Subscription management overview

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.

But even though subscription models are growing in popularity, they can be complicated to manage. Pricing, bundling, customisations, usage tracking, changes, and accurate billing must be seamless—at scale—or customers will look elsewhere. This is where subscription management software comes in.

Definition of subscription management

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 monetise subscription business models and ensure they are successful.

Why is subscription management important?

Unlike traditional sales, subscriptions can provide predictable, ongoing revenue—but these models can be challenging 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 relationships through tailored offerings and seamless, secure payment management.

From telecommunications billing to subscription billing at large

Telecoms were pioneers in complex subscription billing. For decades, they have collected consumption data, calculated charging and billing information (including discounts and promotions), processed payments, and managed debt collections at scale.

Today, this model has expanded far beyond the telecoms 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. There is no 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, half-yearly, 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 does not vary 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 organisation 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 range of offerings are ideal candidates for tiered pricing, which enables them to cater to distinct segments with varying needs and budgets.
• Top-up pricing: Top-up pricing is exactly as it sounds. Customers can “top up” their account and maintain 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 period of time. Customers who do not fully honour their commitment may still be charged for the outstanding contract amount or for the difference between the discounted price and the 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:

1. End-to-end subscription lifecycle management. Support for managing the entire subscription lifecycle on a single platform—from sales quotations and order management to usage tracking, invoicing, collections, and revenue recognition and reporting.
2. Product and service bundling. An easy way to bundle products, services, and subscriptions provided by you and/or third-party partners—and to offer the bundle as a seamless, single package. Take, for example, a car OEM that offers a packaged bundle of services for roadside assistance, insurance, and vehicle maintenance.
3. Support for multiple pricing models. Often, a subscription business needs to manage multiple pricing models. The best software can support everything from one-off, 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.
4. Personalisation. The ability to personalise offers—based on subscription details, usage, payment history, credit profile, and more—can lead to more effective renewal, upsell, and cross-sell programmes.
5. Seamless customer experiences. Five-star customer service tools for delivering accurate and timely sales quotations, orders, invoicing, rebates, and dispute resolution.
6. Automated downstream processes. Automated processes based on revenue model—including fulfilment orchestration, intercompany billing, partner settlement, AR invoicing, revenue accounting and reporting, and the entire quote-to-cash process.
7. Fast and easy changes. A quick and intuitive way for authorised users to make pricing, billing, and other changes that take effect immediately and do not interrupt the billing process.
8. High-performance billing platform. For popular or rapidly growing subscription services, the ability to handle a large volume of billable events without a hitch is critical. SAP’s platform, for example, can process millions of billing transactions (or events) in minutes.
9. Localisation. Localisation features that support different languages, currencies, and country-specific accounting regulations and standards – so you can expand into new territories.
10. Compliance. Automate revenue recognition, reporting, and compliance with the latest accounting standards (including IFRS 15), tax requirements, and country-specific regulations.