Winning Subscription Business Models in Today’s Market
Are you a start-up or an established SaaS player looking for the ideal subscription business model to effectively reach out to your right target audience? Subscription businesses offer a host of such subscription models, and it is up to you to choose the one that best fits your business.
Choosing the right subscription model may be a lot more challenging than it appears. It involves considering umpteen factors that can finally drive the growth of your business. However, the right choice can be extremely gratifying and profitable. It can easily attract the right users, enhancing the business's sales and marketing efforts. Moreover, the spillover effect will ultimately ensure that all the businesses’ ancillary activities are effective, productive and well-taken care off.
Also, to cater to users' diverse needs, businesses can adopt multiple subscription models, known as the hybrid subscription billing approach. This increases the product's accessibility, making it available to a wide range of users across geographies and niches. Consequently, businesses using these subscription models can ensure recurring revenue.
The Role of a Right Subscription Management Software
An effective subscription management software is essential for SaaS businesses to streamline their operations. This will play an important role in automating billing and renewals to tracking customer behaviour and preferences. This ensures smooth and efficient subscription processes for both business and its customers. The right software can also build operational efficiency, reduce churn, and deliver a seamless customer experience across any pricing structure, whether flat-rate, tiered, or usage based. As a result, the right subscription management software will establish a strong foundation for sustainable growth in the long run.
Know the difference – Subscriptions and Pricing Plans
But, before jumping directly into understanding the different subscription business models, let’s get some clarity on the term’s subscription model and pricing model. In short, a subscription model is mostly about recurring payments.
In other words, a subscription model explains how users can receive access to a service on a recurring basis. It also involves focus on payment frequency - whether monthly or annually, and the structure of the offer, which can be flat rate, tiered or any other. A pricing model outlines the reasons behind the way and how the charges are calculated for receiving a service. It clarifies whether the charges are fixed fees, usage-based, or feature-based.
Thus, while subscription model reinforces access and retention, the pricing model emphasizes on balance between what customers can afford and business profitability.
Some of the most popular subscription business models for SaaS businesses.
Freemium Model
In this model, businesses can give their users free access to the basic version of their product or service. However, all additional features come at an extra charge. But, based on this free user experience, the users get to decide whether or not to use or invest in its additional features.
This is ideal for platforms that are looking out to increase their user-base by converting a portion of their free users to paid ones.
Flat-Rate Pricing
Here, the user pays a single, fixed fee for access to the product or service on a recurring basis regardless of the level of usage. This is a simple, straightforward approach where the prices are easily predictable. This is applicable to businesses offering project management tools or CRM systems.
Tiered Pricing
This is one of the most popular, complex as well as flexible subscription model. This is applicable to businesses that has a variety of pricing plans or packages to offer their prospects. In this model, subscriptions come across as different and distinct packages, each with its own set of features and prices. It offers different levels or tiers of service at diverse price points. Each tier is defined by a set of features, with higher tiers offering advanced features and lower tiers offering basic features.
Businesses use this model to cater to a wide range of customers and budgets. Here, users are free to choose their desired package by understanding how it fits their needs and budget. This is a model that is equally applicable to both startups and large enterprises.
Usage-Based Model
This is also called the pay-as-you-go model where customers are charged only for the actual use of the product or service. It is ideal for businesses that have fluctuating or unpredictable demand. Users need to pay only for what they use and not commit to a fixed pricing agreement or spend on any unused capacity.
Per-User Pricing
This is a subscription model that charges users based on the number of individuals using the service. The more the users, the more you pay. This gives businesses clarity on their costs-a rather good approach when these businesses want to scale. This approach is favorable to collaboration tools or productivity software, where each added user benefits from direct access to the service itself. This is again beneficial to small teams and startups.
Per-Feature Pricing Model
As the name suggests, users of this model are charged based on the specific features or functionalities they want to use or access. The charges increase in proportion to the number of features of the business that the users access. This is much akin to the a la carte approach where users can pick and choose the features that they need rather the package or bucket approach that already lists a set of pre-defined features. This kind of subscription model is applicable to businesses that have a diverse user-base. These are users who prefer to manage their subscriptions all by themselves. Being a highly customizable model, users can add and remove features with their changing needs.
Hybrid Subscription Business Model
To put it simply, the hybrid subscription model includes the various elements of different pricing strategies. It is a flexible approach that accommodates a wide range of customer needs. This is a subscription business model that offers a combination of flat-rate pricing and usage-based pricing.
It works by charging a fixed monthly fee for 'basic' access and add usage-based charges for specific features or additional services. Another variant of this model is offering a basic subscription option along with different add-ons or per-feature pricing to equip users to build tailored subscription models.
Similarly, this subscription business model is most suitable for businesses that has a diverse set of users. It allows businesses to balance the predictable revenue from fixed pricing with scalability of usage or feature-specific charges. It’s uniqueness makes it applicable to a wide-range of industries such as cloud computing, telecommunications, and SaaS. It is applicable to industries that has users with varied requirements.
Credit-Based Model
In this model, users get to purchase credits from merchants that they can eventually use in the future. These credits are usually spent on the various services or features of the subscription business model. For example: additional API calls or premium support. The credit-based model works mostly like a pre-paid cell phone plan where one pays in advance for credits which can then be used at one's own will. This strikes a good balance between pay-as-you-go and the subscription-based approaches.
This is perfect for SaaS companies that sell services with irregular consumption. Here, the users can have more granular control over their usage and spending. It is particularly effective for platforms that offer a variety of services or digital goods where each is quantified and priced individually.
Critical factors that will guide the decision of selecting the right subscription model:
Understand Your Target Audience – Know their likes and behaviors.
Know Your Product Offering – Which model fits best, flat-rate, tiered, usage-based, or freemium?
Explore Competitors – What other people in the industry are doing.
Scalability – Will it work for your business as you grow?.
Balance Flexibility with Predictability - Your model should allow flexibility on the demand side but give predictability on the revenue side
Variations of Features - In some products you have differences in functions offered so a multi-level or per-function model might be more appropriate
Test and Refine it - You start with a model and refine it based on customer feedback and performance.
Cost and Margin Assessment - It will ensure the feasibility of the model, that is, profitability and meeting the operational costs.
Regulatory and Market Feasibility - Check whether your model complies with local regulations and follows the trend of the market.
To sum it up!
Finally, we can conclude that, only by owning the right subscription business model can you effectively reach out to your target customers. As discussed above, choosing the right subscription model would mean considering the nature of your business and the kind of product or service that it tries to sell.
If you are looking for a subscription model that is simple and straightforward, flat-rate pricing would be the ideal choice. Usage-based billing would be best for merchants looking to provide their users flexibility in their subscriptions. Finally, tiered models will provide the customization to suit the changing needs of the users.
However, beyond focusing solely on your target audience, it is also equally important to consider your product or service when finalizing on the right subscription model. Additionally, to keep your business nimble and agile partnering with the right subscription management software is a must. The right software can easily manage both your growing user-base and business operations simultaneously.
Reach out to Saaslogic to support the implementation of the ideal subscription model for your business. It has tons of features for you to choose. It is the go-to-platform for managing subscriptions including solutions for all your needs like churn, billing, scaling and more.