With its promise of predictable recurring revenue and consistent cash flow, the subscription industry is booming. However, the health of any subscription business depends on its ability to retain more customers as much as it depends on acquiring new ones.
In such a scenario, if you are managing your subscribers manually, you might find it hard to balance your focus between customer satisfaction and business development, and neglecting either one can eventually lead to increased churn and decreasing revenue. To avert such undesirable outcomes and manage customer operations more easily, you can harness the power of automation by switching to a subscription management system. This type of system automatically handles mid-cycle subscription changes, deals with payment failures, establishes effective communication, provides insightful analytical reports with KPIs that aid in decision making, and much more.
This guide will walk you through subscription management, how it differs from recurring billing, and the key role it plays at each stage of the subscriber life cycle.
What is subscription management?
Subscription management is the process of handling all customer life cycle operations, from the moment a customer signs up for your product or service until the customer cancels their subscription. This includes a wide range of processes, such as issuing invoices, processing recurring payments and refunds, managing customer communication, and handling plan upgrades and downgrades.
How is subscription management different from recurring billing?
The terms subscription management and recurring billing are often used interchangeably, but they are two different things.
Recurring billing is the process of charging customers on a repeated basis at scheduled intervals. It deals with generating invoices, including handling proration and location-specific taxes. Subscription management, on the other hand, is about handling all the operations in a customer’s subscription life cycle, such as managing trials; issuing discounts, coupons, credits, or refunds; and making other mid-cycle subscription changes (upgrading, downgrading, renewing, pausing, reactivating, and canceling).
Both subscription management and recurring billing are crucial for a subscription business, where retaining customers is as important as acquiring new ones. A flexible subscription management solution with an efficient billing system can streamline both processes by automating the key workflows involved.
Why is a subscription management system important?
Subscription management helps manage the entire customer life cycle from start to finish. From onboarding through automating and customizing billing, processing payments, managing multiple plans, and offering customer support, everything is taken care of seamlessly. The automation factor of a subscription management system not only cuts down your administrative costs but also ensures that all of your operations work together smoothly.
Now let’s look at some of the common operations that a subscription management system covers and see how efficiently it handles each of them during a typical customer life cycle.
Your company’s efforts in product development, financial planning, and marketing won’t bring you success if your ideal prospects don’t hit that “Sign up” button in the first place. From offering discounts and coupons to free trials, you can use a number of different strategies to attract and retain customers, and the subscription management system helps you implement each one of them effortlessly.
Offering free trials is a popular strategy among SaaS businesses to win over visitors who are in doubt about purchasing a product. By providing free trials, you offer your customers a chance to see what your product is like before they commit, reducing the friction in customer conversion.
There are several factors to manage when it comes to free trials, such as setting the right trial duration, collecting credit card information during free trial signup, providing access to all features during the free trial, and engaging with leads who don’t subscribe after the trial expires.
A subscription management system handles the trial mechanism by treating the associated subscriptions independently of the normal billing cycle and plan price. After the customer’s trial period is over, it automatically converts the trial to an active subscription and processes the first and subsequent payments smoothly without any manual intervention from the vendor.
Discounts and coupons
Providing discounts and coupons is another way to attract customers who are hesitant to buy your product due to the pricing. They can also be used to reward loyal customers, to improve the sales of a sluggish product, or to motivate customers to buy a newly introduced product. However, discounts and coupons involve a lot of variables, like discount type (percentage or fixed amount), redemption type (one-time, stipulated time, or unlimited), and discount expiration date. They all need to be handled carefully to get the desired outcomes and avoid losing money.
With an efficient subscription system, it’s easy to incorporate any discounts, coupons, or promotions and monitor their impact on your sales and reputation.
During the course of the subscription
After customers sign up for your product, the subscription management system handles the whole wide range of operations.
Manages subscription plan changes
If customers want to upgrade to a higher-tier plan or downgrade to a lower-tier plan in the middle of the billing cycle, the plan migration details have to be updated in the customer’s account. This often also requires accounting adjustments such as prorating the charges for the new subscription, canceling some charges, or partially reversing the charges on the old plan. These calculations have to be factored into your accounting if you want to track your revenue and check whether your monthly recurring revenue or MRR has increased or decreased.
If you’re using a subscription management system, it automates the whole process and generates invoices that reflect any plan migrations.
For instance, if a customer upgrades their subscription, the system calculates the difference in the subscription cost for the remaining days in the current subscription cycle (proration), then ensures that the new price is reflected in future invoices. If a subscription is downgraded, the system makes the adjustment and issues credits within the billing cycle, ensuring that future invoices reflect the reduced price.
Empowers customers through self-servicing
An intuitive subscription management system goes the extra mile and empowers customers to adjust their subscription plans and preferences through a self-service portal. A self-service portal allows customers to create and update their subscription information as needed without reaching out for support assistance. You can also allow them to upgrade or downgrade their subscription on their own, and pause or cancel their subscriptions if they want. This kind of automation not only reduces the workload of your support team but also has the potential to increase your MRR, as customers are more likely to upgrade if they can do it in a few clicks rather than by contacting support. And these changes are updated in the database across all departments so that every team has the most up-to-date customer data and there’s no risk of data mismatch.
Compared to traditional businesses, subscription businesses need to pay much more attention to communication and its vital role in preserving the customer-business relationship. That communication starts the minute the customer signs up for a trial and extends throughout the customer’s life cycle, in key events such as trial period expiration, usage alerts, payment reminders, credit card expiration, payment status, invoice emails, and even after subscription cancellation in the form of customer feedback.
