What Is Subscription Management? A Complete Guide

Learn how to monetize your subscriptions with the customer front and center.

May 17, 2022 | 8 minutes

Subscriptions come with great promise: the promise to build customers for life, and drive predictable growth. But promises are not reality, and building a subscription business is no guarantee that you’ll realize its benefits. Enter subscription management. It puts your subscription business on a launchpad. Then it lights a flame.

Below we’ll look at how subscription management helps CFOs and CROs create world-class buying and paying experiences — driving loyalty, renewals, and growth.

What you’ll learn:

 

What is subscription management?

Subscription management is a business framework that uses tech-driven automation and shared data to optimize how you deliver subscriptions (where customers pay on a recurring basis for access to your product or service). It creates better customer experiences across the buying journey, driving adoption, renewals, retention, and growth.

Why is subscription management important?

Point yourself in the direction of your dream: a subscription business that hums with predictable growth. That only happens when customers continue to renew. Subscription management makes this possible. It helps you create easier and faster experiences — from buying the product to using it and paying for it — that keep your customers active.

In one-time sales, you hit your targets by acquiring new customers. But in a recurring revenue business — like those that run on subscriptions — revenue depends on retaining existing customers who pay on time and renew. That’s the goal of subscription management — keeping your customers engaged so you achieve top-line subscription growth.

Customer retention is the key to subscription growth.

Imagine this: A customer has to call up a sales rep every time they want to buy a subscription. Then, when they want to make a change request, they have to call up a sales rep again — who calls up finance. Clunky. In the background, the system is clunky, too. Teams wrestle with spreadsheets to manually update invoices and apply credits.

With subscription management, the scenario looks different. The same customer would buy and update their subscription instantly and online. They could also choose to engage with a sales rep to seek extra help. Updates like pricing changes are applied to the bill automatically. It’s a string of positive interactions that leads to happy customers and renewals.

There’s a lot that subscription management handles in the background to make this possible — bringing customer data into one place, replacing disconnected tools with one platform for every team, and running automation and AI-powered analytics throughout. But what it all comes down to in the end is experience.

Subscription management improves customer experiences across the business.

Customer experience is everyone’s job now. As you interact with your customers constantly, not just here and there, subscription management helps you deliver delight from every corner of the business, so customers are happy to buy and pay.
 

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How does a subscription management solution work?

A subscription management solution helps you deliver customer delight with one seamless experience from purchase to adoption to renewal. This experience is powered by behind-the-scenes processes and technology, automating the flow of data across product catalog management, order management, fulfillment, and billing.

That last part — billing — might be the most intimate customer interaction you have. It’s when everything comes to a head: “Did they get the value that was promised? Are they happy to pay?”

Growth depends on the answer being “yes.” A subscription management solution can help you get there. Let’s look at how it works from start to finish at Salesforce.

1. Customers shop and pay for B2B products over any channel, including self-service.

Admins can easily set up new subscription products alongside one-time products, with options to pay according to different pricing models — and push those products out over self-service channels like your website. Customers can then select products or connect with reps for more help before purchasing.

2. Sales reps step in to capture customers who need help and close deals fast.

When a customer requests changes to their order before purchasing, reps can go into the subscription management tool and easily update deals on the back end — by changing quantities and applying discounts, for example. Then, they can push out the new pricing and terms to the customer to close the deal without leaving money on the table.

3. Sales and customer success teams nurture ongoing subscriptions and grow customer relationships over time.

Customers can continue to make changes to their subscriptions over self-service channels. Reps can also (gently) nudge them, as needed, to renew or upgrade — with revenue intelligence lighting the way. Teams on the back end get visibility into customer buying history and behavior, while AI-enabled tools recommend next best offers to send.

4. Finance creates accurate invoices and gets paid on time.

As customers buy and make changes to their subscriptions, all these transactions are managed automatically on the back end. Orders are generated, invoices are created, and payments applied.

This automation is made possible with the integration of customer data across every touchpoint in the subscription buying journey. It replaces all the manual handoffs between sales and finance that can lead to errors and bad customer experiences. Now, finance can be confident that the quote always matches the invoice.

💥 Bam! Now that you know how subscription management works, let’s look at common pricing models that you can use to get your subscription business off the ground.

 

Wring out more revenue from your subscriptions.

Learn how Revenue Cloud helps you activate every channel, transform the buying experience. and create recurring growth.

What are the most common subscription pricing models?

