A subscription-based business model is increasingly the most formidable way to drive recurring revenue, but attrition can sometimes get in the way of success.
For some subscription-based businesses, converting 30-day free trial customers to paid subscribers is not as black-and-white as it sounds. Brian Bell, chief marketing officer at Zuora, a cloud subscription commerce and billing platform provider, sees many companies struggling to get to the heart of their subscription business, to understand how customer attrition affects annual recurring revenue, and to come up with ways to retain customers and recommend value-added products and services to them.
If a person is logging into a system only every five days or not at all, the probability that he will convert lessens. Thus, some companies are turning to adoption monitoring solutions—cited as one of Ovum's 2013 Trends to Watch in CRM—as a way to determine when a customer might need sales or marketing messaging or information.
Companies need more insight into the tools, including mobile, Web, and enterprise apps, that they and their customers use regularly, according to Carter Lusher, enterprise applications chief analyst at Ovum. In the case of subscription services, it's asking, "How can we intervene to make sure that people are using it right or that we're getting customers to upgrade to premium users?" Lusher explains.
The potential is definitely there. From technology companies offering software-as-a-service subscriptions to consumer companies such as Netflix that ask customers to sign up for flexible pricing plans, the subscription-based approach answers the question "How do we own and monetize the relationship with customers and come up with creative pricing and packaging to grow our businesses?" Bell says.
For a software vendor, a subscription pricing and service model can provide potential ways to upsell or cross-sell a customer as opposed to simple one-time transactions.
Totango, which bills its cloud service as a customer engagement management platform for online businesses, offers subscription-based businesses metrics around how a user is engaging with a platform and how frequently she logs in. Salespeople can then follow a single account or a segment of customers and receive alerts for the status of ongoing trials; by proactively monitoring account or trial usage, they are better able to gauge interest and next steps.