Blog / InspirationWednesday, June 3, 2020

How to build a business using a subscription business model

Anne Egdal

How to build a business using a subscription business model

Using a subscription model is a fantastic way to help you compound the value of your customer relationships. Rather than working hard to get customers multiple times if you want them to make repeat purchases, a subscription model allows you to acquire the customer once. If you provide value and make the customer happy, you will keep getting revenue from that customer with no added acquisition costs.

Recurring revenue from subscriptions means higher income, better profits, and stronger relationships with your customers.

How can you build your business using a subscription model?

Set Your Pricing Per Your Business Goals

Businesses that succeed with a subscription model do so from a foundation of knowing what they want to achieve.

What are your business goals?

Are you looking to grow quicker? Do you want to reduce churn? Are you looking to increase your customer lifetime value (CLTV)?

Once you know your goals, you can then set your pricing based on what you want to achieve. You will be more easily able to define buyer personas and develop pricing tiers based on different user needs.

Focus on User Experience to Increase Acquisition

You can build a fantastic SaaS platform. However, that isn’t worth anything unless people subscribe to use it.

Offering an exceptional user experience when using your website will make customers want to sign up quickly and can also increase what they're willing to pay.

Think about it.

If you went to a website that looks unprofessional, would you trust that the SaaS platform it offers is going to be worthwhile?

An added benefit of focusing on acquisition is that you can offset what customer churn you do have. Although of course, you want your churn to be minimal, too!

Have Multiple Acquisition Channels

It’s a given in today’s world that most people will spend 100% of their time in your sales funnel, including when they convert, online.

However, that doesn’t mean online should be your only acquisition channel. You should even consider online in different contexts. For example, can your customers easily convert across different devices like laptop, tablet, and mobile? Does your mobile strategy include WhatsApp marketing or some other form of SMS marketing?

You should also be able to achieve assisted sales. A telephone number is an old school but a great way for potential customers to contact you directly. At the same time, having a live chat function has been shown to have a positive impact on conversion rates.

Using customer relationship management (CRM) tools will help you to nourish leads and make the most of having multiple acquisition channels.

Streamline the Billing Process

A complicated billing process is a 100% guaranteed way to turn customers away.

Customers like things kept simple, with minimal input fields, and ease of switching tiers or unsubscribing when the time comes.

If you want customers to subscribe to your SaaS platform, make it easy for them to do so!

Have the Best Possible Customer Relationships

Businesses earn recurring revenue on the foundation of strong customer relationships.

Strong customer relationships go beyond keeping your service online and working 100% of the time. You need to remind customers about the value you offer and the features of your SaaS tool. You need to ask customers what you can do better, and what they would like to see added to your platform.

When you have a strong focus on customer retention as well as acquisition, you will start to see strong business growth.

Understanding your buyer personas – remember them from when you set your goals at the start? – will be key here. When you know the customers you want, you know what it will take to keep them happy. You can also manage their expectations.

A bonus here is that you bring your marketing and sales activities closer together. A lack of connection between departments can undermine business growth efforts. If the customer is the center of everything, everyone is pulling in the right direction.

Measure and Act on Business Metrics

If you’re serious about building a business using a subscription model, you need to know your metrics!

More importantly, you need to be acting on what those metrics tell you.

Learn about the business metrics you should focus on here at Upodi.

When You Add a New Development, Change the Price

Customers who subscribe to SaaS platforms are typically happy to pay more if the product is excellent.

The SaaS marketplace across all niches is fast-moving. To keep up, you will be continually working on adding new developments and features. You'll be telling your customers what you're doing to be better than your competitors.

What you shouldn’t be afraid to do is to raise the price or change your pricing tiers.

SaaS customers aren’t stupid. They know that adding new features cost time and money. If you’re able to show how these add tangible value to your customers and their businesses, they’ll pay for them!

Use Free Options as an Acquisition Tool, Not as a User Tier

Freemium and free trials are standard features on SaaS platforms across various industries.

Our advice would be to avoid offering freemium and other "always free" pricing tiers. Instead provide a no restriction, free trial that highlights your product.

If you offer a freemium choice, customers might decide this is enough for them. You then have costs associated with maintenance and customer service without any prospect of making any revenue. With a free trial, a customer can experience the value you can provide, and decide if they’re happy to pay for it.

Ensure you use your free options for acquisition and upselling, and not an opportunity for customers to use your resources without you ever seeing a cent.

Give Customers a Choice

The one size fits all model is unsustainable for many subscription businesses today.

While platforms like Amazon Prime charge a flat fee, the business model itself is straightforward. There's no limit on how many times you can get free next day delivery. While there aren't different tiers, customers do have the choice of saving money by paying annually.

This will come back to your buyer personas again. If your SaaS platform only has one identifiable buyer persona, you need to do some work to broaden its appeal.

With many buyer personas, you will be able to work out the different pricing tiers you need to offer so customers can choose the most relevant to them.

Don't bundle all your customers into one. Use your value metrics to demonstrate how you give customers what they're paying for, and allow them to pay the amount that will provide them with the best value for what they will use.

Building Your Business Using a Subscription Model

Subscription models are the best way to earn recurring revenue and grow your SaaS business.

Ensure you focus on the tips we have given you here to give yourself and your business every opportunity of being a success.

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