriptions Models: A Powerful Recipe for Growth

by Mark Adams, on 20-Jan-2021 15:01:49

The subscription market is growing strongly and rapidly. As it does so, it is clear that there are opportunities for all types of business and others to take a share of this growth to boost both income and profits.

A Booming Market

According to a forecast by MarketsandMarkets, the global subscription and billing management market will grow from $4.0 billion this year to $7.8 billion by 2025.

This forecast came as part of a report that was published in March 2020, before the COVID-19 outbreak had really taken hold. But it appears that, in spite of the global economic slowdown resulting from the pandemic, many subscription businesses are thriving.

The allure of the subscription business model has been particularly apparent in the tech space. According to advisory firm EY, “Over 90% of technology companies are embracing subscription or consumption business models.”

As the subscription business model becomes more prevalent, there is a corresponding growing need to manage subscriptions in a scalable and effective way.

Why are Subscription models so complex?

Subscription business models have inherent features that make them more complex to manage than one-off sales. In addition to the sales price, cost price and shipping cost that you traditionally have when you sell a product, there’s additional metadata that surrounds a subscription sale.

This might include: the renewal date and terms; whether it can be updated, upgraded, downgraded; if users can be added or removed; the payment frequency, and so on. Needing to keep track of all this metadata makes it harder for companies to deliver against this model, especially where that is multiplied at scale. With perhaps thousands of customers, each with several subscriptions, possibly changing every month, it is challenging to scale a business like this. But subscription management helps harness all of this and simplifies and streamlines everything. 

What’s Driving the Move Towards Subscriptions?

Cloudmore CCO, Mark Adams, points to growth of the “hive” economy as a driver. He says, “Product manufacturers are becoming invested in how their products can be used and developed by the application of software. But they no longer want to just supply the products; they also want to be involved as software providers, so that they can benefit from the added value that is being generated. This growing servitization of products is ably served by the subscription model. And being able to sell like this through existing global distribution channels requires a platform to manage and support that.”

What are the Benefits of Subscription Models?

Ultimately, the true value of a subscription comes in the long term. Companies from all sorts of different verticals are becoming involved in subscriptions, mainly because they get a consistency and persistency of revenue.

Generating a predictable recurring revenue, rather than income from one-off sales helps with cash flow management. Having a steady income avoids cash flow problems and gives companies access to investment cash if they need it.

Subscription models present better opportunities to build a loyal customer base. These long-lasting relationships are also more likely to generate extra revenue, derived from cross-selling or upselling opportunities.

Companies using subscription management platforms can effectively develop their products and offerings over time. Because of the ongoing relationship with customers, they have multiple touchpoints with their client base that allow them to determine customer needs and to anticipate future requirements. In this way, they can manage and improve their service according to customer feedback. This can avert cancellations and improve customer loyalty.

 Businesses running subscription models tend to achieve higher margins and see far greater valuations – “Five, 10, even 15 times higher,” according to Mark Adams. Subscription billing business models are highly prized by investors, who recognize the financial potential and value of having long-term, profitable and ongoing relationships with customers.

What’s the Future for Subscription Management?

Companies using subscription management systems maximize revenue potential, see greater customer lifetime value, and have better cash flow and higher valuations. The prospects for those companies employing the business model are amazing.

According to predictions from analysts IDC, by 2022, more than half of all software revenue (53%) will come from subscription models. That’s a little over a year away.

To leverage the available opportunities, companies looking to subscription billing models will need to employ a reliable subscription management platform, to simplify and automate subscription management.

You might also be interested in: How Cloudmore Can Help You Leverage Subscription Commerce

 

Topics:Subscription management

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