How to Optimize the monetization of your subscription?

Monetization

ILIAN SETHI

Approx. reading : about 8 min

Monetization of subscription and usage : crucial factors

“The subscription economy” is a term originally developed in the United States and since then picked up by many media and organization, describing a growing trend in most industries where traditional purchasing of product / service mechanism is turning into subscription/usage-based business model. Hence one-time revenue is shifting to recurring revenue.

This recurring revenue can become fragile if the company does not consider changing and adapting its monetization strategy, in particular the way the product/Services are priced now that the revenue is no more based on short-term billing. 

As such, price management is an even more essential factor in the frame of the subscription economy than it is into traditional market models based on the transactions (orders and quotes mainly).

In this article, you will learn what factors are decisive for succeeding with regards to subscription or usage monetization!

A business model that is truly booming

This subscription economy has emerged due to certain changes in market conditions, with digital technology being the main catalyst that has paved the way for new business models.

For example, cloud-based software lays the foundation for continuous analysis of customer usage and behavior, enabling vendors to better understand customer needs and the value their software provides in meeting those needs. Sensors, mobile, cloud, blockchain and IoT create unparalleled amounts of data, enabling the creation of new customized services with different offerings and pricing models.

At the same time, customers who move from purchasing items to experiences of uses demand instant and permanent access to these services and, therefore, growth is achieved by developing and monetizing flexible value proposition based and long-term relationships .

If native digital companies like Amazon, Netflix, Spotify, Salesforce, and Adobe have opened the way, the recurring-based pricing model is growing into almost every industry:

Example of business having implemented subscription-based business

The main reason of that comes from the benefit that both the customer and the company get from this long-term relationship. Indeed, succeeding in the subscription-economy implies that the company change its business approach with a greater focus on the customers needs to be able to satisfy them longer and better. The sustainability of the revenu for the business depends on it more than ever.

Monetizing subscriptions implies sustainable customer focus ...
"the radical way"

As a growing number of businesses are implementing subscription-based value proposition, more and more of them realize that selling long-term benefit embed into subscription plans is not the same than doing one-time quote to sell a product.

Whether these companies have had subscription experience for many years or are in the process of gaining that experience, there is a need to understand the drivers behind successful monetization of subscription.

The following notes should be able to help you distinguish what makes the great difference between doing OK and doing great with regards to monetization :

1. As-a-service monetization implies sustainable customer relationship that then implies some changes in the organization

The business focus shifts from creating traditional “successful products” to increasing CLV Customer Lifetime Value. As a consequence, it remains crucial to understand the current needs of the customer but more importantly it becomes critical than ever to track their changes along the journey. 

Companies that are subscription-based business consider the customer relationship as a continuum where the service offering – i.e. the subscription – will evolve with the customer, ensuring that value is generated for the long term by constantly focusing on the benefits of use for the client to thereby stimulate / extend the CLV.

This is the reason why new positions are appearing inside the organizations and in particular a new role that has become central and booming :  Customer Success Managers (CSM).

CSM are the voice of the customer inside the organization. They are focused on tracking the value that the customer get from the use of the product/Service constantly. These profiles are responsible for helping Product/Marketing Managers develop, improve and update value proposition and pricing strategies based on their intimate knowledge of the customers’ needs (especially in B2B).

CSM role did not exist back 5 / 7 years ago. Monetization is less good when no CSM are in the organization. Because being in touch with the customer at the exact moment requires specific activities and 100% focus on this, it is not possible to just rely on sales or support.

The learning is : CSM role emerged recently but rapidly, it demonstrates how agile and creative any organization must be to optimize its response to the challenges of a shift in monetization. 

We would recommend you investigate how well your organization is with regards to this question in order to optimize monetization opportunities.

2. Frictionless - The quality of user's subscription journey is a key to unlock monetization opportunities

Optimal monetization means optimal retention ! 

Understanding the user’s journey is essential to ensure customer growth, satisfaction and more importantly retention. Unlike licensing models which require a sometimes expensive upfront commitment that give the insurance your customer will not leave that easily once the deal is closed, a subscription-based model allows customers to try the service ahead of time very often – Then if the experience doesn’t meet expectations, customers will look for better alternatives shortly. 

