What is subscription management?
Subscription business models are everywhere – from streaming entertainment and software-as-a-service (SaaS) – all the way to dog food deliveries and wardrobe management. Many new brands have seen huge success, growing their membership into the multi-millions. And even traditional companies have evolved their business models to take advantage of the recurring revenue and long-term customer relationships that subscription businesses provide. In fact, according to Gartner, nearly 60% of companies are now incorporating subscription services into their established business models.
But even though subscription models are growing in popularity, they can be complicated to manage. Pricing, bundling, customizations, usage tracking, changes, and accurate billing must be seamless – at scale – or customers will look elsewhere. This is where subscription management software comes in.
Subscription management defined
Subscription management is a type of software that helps companies track and manage all activities related to their subscription offerings. It supports full lifecycle capabilities – from designing subscription plans to onboarding subscribers, managing pricing, automating billing and payments, handling changes to subscriptions, and tracking revenue.
Ultimately the purpose of subscription management – and a subscription management system – is to help companies monetize subscription business models and ensure they are successful.
Why is subscription management important?
As opposed to traditional sales, subscriptions can offer predictable, ongoing revenue – but these models can be difficult to manage.
Companies not only need to create offerings that are in demand, but also build long-term relationships with customers. Poorly managed subscriptions can result in higher churn and eroded brand reputation. A subscription management platform not only streamlines the management of all relevant processes, but also fosters long-lasting customer connections through tailored offerings and seamless, secure payment management.
From telecommunications billing to subscription billing at large
Telcos were pioneers in complex subscription billing. For decades, they’ve collected consumption data, calculated charging and billing information (including discounts and promos), processed payments, and managed debt collections at scale.
Today, this model has expanded far beyond the telecom industry with many different types of companies offering anything-as-a-service (XaaS) on a subscription basis. The most common examples of this are in the IT industry, with vendors offering software, platforms, infrastructure, databases, analytics, and more “as a service” in the cloud. But other industries have joined in too, offering everything from equipment-as-a-service to supers-as-a-service – where homeowners can access maintenance services and repairs on demand. The sky’s the limit to what companies can package into recurring revenue streams.
Common subscription pricing models
Subscription pricing models generate recurring revenue at regular intervals – monthly, quarterly, semi-annually, or annually. There are many different models to choose from, depending on your product and service type or customer needs.
Some of the most common subscription pricing models include:
- Flat-fee pricing: As the name suggests, flat-fee pricing is a fixed rate charged for a product or service with set features, charged on a monthly or yearly basis. It is the simplest pricing model and is ideal for companies with limited offerings – where resource consumption doesn’t change much from customer to customer.
- Usage or consumption-based pricing: In this model, customers only pay for what they use. The most familiar example of this is water or electricity charges, but any organization can set up subscriptions that use consumption metrics – or a combination of metrics depending on their market or industry. This type of pricing can also be set up as a base price plus an extra charge for additional usage, as is common with many mobile data plans.
- Tiered pricing: Tiered pricing allows companies to offer a variety of price points for different sets of products and services, such as a basic, standard, or a more advanced premium tier. Companies with a diverse customer base and offerings are ideal candidates for tiered pricing which allows them to cater to discrete segments with varying needs and budgets.
- Top-up pricing: Top-up pricing is just as it sounds. Customers can “top up” their account and carry a credit balance to draw from for future charges, often on a pay-as-you-go basis.
- Commit-to-consume pricing: Some software can support more complex pricing models, such as commit-to-consume where customers pay less upfront in exchange for committing to use the product or service over a set time period. Customers who don’t fully honor their commitment may still be charged for the outstanding contract amount or for the difference between the discounted price and full price.
- Outcome-based pricing: Under this pricing scenario, prices are set according to results achieved. “Outcomes” are predefined and tangible, based on financial impact and KPIs, or a guaranteed, specified outcome over the contract period (uninterrupted service, for example). Thanks to the Internet of Things (IoT), AI, and other technologies, providers are better able to predict, measure, and control outcomes, making this a more viable business model with an added bonus: because customers pay based on what they think it’s worth, they tend to be more satisfied with the offering.
Subscription management software that can support a wide array of pricing models offers companies the flexibility to find the right mix for their business and customers.
10 essential subscription management software features
Capabilities among solutions vary, but these are the top ten features to look for in a subscription management system:
- End-to-end subscription lifecycle management. Support for managing the whole subscription lifecycle on a single platform – from sales quotes and order management to usage tracking, billing, collections, and revenue recognition and reporting.
- Product and service bundling. An easy way to bundle products, services, and subscriptions provided by you and/or third-party partners – and to provide the bundle as a seamless, single offering. Take, for example, a car OEM that offers a packaged bundle of services for roadside assistance, insurance, and vehicle maintenance.
- Support for multiple pricing models. Often, a subscription business needs to manage multiple pricing models. The best software can support everything from one-time, recurring, and usage-based pricing to buy now/pay later models and everything in between. SAP’s software, for example, supports unlimited pricing and flexible payment options.
- Personalization. The ability to personalize offers – based on subscription details, usage, payment history, credit profile, and more – can lead to more effective renewal, upsell, and cross-sell programs.
- Seamless customer experiences. Five-star customer service tools for delivering accurate and timely sales quotes, orders, billing, rebates, and dispute resolution.
- Automated downstream processes. Automated processes based on revenue model – including fulfillment orchestration, intercompany billing, partner settlement, AR invoicing, revenue accounting and reporting, and the entire quote-to-cash process.
- Fast and easy changes. A quick and intuitive way for authorized users to make pricing, billing, and other changes that take effect immediately and don’t interrupt the billing process.
- High performance billing platform. For popular or fast-growing subscription services, the ability to handle a large volume of billable events without a glitch is critical. SAP’s platform, for example, can process millions of billing transactions (or events) in minutes.
- Localization. Localization features that support different languages, currencies, and country-specific accounting regulations and standards – so you can expand into new territories.
- Compliance. Automate revenue recognition, reporting, and compliance with the latest accounting standards (including IFRS 15), tax requirements, and country-specific regulations.
Why SAP for subscription management software?
Accelerate the monetization of your subscription business with SAP. Using our solutions, you can quickly deliver innovative subscription-based products that meet customer demands for flexibility, value, and personalization. End-to-end automation and subscription management capabilities can automatically leverage the back-office capabilities of S/4HANA Cloud. And with subscription management solution natively integrated, businesses can hit the ground running. As your business grows, our cloud solutions allow you to pivot, add capabilities, and optimize your operations as and when you need – with software that is built to grow along with you.
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