How to use the subscription model to maximise revenue for your business

It feels as if everything is turning to a subscription or "...as-a-service" business model, just last week I was told about an app that offers (and I kid you not) "Laundry-as-a-Service". To help you and I understand the trend and figure out how your business can take advantage of it I got in contact with Louis Hall, CEO of Cerillion.

In this interview Louis and I get to the bottom of how and why businesses can and should take advantage of the subscription model and exactly why it's become so popular.

Your business’s latest offering “Cerillion Skyline” is a cloud billing application specifically directed at subscription based businesses. In laymen’s terms what is “cloud billing” and why should businesses care?

Cloud billing has become a dynamic growth area. Yet, as more and more software vendors jump on the cloud bandwagon it can be quite difficult for buyers to cut through the hype and really understand what they should be looking for.

Is a cloud billing system one that bills for cloud services, or a billing system that resides in the cloud? At Cerillion, our view is that a true cloud billing system, while it needs to reside in the cloud, must also be designedas a cloud application, and, of course, be able to bill for cloud services.

Billing systems are just software applications, and therefore cloud billing is ultimately a specific type of Software-as-a-Service, sometimes referred to as Billing-as-a-Service. But the key to what makes a cloud billing system can be found by looking at the characteristics of other SaaS applications, such as Salesforce or Zendesk – these are online applications accessed through a standard browser and requiring no additional hardware; you can try before you buy; and there’s no customisation, everyone uses the same product but configures the application to the needs of their own business.

This flexibility is key to the success of the cloud billing model too. In the past, it would have taken many months and sometimes years to implement an enterprise billing system, with specialised hardware and high upfront costs before any return could be achieved.

With cloud billing, the system can be used almost immediately and you only pay for what you use – it’s a service. This gives you the agility to try out new business models and adjust to changing market conditions at much lower cost and risk than has ever been possible before.

True cloud billing also delivers much greater transparency. Software vendors of course always have roadmaps, but with SaaS the immediacy of use means they can’t sell the future.

If a vendor can’t demonstrate a feature to you now, it is almost certainly because it does not exist. However, when new product features are released, they are typically rolled out automatically to all customers, so you can gain the benefits of the roadmap without having to undergo a major system upgrade.

With cloud billing automatically pulling customer information and purchasing habit data into a business’s backend, what kind of insights can be gleaned from this data? And can you give a specific example of how businesses should leverage this kind of data.

Simply by going down the subscriptions route, you are creating a billing relationship that makes it easy for your customers to buy additional services from you, and less likely that they will buy from someone else.

The key here is making use of the regular contact point – the bill – to create stronger customer relationships, win repeat business and upsell more.

Subscriptions are often geared around a straightforward renewal cycle such a mobile phone contract or annual club memberships, for example. However, it’s the add-on services that really allow you to build the profile and understand the customer behaviour, and that means adding a transactional element to your subscription services and promoting these extra service options.

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Will subscription based models make physical payments redundant?[/caption]

For example, if you sell a coffee subscription covering a luxury coffee maker plus on-demand top-ups of coffee billed to account, it’s the frequency of top-up that will give you the insights you need.

Regular top-ups of coffee most likely means the machine is in active use and perhaps you can upsell to a higher-use plan, offering better value for money.

Conversely, when the top-up orders start to dry up, it’s an indicator of likely churn and it might be time to make an alternative offer. This is a simple example, but one that can translate into many different markets and business models.

Digital businesses have no shortage of data points that can be analysed, but it’s most likely the ones that are used for billing the end customer which will translate into the meaningful opportunities to improve that customer engagement.

 How far do you predict this “…as-a-service” to go? In the consumer space we’ve got “music-as-a-service” and “films-as-a-service”, and in the business arena a whole host of “…as-a-service” solutions. Will we see more things moving to subscription models like “dry cleaning-as-a-service” or “dinner-as-a-service” in the near future?

The potential is almost unlimited and it’s a trend that we only see accelerating over time. And it’s not just the technology giants, such as Spotify, Netflix and Amazon who are pushing the subscription model, we’re seeing adoption in businesses of all shapes and sizes and sectors.

For example, many of the major retailers have adopted the as-a-service model to complement more traditional ecommerce. Supermarkets, such as Tesco, now offer subscription delivery services, so rather than paying a delivery fee every time you shop online, you pay by regular subscription. The more frequently you order online, the more money you save on delivery; and the supermarket knows that you are almost certain to shop online with them rather than one of their competitors.

There are many types of consumables now all being delivered on subscription, including razor blades, wine, socks and nappies to name just a few. But you can also find subscription success stories in the unlikeliest of places.

In the age of Netflix and Amazon Prime Instant Video, you would have thought that traditional cinemas would be rapidly going out of business. Well several cinema chains are taking on the video streaming services with their own subscription offerings. Take “Movie Heroes”, for example, in California. For a $20 (£13) a month subscription, members can go to the cinema and watch as many movies as they want, whenever they want. It is a simple idea, but it is reinventing how people can enjoy going to the movies.

Why are we seeing a shift to more subscription based business models?

The subscription business model is becoming increasingly popular primarily because it benefits both service providers and their customers. For service providers, it delivers a predictable stream of recurring revenue and creates a more ‘sticky’ customer relationship with the opportunity to upsell additional options and services.

For customers, subscriptions are a predictable way to manage spend, typically aligning with how they receive their own income – whether that’s consumers on a monthly salary, or businesses running annual budgets.

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NHS, PCI

At the end of the day a succesful business needs to know where the money's coming from and when[/caption]

They also offer the convenience of being able to simply add new services to an account, instead of having to go through a new buying process for every purchase. Furthermore, customers can benefit from being able to spread out the cost of big ticket items, rather than being hit for one upfront payment.

The crux of it is that subscriptions really should be a win-win, for customer and service provider.

Finally, and marketing spiel aside, with so many cloud billing offerings what makes yours unique? 

For me, it comes down to two key things. Firstly, we are billing experts and our billing and charging engines are enterprise grade, flexible and proven to work with many different and complex business models over more than two decades.

In cloud terms, a business with hundreds of thousands of customers / users is deemed to be huge and a challenge for most SaaS businesses to cope with. However, in the context of our billing experience in the telecoms sector, this level of scalability is a given.

And secondly, it’s about how subscription businesses will evolve in the future. There’s been a huge growth around subscriptions over the past few years, but the digital economy means that the barriers to entry for new services are now lower than ever. As markets mature and competition intensifies, the only way to differentiate is through more innovative pricing and packaging of your services. This is the real strength of Cerillion Skyline – we have a highly flexible charging engine that allows you to mix variable subscriptions and dynamic usage-based pricing models to address new market opportunities and stay one step ahead of the competition.

Big thanks to Louis for having a chat, you can find him on Twitter @LouisTHall