Subscriptions form the backbone of many SaaS business’ revenue streams. However, as important and profitable as they can be, the implementation of subscriptions is a complex process. There are multiple factors to consider, such as pricing, licensing, discounts and incentives for potential customers. With this in mind, FastSpring is publishing a three-part blog series with the aim of highlighting the benefits, challenges, and ways to implement a subscription model.
The risks and rewards of subscriber retention
In our previous blog post, we discussed the market trends towards and the benefits of a subscription model for SaaS companies. In today’s blog, we’ll be focusing on the challenges your business might face in implementing a subscription model. Specifically, we’ll take a look at discounts and free trials, two of the ways to increase incentive to subscribe.
Incentives to subscribe
It goes without saying that every subscription service needs plenty of subscribers in order to be sustainable. But the process of acquiring those subscribers is often time consuming and expensive. Many potential first time subscribers might be unsure or worried about the value of your subscription service, depending on the price you set. However, there are incentives that can be put in place to encourage potential customers to subscribe to your service.
One primary way to incentivize your customers is the introduction of discounts for new subscribers. For example, you can choose to offer a 35% discount to new subscribers (or for a limited time). Feeling like they are risking less, customers who might have otherwise been unwilling or unsure about subscribing, would be highly incentivized to try your service. It is important, however, to consider your entire subscriber base when you offer discounts. Offer too heavy a discount for too long, and you risk alienating or angering your existing subscribers who do not receive the discount.
Another way to encourage new subscribers is the introduction of the “Free Trial.” That is to say, offering your product/service for free, for a certain period of time. Many businesses shy away from the practice, and for understandable reasons. In most cases, potential subscribers who are in the middle of their free trials are not yet sales. There is also the risk that people might try to abuse the free trail system (such as producing multiple accounts) in order to receive a free product or service.
Even with these risks, the significant advantage of the free trial system is that you stand to increase your potential customer base by a large amount. Free is a powerful motivator for potential customers to try something new. And by offering your subscription as a free trail, you are removing the cost as a barrier to entry. Just like discounts, you must correctly manage trial length and marketing, or else risk getting little return on your investment.
The hidden challenge of Subscriber Notifications
A relatively little known challenge of the subscription model, is the decision of when to let customers know their subscription is renewing. A clear benefit of the subscription model is its ability to automatically renew. Often enough, if they’re not notified beforehand, customers may forget they have subscribed until after they’ve been billed. This presents a challenging dilemma for any SaaS subscription service. On the one hand, these cases of “forgetfulness” offer increased revenue, and subscribers who might consider leaving are encouraged to stay. On the other hand, not notifying your customers until the last minute risks angering them, and driving them to unsubscribe. It’s critical to strike a balance between notifying your customers so they feel they’ve been informed, and to not do so in an overt way.
Next time we'll be sitting down with Mike Wozniak, co-founder and CEO of SoftwareKey.com, to discuss effective ways to control subscription software licensing.
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