As a consequence, the service must bring a positive customer experience IMMEDIATLY at the subscription. It implies for your business to be good at the way you onboard your customers. As a result,  even the initial subscription / onboarding process, made of registration, data collection, payment check-in, pre-billing etc… , must be as great as possible. 

This makes a big difference with the traditional order-to-quote process. In this transactional context, there is low impact on retention when your orders, quotes and so-on are average with regards to the experience.

In fact, a frictionless subscription process must be part of your value proposition when you are a subscription/usage-based business. 

I am sure you got he point that a smooth onboarding process is critical at initial susbcription but let me tell you that it remains as critical along the journey if your goal is to get the most out of your upsell / add-ons monetization opportunities later in the relationship.

Frictionless should become one of your keywords when managing your operations.

3. Focus on the added value resulting from the use of your solution, not on the features

When you seek for optimal monetization in the subscription economy, your Marketing and Sales pitch has to shift from presenting features to highlighting usage value and user benefits. 

What matters here is the purpose connected to the use and not the product as such.

However, customers are not always able to easily translate your features into value on their own. It is up to your teams to make the effort to explain the purpose of their offering and why they are going to solve the problem. their client’s problem. 

Hence, it is critical that your team is well prepared with communicating the value proposition in the right way. It is equally important the team is comfortable with the way the pricing has been build and understand perfectly the logic behind the tariff. 

Once understood by the users, this difference between product and usage becomes a real added value that can be quantified in financial terms.

4. Track relevant KPIs to drive monetization

Measuring economic and financial performance needs to be reshaped.

To assess the performance of your subscription plans, retrospective KPIs such as sales or order volumes will be replaced by measures of portfolio value such as:

The revenue retention rate is often underestimated while it is a really interesting indicator.

Indeed, it also helps to determine to what extent new customers buy additional services:

There are a large number of additionnal metrics that often are new for less experimented teams but crucial in steering the subscription business.

It is important that your teams master the business metrics as well as their evolution.

Managing the dynamic of your pricing (or not) makes a major impact on monetization performance

Last, but not least, the role of pricing is changing. 

In the traditional context of selling product, the price positioning depends on the competitive context at the time of the negotiation. The discount / bonus strategy is very dependent on the purchasing capabilities of the customers.

In a subscription-based business context, it’s very different.

The configuration of the service provided and the duration of the contract are all factors that will influence the price. This price will also evolve dynamically depending on the options subscribed by the customer throughout the contract and not only on the day of the commercial release.

Finally, in a subscription-based model, the price cannot be determined once and for all. It must constantly evolve taking into account the life of the contract. 

This is why the permanent relationship with the customer and the intimate knowledge of his uses is crucial. With better insight from customers’ behavior analysis, teams that are in charge of defining the right price of a subscription plan better understand the value they bring to each customer and strive to fully capture it through constant price optimization.

The definition, flexibility and relevance of pricing is an increasingly important discipline for every company whose business model shifts to subscription, usage, SaaS or “as-a-service” in general.

DOTSHA delivers a subscription management platform that will allow you to configure any type of pricing model from the simplest to the most complex. Thus, your marketing and finance teams will be able to design and deploy unique pricing solutions on the market in just a few clicks in order to deliver your customers with an unrivaled balance between cost and value.

About DOTSHA

dotsha delivers the first subscription-to-cash automation platform designed to put every subscription-based or usage-based business on autopilot … from early subscription to cash collection!  

Your business can scale fast without turning its back-office into a mess! 

Keep growing faster… we’ve got your back !

All-In-One platform that unify {Pricing}+{Check-in}+{Billing}+{Payments}+{Dunning}+{Reporting} while the MRR just keeps growing, dotsha’s plaform is an easy to use and quickly implemented cloud-based platform that augment your existing information system with robust API integrations in order to deliver optimal automation with minimal code. You will forget we are there!

ILIAN SETHI

Approx. reading : about 8 min

Keep your brain constantly refresh by new perspectives that relates to the future of your business.
Our content will help you to explore new areas of good practices.
Join our community of readers, it’s free!

What will you receive in your inbox?