Subscription plans have been around for some time, but they really only gained momentum over the past few years. According to recent statistics, subscription businesses grow 5-8x faster than traditional ones.
While subscriptions do not work for every business, there is a surprisingly large number of businesses that can be covered by subscriptions if you start thinking about it. Apart from the obvious and large players such as Netflix, Spotify, Google, Amazon or Microsoft more and more businesses across all industries have started experimenting with subscription plans, and some of them even changed their complete monetization models towards subscription plans.
For businesses, the main advantage of subscription models is that they receive predictable and repeatable revenue.
Knowing how much money is coming in every month helps you streamline everything from sales forecasting to inventory planning. It also means you know how much you can reinvest into the growth of your business. Based on the number of subscribers you have, you can calculate your Monthly Recurring Revenue (MRR), which is the amount of predictable revenue you get per month from subscribers.
The simplest way to calculate your MRR is by multiplying your number of active subscribers with the price of the monthly subscription as depicted below. For more advanced models, you will want to consider monthly churn and look at your Net MRR that also considers reactivations, upgrades, downgrades, and churn of your subscription plan.
MRR = Number of Active Subscribers * Price of Monthly Subscription
This article provides 7 techniques on how to improve your subscription revenue:
- Offer a free entry plan
- Give discounts for longer-term subscriptions
- Let people try before they buy (Free trial)
- Be transparent
- Highlight customer testimonials
- Provide a customer-centric offering
- Make it easy to pay
#1. Free Entry Plan
Your entry-level or basic package should often be a free option. This isn’t feasible for all businesses. However, if you’re selling software or any other type of intangible service, it’s a great way to hook a new user.
When users decide to go with the free plan, you can still try to upsell them to a paid subscription - ideally after they have experienced the Aha moment or even habit forming moment of your product to increase the likelihood of conversion.
Grammarly, an English writing assistance app, has a good example of a freemium plan.
Apart from the subscription model, you may also have other monetization models (e.g. ads, transaction fees) in your product that you can utilize in such a free plan.
On the other hand, by offering a free plan, you need to consider that you will also lose a certain percentage of leads to the free plan who might have selected a paid subscription plan if they had no option of a free plan. This needs to be considered in your UX design so that the freemium plan is not the most appealing one. You may even go one step further, and show the freemium plan option only to a certain subset of users who are about to churn (e.g. after a certain period of time, when they want to skip the plan selection, or by segmenting users based on certain parameters they might have provided prior to selecting the plan).
# 2. Give discounts for longer-term subscriptions
We are big fans of yearly plans, but it comes with a risk of reducing your potential revenue as yearly plans are usually discounted at 20-30% compared to monthly plans. So if your product sees low monthly churn rates, you may want to stay with offering purely monthly plans. Having said that, there are many benefits of yearly subscriptions:
- Immediate and significant impact on your cash flow. By generating more cash upfront, you can fuel your acquisition quicker than with monthly plans.
- Users have more time to experience your product and create habits around its usage. This reduces overall churn.
- By signing up for a yearly plan, your customers have committed to using your product which in turn may lead to higher engagement.
- The revenue generated from a yearly plan may already get you towards a sufficiently high customer lifetime value (reminder: a good rule of thumb is to have a ratio of 3:1 on your customer’s lifetime value vs. customer acquisition cost).
One prominent example for yearly subscriptions is Calendly. Calendly offers all of their subscription plans to be billed either monthly or annually at a 20% discount.
2 year or lifetime plans
You may already offer a yearly plan, so why bother introducing a 2 year plan or lifetime plan? There are again a number of good reasons for it. First of all, you are basically augmenting all the benefits from a yearly plan: you increase your immediate impact on your cash flow, higher customer commitment, etc.
This plan is usually not designed for the masses but even if this plan is not for everyone, the implementation is usually not too costly and there will always be a percentage of your users who are interested in such an offer. For instance, these might be customers who love your product or users who want to get the highest discounts knowing that they will use your product for more than one year.