There are many different kinds of subscription pricing models to choose from, but some of the most common ones are below. No one model is better than the others; each one is designed to support specific product/service types and customer needs. Here’s how they work:

  1. Static pricing: A static price is used for each product, as defined in your pricebook.
  2. Usage (or consumption) pricing: A price is based on usage. For example, an internet provider might offer 2GB of data for $10/month and 5GB for $15/month.
  3. Contracted pricing: A pre-negotiated price per license. This pricing model is important for self-service because it doesn’t require negotiations with sales reps to purchase more.
  4. Percent of Total: One product is priced as a percentage of another. For example, add-on support is offered at a price based on the cost of software or hardware.
  5. Block (or tier) pricing: A price based on quantity blocks or tiers. For example, a company selling enterprise software might charge $200 for 1 to 5 licenses, $150 for 6 to 10, and $100 for over 11.

Some companies — like software-as-a service (SaaS) companies — have subscriptions in their lifeblood. (We’re one of them.) But don’t let that fool you into thinking that subscriptions aren’t right for you, too. In fact, subscription pricing has touched every B2B industry.

Here’s a look at how key industries are putting subscription pricing into motion.

Examples of subscription pricing models in B2B companies across industries.

 
 

Financial Services

 

Communications and Media

 

Manufacturing

 

Professional Services

Building and combining the right pricing models helps you tailor your subscriptions to the customer so they sell. Subscription management helps you maximize the revenue you get from them. The goal is to create recurring revenue growth. We share how to track it below.
 
 
 
 
 

How do you track recurring subscription revenue?

In business, you are what you measure. To track recurring subscription revenue, you need to choose the right metrics to perform against. The two most popular recurring revenue metrics are monthly recurring revenue (MRR) and annual recurring revenue (ARR).

In a traditional B2B business model, customers might sign up for multiyear contracts and pay in installments, or sign up for short-term engagements with no renewal period. In either example, revenue streams and sales pipelines are spiky because they depend on new sales.

By contrast, a subscription business depends on regular renewals of existing sales. So unlike one-off sales revenues, recurring revenue is predictable. You can count on it to occur again and again, which makes it easier to plan ahead. That’s why increasing your MRR and ARR can be powerful new goals.

Here’s a basic formula for calculating MRR:

👩🏻‍🦱 New customer subscription revenue

💰 Existing customer subscription revenue

📈 Add-on and license upgrade fees from existing customers

🏃 Lost revenue from customers who leave

📉 Lost revenue from license downgrades or removed add-ons

ARR is calculated the same way as MRR, but instead of predicting revenues month by month, you’re predicting them for the next year. (Read this article for a deeper dive.)

If you have the right subscription management tool in place, you won’t have to worry about calculating this manually — the work will be done for you. But you need a CRM that gives every team total customer visibility, together with the automation and analytics to help.

Let’s dive in to how subscription management software can help make this possible.

What are the most important subscription management software features?

Winning with subscriptions means putting the customer at the center of everything that you do. The best subscription management software makes that easy with features such as deal and transaction management to help sales reps close deals fast and grow relationships. Then, billing and revenue management tools — with built-in automation — give finance the power to stay on top of payments.

Here are the key subscription management software features to look for:

🛒 Self-service buying

Customers want B2B buying to feel as easy as ordering cat food online. That’s what self-service is all about. And as customers buy through self-service channels like your website, all the associated transactions — from the order to the bill — should be automatically generated on the back end. Your self-service engine should also be able to support multiple pricing models.

🤝 Deal management

Managing subscriptions is great, but first you’ve got to sell them. Subscription management software should offer deal management features that helps sales reps step in to rescue deals that are stalling and close them fast, with tools that let you apply discounts, for example, and automate approvals within guardrails.

🔎 Dashboards and reports

You can’t grow what you don’t see. Subscription management should provide cross-team visibility into important customer data and key performance indicators (KPI). The best dashboard visuals take live data and turn them into at-a-glance views of customer behavior and company performance so you can go from insight to action within the same system.

🧾 Unified billing engine

Every subscription action has an equal finance reaction. That’s a lot of reactions. A unified billing engine can help you speed up cash collection and improve the customer experience by leveraging up-to-date data from across the buying journey. Every transaction automatically generates consolidated invoices — no matter the charge type, sales order, or payment schedule — and applies the payment.

💡 Artificial intelligence (AI)

AI sounds fancy. Really, it’s just math that makes predictions — the next best offer to send, who’s prime for an upgrade, or who’s likely to become delinquent on payments. Sales and finance can lean on AI like a freakishly smart co-worker to seize opportunities and mitigate risk.

Next Steps.

Learn more about subscription management and how to run a subscription business with the resources below.
 

More Resources

 
Guide

The CFO's Guide to Managing a Subscription Business

Video

Revenue Cloud Demo

Guide

Revenue Cloud Product Page

 
 

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