Unlike the one-time engagement, a customer has while making a purchase from a traditional physical store, communication between a subscription business and the customers is ongoing. With the subscription management system, such customer-oriented communications are made through automated emails that can be customized, via in-app notifications, short personal messages, and so on.
Deal with payment failures
As a business collecting recurring payments online, at one point or another you might have to deal with failed payments. From technical glitches to outdated card information, payment failures may happen due to several reasons. And following up with each card failure and payment declines is next to impossible if done manually.
But with a customizable subscription management system, every action is tracked from lead generation all the way to payment collection and, you are provided with a clear subscriber history. This not only makes it easy to understand audit trials but also makes it almost effortless to address customer-related issues as and when they arise or even before they occur. For instance, dunning management is one of the crucial features of the subscription management system, which notifies customers proactively of their card expiration and follows up with them automatically in the aftermath of payment failure to recover the lost revenue.
Offers insights through reports
A dedicated subscription management system provides crucial reports that help you monitor and visualize revenue so that you can keep track of your income, find out which plan or product generates the most income, and plan your pricing strategy. The insights from these reports can be incorporated into your pricing adjustment plans, and your subscription management system can help you implement the pricing changes easily.
Additionally, a subscription management system facilitates compliance with revenue recognition standards. Revenue recognition is a process in which a payment made to a business is not immediately documented as revenue but rather spread over the whole contract period. It’s difficult to differentiate between earned revenue and deferred revenue (which is the advance payment you receive from a customer for the products or services that are to be delivered in the future. This money has not been earned yet hence can’t be reported on the income statement) manually or with spreadsheets.
However, a modern subscription management system automates the process and helps you quickly calculate accurate revenue information for use in audit trails, revenue forecasting, and budget planning.
Also, the system tracks some metrics exclusive to subscription businesses such as MRR, ARR, LTV, and churn, making it easier to plan ahead. For instance, you can run a product sales report to distinguish your strongest selling items from the sluggish ones. With that information, you might consider bundling a less popular one that has more sales traction to increase your MRR.
Facilitates essential integrations
An efficient subscription management system can interact smoothly with a number of software processes like CRM and accounting management, enabling you to pull or push critical data from other platforms as needed. For instance, by integrating your subscription management system with an accounting system, you can track when and where money flows with a click. This enables you to analyze the financial position of the business at any time and even predict demand fluctuations.
With Customer Relationship Management (CRM) integration, your customer service team can view customers’ payment histories and make personalized upsell and cross-sell offers. This helps you increase the value of your best customers while avoiding the risk of providing overly generous offers to customers who habitually don’t pay on time.
Ultimately, an integrated subscription system ensures that customers’ information is automatically updated, preventing data silos and helping different teams to stay on the same page and deliver a better customer experience.
Ensures payment security
To process recurring payments, a subscription business collects sensitive payment and contact information from customers. As a business owner, you owe your customers the certainty that all their information will be handled securely. Your customers should always feel confident in your company.
A robust subscription management system built with security as one of its cornerstones protects your customers’ data from payment fraud and information leakage and keeps the business compliant with world-class security measures such as PCI-DSS, GDPR, and EU-US Privacy Shield. This provides safety and peace of mind to both the business and its customers.
No matter how attractive your pricing is or how great your products are, customer cancellations are a fact of running a subscription business. But handling subscription cancellations can be tricky without a well-thought-out workflow. If you make mistakes, customers may continue to have access to terminated services or unearned credits, either of which can damage your profits.
With a subscription management system, you can keep those discrepancies in check.
When a customer cancels a subscription, most businesses don’t provide a refund. Instead, the subscription will be scheduled to terminate at the end of the current billing period and the customer will have continued access to the system until the cancellation becomes effective. By handling cancellations this way, you can avoid disrupting your cash flow and simplify the accounting process.
But when the need to grant a refund arises, your subscription management system can automatically revoke the customer’s access to the subscribed product immediately to avoid any reduction in revenue due to providing unpaid services.
If you have deemed an invoice to be uncollectible and decided to cancel the subscription due to non-payment, the subscription system can revoke the customer’s access, write off the invoices, and record the impact on revenue due to the cancellation, leaving no complex manual tasks for you to handle.
Minimizes involuntary cancelations
Sometimes churn isn’t intentional. Customers may forget to pay for their subscriptions, or they may not have sufficient funds to cover the payment on the renewal date. When this happens, instead of canceling their subscriptions due to non-payment, a subscription management system can follow up on these unintentional payment failures and try again to charge them after a certain amount of time. This increases your chance of recovering the revenue and retaining customers who want to do business with you.
Cancellations can be a learning experience. To better understand what drove formerly satisfied customers to cancel their subscriptions, a good subscription management system helps you collect feedback that you can use to draw valuable insights, predict customer demands better, and optimize your business.
Sometimes customers decide to return after cancellation. In this case, having your customer re-enter information for the same product they previously subscribed to is not optimal. A subscription management system keeps the customer account active even though their subscriptions are canceled, enabling the customer to re-subscribe later without any friction. When a former customer resubscribes and adds a valid payment source to their account, their access is simply reactivated and the customer is charged on a recurring basis again.
Keep in mind, though, that many businesses follow the practice of permanently deleting all the data of customers who canceled and didn’t reactivate within a specific period (typically in the range of 30 to 90 days). If you do so, customers will have to submit their information again to purchase a new subscription.
The subscription industry is continuously evolving to meet changing customer preferences. To be able to handle your subscribers’ life cycle operations and monetize the opportunities presented at each stage requires a flexible and robust subscription management system.
Zoho Billing is an end-to-end billing solution that lets you enjoy all the benefits of effective subscriber management. Try Zoho Billing to see how it gives your subscription business the agility to maximize customer experience and streamline your cash flow.