Did you know that the first subscription model was introduced back during the 1600s? It allowed customers to subscribe to book and newspaper services.
Although this type of business practice can benefit a wide variety of organizations, it doesn’t come without its flaws. Understanding how to overcome the challenges of a subscription business model can seem intimidating. That’s why we’ve put together a short guide that has everything you need to know about the obstacles you will face.
Let’s dive in.
1. Customer Management
As you might guess, this is one of the most important aspects of subscription businesses.
In subscription models, customers are what drive revenue growth, making proper customer management essential. You must have a reliable system in place to keep track of customer data and activity.
Many subscription businesses use a CRM (customer relationship management) system to help with this. Even with this established, it can still prove to be challenging.
Some subscription businesses have found that offering a self-service option for customers can help. This gives customers the ability to manage their own accounts and update their information without needing to go through the provider themselves.
In addition, subscription businesses need to be prepared to deal with customer churn, which occurs when a customer cancels their subscription. Common reasons why churn happens are due to a lack of perceived value or dissatisfaction with a product.
For instance, a customer may subscribe to a service only to then feel as though they could spend their money better elsewhere.
2. Billing and Payments
One of the most significant challenges of subscription businesses is billing and payments. In subscription models, customers are billed on a recurring basis. This can be monthly, quarterly, or yearly, and providers often give customers the option to choose which is best for them.
Billing can be difficult to handle because subscription businesses need to have a system in place to automatically bill customers. This system needs to be reliable and easy to use in order to be effective.
In addition, subscription businesses need to be able to accept different types of payments. For example, many subscription businesses allow customers to pay with a credit card. Others also accept PayPal or bank transfers.
Companies will quickly run into problems if they limit the number of payment options that they accept.
Another challenge of subscription businesses is delivery. In subscription models, customers receive goods or services on a regular basis. Most often, this is weekly, monthly, or quarterly.
It’s important to note that even digital goods or services can sometimes be difficult to deliver. For instance, having poor server maintenance at your organization could prevent you from providing access to the services that your customers pay for. The good news is that optimizing delivery often isn’t difficult.
To overcome this problem, you simply need to budget more money toward doing so.
4. Customer Service
Many subscription businesses use a toll-free number or live chat option for customer service.
However, this can still be a challenge to maintain. Just because you have a customer service option in place does not mean it is effective.
In fact, having poor customer service can be just as bad as having no customer service at all. This problem begins to get more complicated as the size of the company increases.
When you have more customers to deal with on a regular basis, you will inevitably need to hire more support employees. Looking to find out more about revenue recognition?
You can learn more here.
5. Inventory Management
Subscription businesses need to have a system in place to track inventory levels and reorder goods or services as needed. This system needs to be both intuitive and comprehensive. Otherwise, you won’t get the results that you desire.
At first, inventory management seems overwhelming to many entrepreneurs. This is true even if the company has only a small variety of products. Establishing a management plan, though, will go a long way when it comes to maximizing subscription revenue.
6. Marketing And Advertising
In subscription models, businesses need to find new customers and keep existing customers engaged. Many subscription businesses use email marketing, social media, or online ads to reach new customers. The biggest issue companies face is having a poor understanding of their audience.
If you don’t know exactly who you are targeting, you can’t maximize the chance that you will convince them to make a purchase. Key factors to consider include age, geographic location, hobbies/interests, and annual income.
7. Data Security
Data security often becomes a significant complication for most businesses. However, it can be especially challenging for subscription companies. In subscription models, businesses need to store customer data and billing information. This data needs to be secure to protect both the business and the customer.
Even a single data breach could cause significant damage to a company’s reputation. Depending on the severity of the incident, it may become a situation that is impossible to recover from.
Managing a Subscription Model Is Easier Than You Might Think
It might seem complicated at first, but overcoming the challenges of a subscription model isn’t as impossible as it may seem. The above information has everything you need to know when it comes to managing subscription-based solutions. Keep this in mind moving forward so you can maximize your subscription revenue.
Looking for other useful business information you can take advantage of? You can find articles similar to this one by checking out the rest of our blog.