Subscription pricing models have had a significant impact on our lifestyles in recent years. First taking hold with consumers through video streaming services such as Netflix, car sharing platforms, and meal prep deliveries, we are now starting to see this trend migrate into the B2B market.
Adobe launched its own subscription service, Creative Cloud, in 2012 and watched their revenues shoot up 44% in 2015. Salesforce, one of the fastest growing companies in the world, has done an outstanding job of implementing subscription billing within its loyal customer base. And leading research firm Gartner has predicted that by next year in the software industry, every new business and 80% of established vendors will offer a subscription pricing model. The advent of cloud-based technologies has been a key driver of this trend, significantly reducing the need and demand for on-premise services that can be costly to implement upfront and maintain over time.
What does this shift mean for your business and customers? How will you continue to deliver an exceptional customer journey experience in this new state of play? The move to B2B subscriptions isn’t slowing anytime soon. In fact, it will only become even more commonplace in the years ahead. So instead of fighting it, let’s figure out how you can adapt.
No More Business As Usual
Today’s buyers are more informed than ever before. They know the options on the market, have a better understanding of differences between products or services, and demand a customized and seamless sales process. They also don’t want to spend money on products and services they have no need for and will never use. Additionally, businesses that are hyper-focused on profit margins – and who may have been burned in the past by committing too much money to a multi-year contract – have become very cost-conscious out of necessity.
Everyone is familiar with the downfall of cable companies in the B2C market. They offered packages with thousands of channels, many of which viewers weren’t interested in. Streaming services such as Netflix and Hulu completely changed the game, offering on-demand, curated entertainment at a significantly lower cost. Sure, these might not have every single movie or show out there. But they have more than enough, even for the most passionate cinephiles. The cost of subscribing to even three different services to expand your viewing options is still going to be lower than a monthly cable bill, so you’ll always have something to interest you.
Streaming services won out because they proved to be much more agile than cable companies, while offering significantly better customer experiences and support with consistent, predictable prices. B2B customers have become accustomed to this new reality, and desire the same great experience and simplicity in their work lives that they’ve enjoyed in their personal lives. With subscriptions, customers aren’t locked into a contract, can scale services up and down as needed, and pay as they go. This results in more financial flexibility and higher satisfaction rates over time.
If it makes sense for your business, and especially if your competitors offer it, you need to start thinking about implementing subscription billing models – or risk losing out on revenue and market share.
But keep this important fact in mind: if you’re unable to provide an exceptional customer journey experience, you won’t be able to succeed in the subscription world.
Never Stop Improving
This new world of subscriptions is quite different from years past where customers were sold an annual, or even multi-year, contract. They could receive subpar service and if they weren’t happy by the time the renewal came around, they often weren’t in the position to jump to a competitor due to the high costs that came with switching services. So they decided to trudge along with the same old issues they had always dealt with.
Now, customers can leave whenever they’re unhappy with the service they’re receiving, with limited financial barriers to switching and little (or no) downtime. Subscription customers demand that you constantly deliver a valuable and flawless experience to keep them around.
Providing that great experience all starts with the handoff from the sales team to your customer success organization. A smooth onboarding and adoption phase is critical to getting things off on the right foot, and regularly conducting health checks and taking Voice of the Customer surveys across your customer base will help you better understand common pain points and optimize your relationships.
You should also be leveraging a powerful CRM and analytics platform. This will give you a better understanding of when customers are at risk of churning out based on usage metrics, and you’ll be prepared to take appropriate remedial action. If you can tap into the data gathered by your CRM, you will gain valuable insights to increase the value you provide your customer (and grow your own revenue stream) by upselling and cross-selling them new services to enhance their experience.
Keep the Revenue Flowing
In the subscription economy, customer success and renewals teams should be working in tandem with each other. Your reps should be calling well in advance of the subscription renewal date to check in and make sure everything is on track. If there’s an issue, your customer success team should focus on fixing it ASAP.
Also be sure to think about how you execute your renewal. For SMB customers, you might want to consider a self-service platform with minimal human interaction and digital reminders to simplify the process. However, larger accounts may require more of a time commitment with some human interaction to guarantee you can retain their business. Be sure to figure out the right approach for each customer.
An Opportunity, Not an Obstacle
To be clear, subscription pricing is the wave of the future. There’s no going back now and if you really want to succeed, you have to adapt. There are certainly plenty of questions to think about. How will this affect your existing customer base? How do you need to adjust sales compensation? How should you tier your offerings to appeal to customers of all needs and sizes?
This likely won’t be the simplest transition, but plenty of companies out there have been able to adjust and you can too. And if your business already operates with the customer at the center of every decision you make, that’s great, because it will lead to higher revenue and retention rates! If not, this is the perfect time to start.
Now, you may be worried that churn may increase if you implement subscriptions. But heading in with this negative mindset will only set you up for failure. The best companies are looking at this shift to subscriptions and strategizing ways to capitalize on it. And if you are providing real value and great outcomes customers won’t think twice about keeping their business with you, even if they may have to downscale at certain times.
In the end, subscription pricing models drive competition, innovation, and improve customer outcomes – a result that everyone can be proud of.
For two decades, ServiceSource has engineered exceptional customer journey experiences for some of the world’s leading companies. Reach out today to learn how we can help you succeed in this new B2B subscription economy.