There is no simple answer to the question of what is the best subscription management software. With the latest rise in popularity, subscriptions are making their way into business models, which we wouldn’t imagine a few years ago.
Modern subscription management software must simplify billing, invoicing, and payment management and include advanced analytics to maximize revenue and customer retention. But above all, software must be scalable and flexible, so it is appropriate for any modern subscription business model.
The best subscription management software is, in essence, a billing software (or platform) perfectly adapted to the subscription economy that is taking over our daily lives.
Let’s take an in-depth look into what it takes to make a subscription management software “the best.”
Table of contents
- What is a subscription business model?
- Is recurring billing subscription management?
- What is subscription management?
- What is subscription management software?
- Subscription management software features
- Product and pricing in subscription management
- Flexible recurring billing
- Automated customer service operations
- Advanced analytics, forecasting, and customizable reports
- Compliance with ASC 606 and other standards
- How to choose a subscription pricing model?
- Benefits of subscription management software
What is a subscription business model?
In a subscription business model, customers pay a weekly, monthly, or yearly fee in exchange for products or services. With subscriptions, they create a steady recurring revenue for the company. Lately, a new term called subscription economy emerged that describes the rise of the popularity of subscriptions.
A subscription business model, sometimes also called a subscriber business model, can be very effective for the company because it creates predictable recurring payments and growth. On the other side, it is convenient for the customer because he is not bound to own a product or service and can use it only as long as he wants.
As Investopedia puts it:
“Subscription business models are based on the idea of selling a product or service to receive monthly or yearly recurring subscription revenue. They focus on customer retention over customer acquisition.”
A subscription is, in reality, a contract between the customer and provider. As long as the user regularly pays the agreed fee, he can enjoy all the product or service benefits. When the contract is up, he has the choice to renew or cancel their subscription.
A subscription business model is all about excellent customer experience, retention, and loyalty.
If done right, a company can retain customers for a long time and secure a monthly recurring revenue (MRR) and annual recurring revenue (ARR), something all businesses strive for, especially in uncertain markets and times.
Is recurring billing subscription management?
No, recurring billing is not subscription management!
Recurring billing is an automated process that ensures all transactions and recurring payment processes between the customer and the company run smoothly.
While Recurring billing and the function of consolidated billing are essential parts of subscription management software, subscription management is much more than just this.
What is subscription management?
Subscription management is a process that follows the customers’ lifecycle and manages it. The goal of subscriptions is to ensure that customers have a seamless experience with the product or service and are happy.
Customers’ needs, wishes, and preferences change over time. So it’s doubtful he will still be happy with the same product or service years after signing for it. That is why the company must interact with him, and his account must adjust to changing situations, aka his subscription must be monitored and managed.
Seamless and secure recurring payments are a must, and this goes without saying. Especially now, when time is a value, this is one of the main pros of subscriptions. It’s all about getting an excellent experience and forgetting about billing.
Another important part of that billing experience is the system’s ability to perform consolidated billing.
But what customers really expect is flexibility; this is where subscription management comes in place, and businesses prosper or fail. Some of the most common tasks in subscription management that can’t be automated include mid-cycle subscription changes, managing trials, issuing refunds, or assigning credits.
If a business has bad subscription management, it risks losing customers, which is not what subscriptions or any other recurring business is about. It’s about customer retention and turning your customers into loyal, satisfied users who will stay with the company for years.
But to manage subscriptions on a large scale, companies must use the best possible subscription management software.
What is subscription management software?
Subscription management software is, in essence, a billing system or billing platform that can handle all specifics of a recurring business model. Therefore it’s suited for the monetization of subscription business models and membership services.
Subscription management solutions are cloud-based or on-premise, with the trend definitely going in the direction of the cloud. Read our blog on why we suggest cloud billing software over on-premise.
Subscription management software features
Subscription management software allows businesses to introduce complex subscription models that regular billing software can’t support. A wide range of features enables companies to scale their subscription services by automating billing and invoicing, managing customers, and facilitating comprehensive business intelligence with reporting and analytics.
Subscription management software will store each subscriber’s data, product catalog and prices, running subscriptions and addons, billing cycles, and transaction history. It will also follow and manage freemiums, trials, trial-to-paid upgrades, downgrades, and cancellations in the entire subscription lifecycle.
Product and pricing in subscription management
The core of any subscription business model is product and pricing strategies. When a company selects subscription pricing models, they must closely follow to see if the pricing chosen works with the selected product.
All pricing decisions must be based on data, not on “gut feeling.” Product and pricing strategy management is crucial!
A true value of the best subscription management software is in its ability to “advise” on the best pricing model to create the most revenue for a selected product.
A company must offer flexible subscription plans and measure customers’ satisfaction. Based on that, it can customize products & price plans to suit customers’ preferences better.
Here are some of the most common types of subscription pricing models.
Fixed or flat-rate standardized pricing model
The simplest model features a fixed monthly price for a standardized product with a fixed set of features.
