While the subscription model has been around for a long time, recent years saw a tremendous shift in its adoption and revenue success. To start, a Forbes article on the subscription economy highlights its projected market value of $1.5 trillion by 2025, as subscription-based businesses report 3.7 faster growth than the S&P 500.
These key figures signify how a subscription model can be the future of commerce, but only 10% of businesses have been successful in incorporating it into their respective revenue strategies. Fortunately, digital technologies can play a crucial role in leveraging the link between subscriptions and revenue growth and management. So, we guide small businesses through transitioning to recurring revenue models and staying competitive with the help of digital tools.
The Link Between Subscription Models and Revenue Growth
Subscription-based models can unlock long-term revenue growth and success through recurring payments for goods and services. While traditional pay-per-product models rely on acquiring new leads and converting them into one-time shoppers, businesses that leverage subscriptions have a more stable and predictable revenue stream through lifelong customers.
Beyond recurring revenue, small businesses in specific niches or industries also have other benefits from subscription-based sales, such as software-as-a-service (SaaS) companies offering flexibility and scalability to customers and business-to-business (B2B) distributors enhancing client retention.
However, regardless of the industry, small businesses can create continuous value by adopting different types of subscriptions. These typically include the following:
- Replenishment model, which automates renewal for the same goods or services, usually on a monthly, quarterly, or yearly basis
- Freemium model, which offers basic services for free but has better features and upgrades for paying customers; and
- Tiered model, which caters to a broad range of customers by curating products, services, or experiences based on varying price points.
As previously mentioned, such financial and operational benefits are within reach through the increased adoption of digital tools, as discussed in the next section.
Digital Tools for Small Businesses to Get Started on a Subscription Model
Recurring Billing Software
Despite their size and scale, small businesses must have the financial technology to facilitate recurring payments. In this case, they can utilize Softrax’s subscription billing software to deploy simple and complex billing scenarios, automate renewal reminders, and manage subscriptions based on expiration and churn rates.
Besides simplifying and automating subscription management, small business owners can also enhance operational efficiency and prevent profit loss or leakage through Softrax’s other key features. These include revenue recognition capabilities, data reporting, and compliance with contracts and standards, such as ASC 606 and IFRS 15.
Data Analytics Platform
A previous article about ‘Transforming Cash Flow Management’ explains that looking at key performance indicators (KPIs), such as customer retention and revenue growth, can help businesses improve their cash flow through optimized inventory and reduced expenses. Additionally, in the context of subscription models, small businesses can also rely on business insights and analytics to predict customer needs and ensure they renew their subscriptions for more consistent revenue.
So, data and intelligence platforms like Brightflow AI are crucial to making data-driven business and financial decisions through capabilities for machine learning and predictive analytics. For example, the tool can monitor revenue in the short and long term and inform marketing and promotional campaigns based on KPIs like customer retention rates and lifetime value.
Besides billing software and real-time data analytics, small businesses tapping into subscription-based sales can also invest in customer relationship management tools to reach out to customers directly, address their specific needs and expectations, and eventually minimize subscriber churn. Ultimately, entrepreneurs must be agile and maximize every digital tool at their disposal for enhanced revenue growth opportunities in the subscription economy.
