What is the Right B2B Subscription Model for Your Clientele?
More and more B2B companies are exploring the subscription world and making a switch from traditional outright sale and licensing model. Working up a subscription-based business comes with its share of challenges. For instance, which model suits your business as there are a plenty of them.
Choosing the right B2B subscription model for your business can get confusing and it is practically hard to run through each of them to understand which one lines up best for your business. If you feel a bit under the weather at this exercise, you are not the only one. But here are some good pointers in the right direction.
Read on to learn more on the major types of B2B Subscription models for startups, growing and enterprise-level companies, the ease and convenience secured under such models and other associated insights.
Types of B2B Subscription Models:
In this model, consumers are charged a fixed price for the product or service at the start of every billing cycle. You may offer various plans and you only need to decide the plan’s cost for each item on the list irrespective of the usage quantity. This model is preferred because it promises a predictable, continuous revenue stream. Companies favour this model for their subscription-based service as it provides them a basis for long term planning. Subscribers enjoy it because there is a lower cost of entry.
They can even offer subscription plans with a variation which functions like a ‘prepaid’ scheme. A Wallet with specific credits is made available to B2B subscription businesses for daily burn. The wallet is maintained at the defined level by bridging the gap as and when required based on consumption.
Usage-based pricing is a model based on individual customer consumption of the services. Customers are charged only when they use a product or service. Often, the customer is charged at the close of the billing cycle.
When looked at closely, this is not a new concept at all! Your monthly electricity and water bills follow the same model. Of late, software businesses are employing this model as the well-known Software as a Service (SaaS) or Infrastructure as a Service (IaaS) models indicate.
Billing and invoicing play a very important role in the success of this model. This is done by configuring complex operational workflows consolidated in a specific template to calculate the usage details for bill generation.
This is a system capable of uploading heavy duty user details in bulk. In the event of there being a lack you may integrate a highly robust the billing system like Sure, to your own in-house/ outsourced/ third-party tool.
To mitigate issues that crop up due to mistakes in billing that occur despite all precautions, you can devise a well-defined checking process. This is best done by a Pre-Billing verification process; to verify anomalous invoices before generating the bill to avoid errors in usage billing. We can even have approval mechanisms in place.
For Growing & Enterprise-level Companies:
For a growing or mature company nothing can be more frustrating than manual interventions to rectify or streamline operations. In such a scenario you need a subscription management system well-built to manage unpredictable outcomes without having to make pit stop detours but get the repairs done on the fly.
With such a structure, you can affect several measures that facilitate seamless growth. Here are some of the models that put you on an escalator growth path.
Tier & Volume based subscription models
Here you can charge a customer of a service based on the consumption of a certain number units as per pre-defined slabs. Various permutations can be applied as per the business needs while configuring these slabs. A few are detailed below:
- Tiered based cost-per unit: Multiple slabs of various ranges can be defined with a configured price per unit for units consumed within that slab range. Based on the units consumed, a customer will be charged as per the price defined for that slab. Price calculation is stepped up to the slab-range that fits the maximum consumed units.
- Tiered based cost-per range: Multiple Slabs can be defined with various ranges and a single price configured for the entire slab. Based on the consumed units, the slab is identified and the customer will be charged as per the price defined for that slab. It can go up till the maximum consumed units that fits a particular slab.
- Volume based cost-per unit: The price is defined in multiple slabs for volumes in a range. It is meant to reward higher consumption of units. As the number of units increases the price decreases. So, the price of a slab is inversely proportional to the number of units consumed.
- Stair step cost – per range: A flat price is defined for quantities in a range slab. Based on the consumed units, the slab is identified and the customer is charged a flat rate defined for that slab, i.e., no matter how many units you consume if that’s within a slab range you get charged a fixed amount.
Assume that your business could measure many data points, personalize, and charge your customers in real-time, then the value created per customer through your products or services can be immense. The progressive model is gaining traction for its innovative viewpoint. This is achieved through a fairer way of price determination since customers pay at a rate proportionate to the received value.
The Progressive Billing model works this way. An agreed contract period can be divided into multiple scheduled terms and the pricing can be configured differently for each term. Terms can be configured even for dates starting mid-month and the charges can be generated considering pro-rata rules defined. This model is applicable to all Tier & Volume based subscription models. Growing companies can simplify subscription offerings and minimize too many operational transactions through Progressive Deals, such as:
- Several upgrades and downgrades within a contract period.
- Any amendments during the contract period.
- Alternatively, you may also streamline back-end support to ease complexities. Simply identify the source of complications in customers’ choices and have a specific pre-offering deal.
For Operations in multiple countries and with multiple currencies
Handling multiple subscriptions of varied currencies also becomes a spanner in the works. This glitch may be resolved through the concept of Group Accounting. It simply means that you can categorize customers based on their currency and geography. The advantage being you can cater to the extraction of groups from a disparate universe of customers.
The hybrid pricing approach blends the tenets of usage-based and fixed pricing models. Actually, it contains a bit of all the above billing models to aid firms in better serving customers and chalk out their own course of revenue. This pricing model allows you to distinguish your business from other subscription-based companies. You can deliver an experience uniquely cut to fit individual needs of your customers.
The strategy of differentiation depends on providing lower prices when compared to competitors. This expert maneuvering is based on enhanced benefit-deliverability at low prices. Also manage adequate reinvestment perimeters with this.
Benefits of Choosing the Right Subscription Model:
The end objective of a subscription business is to generate recurring revenue from their services. Unlike a business that relies solely on the customers’ one-time purchases, recurring revenue through the right subscription model becomes a significant enhancement. Here’s where the subscription models augur well for B2B companies especially during deal negotiations with multiple vendors.
Negotiating a deal for renewal can be exhaustive when there is no automation. To avoid the upheaval stemming from prices that are in limbo, you have to choose a Subscription model that lets you come up with provisional billing in the interim and one that subsequently calculates the actual usage and automatically makes adjustments to the billing by assigning credits or debits as the case may be.
Since negotiations in such cases may be protracted affairs, for newer implementations, the actual start date may not be the same as the contracted start date. What better then, than having the flexibility of holding off billing until actual implementation.
There is a seamless automated process for resolving any dispute, irrespective of the cause for such skewed reporting, wherein the discrepancy is corrected in due course.
In terms of product usage renewals, billing convenience, customer retention, and churn minimization, choosing the right B2B subscription model can save you more than just a dime! It lets be at peace. B2B firms also expect an understanding and readiness to seize, interpret, and adapt their subscription systems to current buying habits and procuring environments.
Eventually, the object of B2B subscription pricing is to maximize long-term associations with customers and provide critical services to them. When done right, this steers recurring cyclical revenue and enhances customer familiarity.
The pathway to firmly embracing a subscription pricing model is simple. Implement the right B2B Subscription model to arrive upon a rational and strategic choice of a system that would assure a real seamless shift for the benefit of your customers and stakeholders.