Flat rates are easy to manage, bill, and easy for customers to understand.
If they need an additional product, they will simply add the second one for an additional fixed price on top of the basis one.
A flat rate is a simple subscription pricing model with pros and cons. While it’s easy to communicate and operate, it is not for every product or customer. A monthly software subscription for 100 USD is OK for someone who uses it for daily business, but it might be too much for occasional users. This model is rare in the SaaS B2B industry.
Per-user pricing model
The per-user pricing model is straightforward to understand and to communicate with the customers, so it’s no wonder it’s popular in the subscription business. Unlike the tiered pricing model below, the product is available with all the functions from the start. So a customer can, for a fixed price, use the product without limitations. The only restriction is the number of users that can use it.
A per-user model can be cheap for companies as long as they have a relatively low number of users. It can be very costly if they need to pay for every user, and many use it.
These cases need a different pricing model, or the company is missing out on many potential clients.
Tiered pricing model
A tiered pricing model is probably most common in the subscription business model, although it has many variations. The basic tiered model offers “packages” of features and product combinations for different prices. Tiered pricing allows businesses to make offers aimed at different target audiences. It is common to name a tier Entrepreneur, Business, or Enterprise to show who a particular tier targets.
With every higher tier, new functions unlock; for example, the number of user accounts also increases.
Tiered pricing works best when a company has a diverse customer base with different budgets and needs. This pricing model is best-known because it is popular in SaaS companies.
Usage-based pricing model
When product pricing is based directly on the consumption of billable units, usage-based pricing is the best pricing model to have. A company will offer its customers different pricing plans (tiers) that include various amounts of units included. Depending on the predicted usage, the customer selects the tier he thinks suits him best.
However, there are differences in what happens when a user reaches his maximum usage.
For example, in telecommunications, a company can stop data transfer until the next billable cycle (month) or charge an extra cost for every unit used.
An SEO tool, for example, can allow the user to buy extra keywords or crawled pages. On the other hand, it won’t allow buying more campaigns or user accounts unless the user switches to a higher tier.
The usage-based subscription pricing model is handy and flexible for customers, but it is not easy to bill and needs an excellent dedicated subscription billing platform.
Volume pricing model
Volume pricing is usage-based pricing based on the volume of usage. The company designs levels of use with a flat rate for every level. For instance, they can set the levels at 100 GB at 3 cents per GB, 500 GB at 2 cents per GB, and 1 TB at 1 cent per GB of data usage.
If a user, for example, uses 700 GB, two options for charging exist:
– he will be billed for 500 GB at 3 cents (level 1) per GB plus 200 GB at 2 cents (level 2) per GB
– he will be billed on the final level achieved, so 700 GB at 2 cents (level 2) per GB
The pricing strategy for volume pricing depends on companies strategy to control the usage or to aim for as high usage as possible.
Complex hybrid pricing
Complex hybrid pricing is recurring pricing based on the above models, along with one-time payments or multiple combinations of one or more pricing models. If the above-mentioned pricing models require excellent subscription management software, it takes the best one to handle hybrid pricing.
Flexible recurring billing
Customers expect various options for paying for their subscriptions. Companies must implement annual and monthly or custom billing options to remain competitive.
It goes without saying that subscription management software must allow customers to change pricing plans and pause and resume subscriptions quickly. It must also handle transitions from freemium to trial and paid subscriptions.
If not, much manual work will be needed, leading to mistakes and a poor customer experience.
Companies, especially in the Saas industry, can follow the requirements of unique customers and create custom bundling for their features, something now all subscription billing platforms must support.
It’s common for subscription-based companies to offer promotions, discounts, coupons, and other tools to reward customers’ loyalty. One of the tools is a one or two-year subscription commitment in exchange for a discount or other benefits.
Therefore the software must seamlessly handle price reductions and commitments.
A company can also experiment with different pricing models to find the right one for its product, so the selected subscription management software be flexible in managing recurring billing and pricing management.
Automated customer service operations
Automated operations serve two main purposes: to decrease costs and increase efficiency by reducing manual tasks. Some of the automated customer services include:
Automated billing and payment management
An automated billing and payment system is integral to any subscription billing platform. It automatically generates and sends invoices and tracks and processes payments.
The bigger and more diverse the customer base is, the more time and costs it saves. The automated billing and payment management will also allow the synchronization of billing and payment data with other workflows.
Account statuses refer to the different states of an account. Different statuses and custom fields can be set and applied to the accounts. Most common statuses like “Active” and “Inactive” can be upgraded with a more accurate status that reflects the customers’ situation.
Bulk pricing update
With occasional changes in pricing, subscription management software must enable to automatically make bulk updates to pricing and contracts across a customer base.
Users like to solve potential problems by themself before contacting support. A self-service portal can be of extreme value in providing users with information and resources.
With them, they can find help and answers and resolve their issues by themself. An excellent self-service portal can also significantly reduce the number of customers a support desk must serve daily.