Something else to consider with introducing a 2 year or lifetime plan is that even if the plan may not see the highest conversion rates, it may help you nudge your customers towards your preferred plan. Make sure to consider all the psychological aspects around subscription plans and pricing in general (we will write about this another time).
In the screenshot below you see the lifetime offer of BetterMe, a Health & Wellness app.
#3. Let people try before they buy. (Free trial)
Maybe you cannot go as far as offering a free plan, but in most products you will be able to give away at least a few days or weeks of usage for free. The advantage of this model is that it allows your customers to experience an Aha or even Habit forming moment which they would not have experienced otherwise.
You should choose the period of the free trial in such a way that it allows your customers to experience at least the Aha moment. For a music streaming app like Spotify a few days might be enough for this (e.g. listening to a certain number of songs or finding a certain number of your favorite artists) while for other products it may take up to 4 weeks until customers see the value in the product in action (e.g. in Calendly it takes some time until others make use of your Calendly link to schedule meetings but once they do you immediately see the time savings). Allowing your customers to experience the added value of your product for free, consequently, increases the chances that your customer will sign up for a paid subscription at the end of the trial (or actually that they will not cancel).
#4. Be transparent
Subscription plans need to be described in a transparent way. Your customers need to know what they get and how much they are paying for it. They need to be able to cancel or change plans at any time. And for the B2C world, please do not have them go through your customer support team that is only available at certain hours of the day to accomplish this. This will backfire and lead to negative reviews.
Your subscriptions, obviously, should renew automatically. When it comes to communicating subscription renewals, the way most companies work is that they do not communicate monthly subscriptions since these are visible on your customer’s bank statements anyways and many banks nowadays even send push notifications for any charge so that your customers have sufficient visibility into this already and another notification may just be perceived as spam. A good practice, however, is to communicate upfront about yearly subscriptions as these are usually more significant amounts charged at a lower frequency.
The figure below shows one example with a transparent subscription offer, and one example with an intransparent subscription offer where neither the billing frequency nor the price are stated.
#5. Highlight customer testimonials
A great way of boosting your subscription revenue is by highlighting your customers’ testimonials. This does not only provide customers with a better understanding of what your product is about, but it communicates the values and the outcome your customers have experienced. And it communicates this in the voice of your customer - no need to engage your copywriter.
For certain products, such testimonials also provide trust. Your product may not be as well-known yet, but reading what people have to say about it and maybe even seeing some sort of ratings can give your prospective customers the confidence to give your product a try.
The example below shows a screenshot from Strava’s mobile app and how they use testimonials on the subscription plan screen. You can see that the testimonial speaks to the value of the app being a motivator and pushing yourself which is one of the main reasons why consumers turn to fitness apps in the first place.
#6. Customer-centric offering
For subscription plans to work best, you need to build them around your customers’ needs and your product’s values just like for any other offer. If there is no value, you will not be able to charge for it - let alone charge for it repeatedly. Once you have done your homework around your product’s value proposition, make sure to highlight it properly as part of your subscription plan as well. Do not provide long lists of features to distinguish the plans, but rather focus on the main value and outcome that your customers experience with each plan.
#7. Make it easy to pay
Like for eCommerce sites, for subscription plans to work properly, you need to make the payment experience as frictionless as possible. A few simple ways to accomplish this is by
- Offering the locally preferred payment methods. These might be very different from country to country. For instance, in the DACH region SEPA direct debit payments are quite common for consumers while in the US you hardly ever pay using ACH. In China, you will need to offer AliPay, in Russia you should consider Qiwi, etc.
- Offering multiple payment options. If you do not cover your customer’s preferred payment method, they might look for an alternative provider.
- Including options with as little friction as possible. Particularly for mobile apps, make sure to include payment options such as Apple Pay or Google Pay which are among the most frictionless since they require less steps than adding a credit or debit card manually.
See below for a sample from Stax that offers a number of different payment options, including a number of local ones that you might not have heard about before.
In addition to making it easy to pay, you also need to ensure that recurring payments are going through since there are many (involuntary) ways of how payments can start failing after some time such as expired credit cards. We will write about how you can improve your payment success rates in a later article based on our very own success story where we improved payment rates by more than 50%.