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30 June

Transition into subscription business model

By Julianna Sykutera

When observing the market trends you may notice that a significant number of companies have switched from purchase to the subscription business model. It’s very common to move in this direction since many advantages the model possesses which was detailed explained in the article:  One time-payment vs subscription based business model. Which one is better for you? You as a founder may also want to undergo such a transition and below you can read about things you should keep in mind during the process. 

In the beginning, the revenues go down

The subscription model works in a way that at first, your money income decreases. This drop occurs, however with a purpose and it is to soon achieve financial stability. You need to understand that this process is gradual but eventually people will choose if they want to go with the change or not. Also, think about how you want to inform customers about the switch. It can be done using social platform accounts but a blog post is usually not enough. You need to understand the importance of underlying the benefits customers may gain by the new model.

Current customers’ needs matter the most

What’s more, explain that the focus won’t be on gaining new clients but on satisfying the needs of current customers. Next, mention about updates which from now on will be released regularly. Lastly, encourage customers to take part in the development of the product by suggesting new options or functionalities it can have. In the case of YouTrack, new ideas are added in the special project. This way a new user can check what functionalities the app has before even starting paying for it. For instance, how often the updates are made and what kind of community is built around the product. The information process must be done carefully and is very important because it decides about one’s loyalty to the brand. If your company withstands the first stage of transition then we can move further. 

How do I know if my business will sustain recurring billing?

Start with your product. See if it can serve someone as a necessary work tool? Your product has to be something that people use regularly and not just once a month. Otherwise, they soon withdraw from the subscription. To see how customers use your product you should focus your target audience and brand positioning. The marketing strategies that include pricing, promotions, packaging, and competition as well as their results. Everything to make a positive impression in customers’ mind. They have to feel the connection and desire associated with your brand to start using the product more often. Here are 6 steps to perform successful brand positioning. In general, founders are afraid that their companies won’t make it to the last stage of the transition. They have a fear that it will take years to successfully make a change. However the truth is, you need three elements to achieve it quicker. Withstand the short-term income decreases and match the subscription offers to the needs of the target group. Finally, give your sales force real motives to sell subscriptions.

The building of the payment system

Deciding on changing the model is one thing, building of it is another. It’s not easy to set up working subscription functionality on your own. It’s not only a matter of money but you have to find the real IT specialists to be provided with such a system. And trust me it has to be a good one, made to favour mostly your customers. A Little Bundle is a company that supplies mums and babies with boxes of goodies. They were provided with the payment system but it wasn’t a perfect one. Customers still had to email the company if they wanted to make a change in their order or payment details. It means that there was a person whose job was to make sure the changes were introduced into the system. It shows that faulty functionality leads to tedious hours of work that could be simply avoided with the help of a good team of developers.  

Okay, I have the payment system ready.. What did I miss?

Your system is based on the availability of credit cards and we all know what can happen to them. A credit card can be lost, stolen, expired, changed or they can possess a certain spend limit. All the above situations directly affect your company as somehow you don’t receive payments from users’ accounts. You can’t just leave it like that. It means you need another part in your system. It would be responsible for checking the cards and monitoring their expiration dates as well as setting up bots sending email reminders. Sometimes the payments are declined and you need to be able to verify such situations to take actions. For instance, stop the delivery of services for the suspended accounts.

Automatization is the key

If you’re smart you won’t hire people to do that. You will invest in building an automated system which will constantly control the accounts as well as the payments. As you can see, making sure that the money will be paid on time is hard work. However, as a founder, you should focus on other aspects of the brand and leave such issues a good CTO (chief technology officer).

What else will change?

After switching the model there are several issues you have to be aware of. Now you are dealing with a different system in which the focus is put on the relationship and experience with customers. You have to take care of your current clients because that’s the only way to keep them paying monthly for your services. What does it mean I need to care about them? It means communication is key now as well as trouble-free updates of your product. You are expected to hear about their suggestions for premium options cause if they pay, they want it to be worth it. A chat support team would be a handful. Your loyal customers deserve to be able to report a problem any time they have one. To please the audience your platform should be available on both iOS and Android systems. You can easily provide the two versions using React Native. And from now on, new versions of your app won’t be the major one. Those will be rather smaller improvements released through regular updates. 

Is subscription business model worth it?

It’s not a coincidence that the subscription model has dominated the market and suited so diverse companies. Software as a Service businesses have certainly more to offer and the ability to manage costs as well as the flexibility of the model is what attracts the customers. Knowing that, if you stay with up-front payments you have to compete with companies that do offer subscription and you may not survive this. From the examples of Adobe or PTC , we can assure you that the transition doesn’t have to take years but can be performed smartly and benefit your customers and your brand.

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