Dunning management is an automated payment collection system activated every time a payment fails. As part of pre and post-dunning management, a set of retries, payment reminders, and alert rules are implemented to automate all procedures.
Automated dunning software prevents churn and can substantially increase the revenue of a subscription business model. For more information, please read our blog on dunning management.
E-mail and SMS Communications
To constantly be in touch with customers, a subscription billing platform must be able to send E-mail and SMS communications automatically to pre-selected customer groups.
All customer feedback, being public or private over messages, surveys, or e-mails, is extremely valuable to a business.
However, large amounts of this data are hard to control and process, so feedback automation is an invaluable tool of subscription management software that can be very time-saving and effective.
Advanced analytics, forecasting, and customizable reports
Subscription management focuses strongly on business and customer data. By doing so, a large amount of data is collected in real-time, processed, interpreted, and available anytime. The concept of business intelligence is a foundation on which a company can make informed business decisions.
Billing and revenue management offers companies a complete view of their financial operations.
KPIs like retention and churn rates provide insight into customer behavior and trigger warnings. Based on churn predictions, a business can predict its future revenue growth and make decisions about its product management.
With customer lifetime value (CLV), a company can set the upper limit on how much to spend to acquire new customers.
Advanced analytics and forecasting can be viewed in various reports and dashboards, all fully customizable and centralized.
Compliance with ASC 606 and other standards
Any subscription management software should enable compliance with accounting standards like ASC 606 revenue recognition standard.
When deciding what subscription billing platform to use, a company must check if it can send tax-compliant invoices to the customers.
Integration with other systems is a must, and this is where the advantage of cloud-based subscription management platforms vs. on-premise systems is most visible.
A good subscription management software will enable seamless integration with:
- CRM system
- payment gateway
- e-commerce platform
- customer self-service portal
- accounting system
- catalog or inventory management software
- e-mail and SMS service
When deciding on subscription management software, a company must consider what integrations they need and could benefit from in the future.
How to choose a subscription pricing model?
It goes without saying that there is no “one-fits-all” pricing model that fits every subscription business model and every product.
Therefore, choosing a pricing model is probably the most critical business decision, and it must be made with much consideration.
When selecting, the business leaders must ask themself these important questions.
Who are the customers, and what do they expect?
A company must use all available data to understand its potential customers. Also, what are their problems and needs, and how can the company’s product help them? Do they use the product personally or for business? Are the customer’s individuals or companies (B2B), and what kind of companies? Big, small, or a mix of them?
Do they prefer the simplicity of a flat-rate or per-user model, or do they want the flexibility of a tiered or usage-based model? How much are they willing to spend, and what type of billing cycles do they prefer?
By answering these and similar questions, a company will have insight into what buyer personas they are targeting and what would be the best pricing model for them. With this data, they can also plan marketing tools like freemium or free trials and lead generation campaigns.
The product characteristics
The characteristics of a product will significantly influence the selection of a pricing model. For a simple product with one or a few features, a flat rate or per-user model would be better than a tiered model.
A usage-based model makes no sense if the usage is not tracked or not relevant.
If a product has many features with many possibilities for upselling or cross-selling, a tiered model is the one to choose.
The fixed and variable costs of the product
The selection of a pricing model must, of course, include the calculation of cost. The basis is the basic calculation of fixed operating and variable costs like customer acquisition costs to deliver the product and break even. Furthermore, on top of that comes a healthy margin which enables the business to grow its operation.
For example, a flat rate is acceptable if the usage doesn’t influence the variable costs, but if the use presents a high cost, a usage-based model is the only option to choose.
Time and resources
The less-intensive flat-rate or per-user models don’t require too much time and resources to manage and can be done with a simple subscription billing software. However, a more complex usage-based or hybrid subscription pricing model will require more time and resources. Maybe more than a company can allocate or support without investing in an advanced subscription billing platform.
The willingness to sacrifice time and resources or invest in top-of-the-line subscription management software can also influence the selection of a pricing model.
Looking at how the competition has designed their pricing models should not be a basis for the decision, but no one can really ignore that.
Especially since there is no guarantee that the competition’s models are the best.
Maybe they are underperforming and are thinking about tweaking or changing their models and prices. It’s a good chance that their pricing model might work for them but not for others.
All decisions must be data-based and made according to the unique situation in the company.
Benefits of subscription management software
Subscription business models benefit business-to-consumer (B2C) and business-to-business (B2B) companies. Subscriptions have greater customer retention rates and higher lifetime value and offer companies predictable recurring revenue.
Subscription management software will enable companies to manage customer relations easily and effectively. It will offer insights into customer behavior and track key performance indicators (KPI) and revenue in a way regular billing and revenue software can’t.
It will save time and resources with automatization and provide a basis for informed business decisions with analytics and business intelligence.
The complexity of modern subscription business models surpasses regular billing and revenue software or platforms.
The best subscription management software is the one software that can offer all these functions and benefits under one roof in a single, easy-to-use, and proven subscription platform.
Want to get more information about our solutions? Leave a comment below or Schedule a Demo!