Why Digital Service Providers Switch to Subscription Billing
Table of Contents
- What is a Subscription Model for a Digital Service Provider?
- Why Go with a Subscription Model?
- How to Use a Subscription Model Effectively
- The Bottom Line? Subscriptions Create Ongoing Relationships that Benefit Both Parties
- Frequently Asked Questions
What's better than a customer? A subscriber. Digital service providers are figuring out that the best way to turn a client into a loyal, long-term source of income is to get them to purchase a subscription-based service package. Subscription models offer a wide variety of advantages over more traditional hourly and project-based methods of billing, and, with a little creativity, nearly any type of business can find a way to package what it's selling into a subscription package.
If you're billing your clients by the hour or by the project - or even if you're selling physical goods to your customers - chances are, you can find a way to deliver your products or services as a subscription deal that will generate steady, reliable income, over a long period of time.
What is a Subscription Model for a Digital Service Provider?
"Digital Service Provider" is a rather broad term that can cover several kinds of business. Most relevant for this discussion, a DSP provides retail services through an online store. Storefronts like iTunes, Spotify, Apple Music, or the Google Play store are all examples of DSPs.
In their most basic incarnation, users could buy products from DSPs one at a time, or in batch quantities. For example, the earliest versions of iTunes included the ability to buy a single song or an album, with each purchase.
As DSPs evolved, they provided ways for consumers to make purchases on subscription models. In part, the innovation that businesses saw in SaaS platforms and online digital services made it so that providing recurring products and services became much more viable.
With that in mind, DSPs began to provide subscription services with recurring billing. Some of these models include:
- Subscriptions for music, movies, or games. Perhaps the most popular subscription service type, these include monthly or annual payments for access to things like streaming music or movies, proprietary content, or specialty features like fully-enabled apps.
- Intelligent product providers. Curated boxes or other boutique companies will sell customers monthly or weekly products that are tailored to them via shopping analysis and questionnaires.
In any case, these models are proving a lucrative way for businesses to create revenue.
Why Go with a Subscription Model?
Billing clients by the hour, or by the project, bakes in some hard limitations, as to what you can charge. You're limited by time and by the staff you have available to assign to certain tasks, and when you bill by the hour, it can deincentivize working with speed and efficiency in mind.
Project-based billing also creates a natural endpoint for your relationship with the client, once the work is completed. New client acquisition is costly, and every time you finish a project for an existing client, there's a chance they might shop around and choose to go with a different company for their next project.
Project and hourly-based billing is unpredictable, leading to lean months, as well as months of crunch time. These sways can hurt morale among your staff and make financial planning and forecasting difficult.
The major advantage of subscription billing is the predictability.
When you know a certain amount of income is going to be coming in each month, you have less cause to worry about wooing and retaining clients, and you can focus more of your time and energy on growing your business, improving your procedures, and finding creative solutions to the challenges you're facing.
Subscriptions also increase customer loyalty. A subscription that reliably and consistently delivers quality service or goods will create a lot of trust and satisfaction amongst subscribers, especially if they feel that they're getting a good value for their money. This creates an emotional connection between the client and the company, one of the best indicators that they'll keep coming back and give positive reviews and recommendations.
How to Use a Subscription Model Effectively
There are many ways to incorporate subscription packages into an existing business model. For advertising and marketing companies, a subscription deal could include ongoing search engine optimization, social media posts, blog content, analytics, Google ads, email newsletters, and web design. Tiered subscription packages could offer different levels of service for smaller or larger clients, incorporating a few or many of these options.
Subscription deals make a lot of sense for art, entertainment, and education-based platforms.
Websites that offer written, photographic, video, and other media can allow customers to subscribe for added or premium content, or they can follow the Netflix model and provide subscribers with full access to a vast library of content.
For some types of businesses, the "network effect" can be a powerful incentive to get users to pay for a subscription. Multiplayer games, affiliate programs, and social apps all become more functional, as well as provide a better experience, when there are more people engaged. In this case, the effective benefit of the subscription is access to the other subscribers.
Subscriptions are also a good way to offer paid content and resources at a reduced rate in mobile apps and games, or to reduce or eliminate advertisements.
Many companies that make or sell physical products have adopted, or even centered their business model around, a subscription model that delivers a selection of curated goods on a monthly basis. In this scenario, big profits can be made on the back of the subscription box, when subscribers discover new products and opt to order more of them, either directly through the company, or via an affiliate deal that gives the subscription box company a cut of the sale.
Companies that sell complex, expensive, or high-end products can offer service plans on a subscription basis, providing maintenance, upgrades, and repairs to subscribers.
The Bottom Line? Subscriptions Create Ongoing Relationships that Benefit Both Parties
The ideal subscription model is one that the subscriber doesn't want to cancel.
Recurring charge burnout can quickly set in, when customers don't feel like a subscription is providing them with a good deal for their money. However, when a customer has quality content, products, and services to look forward to regularly, the positive associations with the promise of reliable, predictable benefits will keep them loyal.
For an e-commerce business, this means a steady income source that can be maintained by focusing on and enhancing the things their company does best, rather than struggling to lure in and retain fickle, one-time customers. No wonder subscription models are taking off!
What is a Subscription-Based Model?
How Do I Create a Subscription Model?
What are the Types of Subscriptions?
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