Tasting success with a Subscription Model: how B2B businesses are doing it
What examples come to mind when you think of subscription businesses? Netflix, of course. Perhaps the Dollar Shave Club or Blue Apron. These are the names that Google throws up first when you search for subscription businesses. As B2C brands, these are certainly the most visible examples, but the subscription world is much larger.
More and more B2B companies are exploring the subscription world and making a switch from traditional outright sales and licensing models. In this post, I am going to explore how subscription pricing makes business sense for B2B, look at a few examples of brands that have tasted success with this model, and leave you with some thoughts on what to consider if you too are making this transformation.
Adobe: pioneering the SaaS subscription revolution
While no one blinks twice when asked to subscribe to software products today, the story in 2013 was different. Adobe was one of the first tech product companies to join the subscription world, pivoting to this model from a boxed license model and taking a huge risk in doing so at the time.
Here is what triggered the switch: Adobe’s engineers were developing fantastic features for creators and designers. But these got to the market only about every 18 months due to the prolonged product launch cycles the company followed. As a result, there were revenue spikes interspaced by flagging periods. What could the leadership team do to bring in revenue predictability? Subscription pricing seemed the ideal answer.
The boxed Adobe Creative Suite had annual prices of $1300-$2600. With the switch to a subscription model, they were able to sell individual products for as little as $9.99/month and all the apps in the suite at $52.99/month. A positive side effect was that now, new features/products could be launched as soon as they were released, leading to massive technological innovation.
This model can and has worked for most other ISVs (independent software vendors) and powered the boom in SaaS companies. Salesforce, WordPress, Mailchimp, Atlassian…the list of success stories is long.
The future of workspace & facilities management
New job roles that were non-existent even five years ago, a proliferation of millennials in the workplace, an increase in the number of gig workers, concepts like coworking… all of these have shifted the paradigm of work and workspaces. Accommodating these changing needs requires a completely different approach to facilities management, an already complex operation.
Conventionally, facilities management is either outsourced or managed with an on-site team. Recently, however, a third approach is gaining traction: subscription services. This seems to be the ideal third route through which companies can (a) reduce operational costs (b) reduce manpower involved in admin (c) get more flexibility and (d) handle a complex set of workplace demands. For instance, individual employees can raise tickets to flag issues (controlling air conditioning, reporting an issue, requesting IT support, etc.) to facilities management; guests or visitors to the office can sign in through a self-serve portal and be sent a personalized welcome message and automatic wifi access; meeting rooms can be browsed based on availability and amenities and booked in advance.
A key player in this field is office experience tool Managed by Q, acquired earlier this year by WeWork. On a mission to ‘minimize the chaos of running an office’, they offer a suite of on-demand services including employee help desks, task management, directory of vendors, etc. They operate on a subscription model with plans starting at $149/month for a single location.
Another example is Facilio, an Atlanta-based subscription SaaS company. It uses AI and IoT to increase the operational and cost efficiency of building management: air conditioning, power, elevators, etc. Their suite of services (making maintenance efficient, improving user experience, increasing lifetime of assets, etc) is extensive and customers can subscribe to only what they want based on their requirements.
Internet for Businesses
Communication needs differ by businesses. A medium sized enterprise may need mobile plans for its salesforce; a retail brand may need in-store connectivity for its floor staff as well as customers; most offices will need high-speed broadband for everyday work.
This industry is almost designed for a subscription based business model, given how the features/products required are vastly different, and internet service providers are uniquely positioned to cater to a range of these. To compete in this highly lucrative space, players from Verizon to AT&T offer a plethora of subscription plans for customers, starting at as little as $40/month.
Such a model helps their customers avail the exact plans for their needs and pay only for them. As they remain customers for an extended period of time, the companies are able to gather valuable data about their customers’ usage. The insights derived from this data is then used to tailor their offerings and marketing communication better.
Is a subscription model right for your business?
Consider the following factors before making the switch.
Short vs Long term: Subscription pricing usually gives the customer a 20%-40% discount in their annual billing; this means that a brand newly switching from a licensing or box sales model might make less money upfront. However, the customer is likely to stay longer, thereby giving much higher returns in the long run.
Income stability: While subscription pricing might be discussed on a per month basis, billing is done annually by almost all subscription brands. Most of them also include an auto-renewal clause, unless otherwise specified by the customer. This lock-in takes care, to some extent, of any drop in revenue by giving income stability and reducing dependence on unit sales.
Impact on accounting: In a subscription model, revenues are recognized when realized and earned, not necessarily when received. This has a major impact in terms of accounting and can impact the company’s valuation. It may even change the way the company reports its revenues and could be positive/useful in some circumstances.
Customer attrition: In a perpetual licensing or outright sale model, a company is able to extract maximum revenue from the customer in one shot. In a subscription model, however, there is a risk that the customer may cancel or leave before hitting the breakeven point in terms of revenue. While this risk is real, you do have control over what happens.
If the product/services and customer experience are tailored to maximize customer delight, chances are you will have the customer for life. Magnaquest provides just flexibility and robustness required to manage challenging B2B subscription business requirements. That will enable you to get the opportunity to keep engaging your customers month on month across touchpoints and collecting valuable data about usage and behavior.