- Statista estimates the global digital subscription economy will be worth $1.5TN by 2025.
- In 2020, the average consumer paid for 12 subscriptions, with Millennials paying for an average of 17 subscriptions.
- Video and music streaming services are the most popular types of subscriptions.
What is ‘the subscription economy’?The term ‘the subscription economy’ refers to the increasing popularity of subscription business models, described as “a recurring revenue model in which customers pay a weekly, monthly, or yearly fee in exchange for your products or services.” Adopting a subscription model enables businesses to create long-term customer relationships that provide a steady stream of recurring revenue. Plus, small monthly subscription payments are easier for customers to afford than big-ticket one-off purchases. The “set it and forget it” nature of signing up for a subscription is a convenient way to access valuable services, while some services—such as a car rental subscription service—provide consumers with more choice than they would usually have. Despite their recent popularity, subscription business models aren’t anything new—milkman and magazine subscription services have been around since the 1800s. However, in recent years, businesses of all shapes and sizes (from Netflix to Dollar Shave Club) have embraced subscription models to great effect.
Types of subscription modelsWhile subscription models all share the same basic premise, the way in which these models work vary from industry to industry. Let’s examine the differences between three different types of subscription models: SaaS, E-commerce, and media/entertainment.
SaaSSaaS (software as a service) companies tend to adopt a subscription model as a standard. They generally provide multiple tiers of services to suit their customers’ varying needs and budgets. Customers can pay for what they need and scale their subscriptions as their needs grow.
E-CommerceE-Commerce companies use an approach commonly referred to as the ‘subscription box model’, regularly sending customers boxes of their products. For example, customers might sign up to receive a box with a home dinner kit, or one filled with cosmetics products.
Media/EntertainmentMedia/entertainment companies were among the first to adopt subscription models en masse, with Netflix demonstrating just how effective the model could be. Other companies have quickly followed suit—according to The Drum, the total number of global streaming subscribers surpassed 1.3BN in 2021.
How you can increase your cash collectionsWhile subscription models offer benefits to both customers and businesses alike, there’s a downside—there are plenty of opportunities for missed payments. If customers close their bank account, become overdrawn, or run out of credit, their payments will automatically stop. Companies must ensure they have a strategy to increase cash collections when expected payments stop coming in. By following the five steps listed below, they can do just that.
- Sending pre-collections reminders
- Digitise collections processes
- Test different dunning messaging
- Segment customers
- Monitor your payment insights to adjust your collections strategy
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Prioritise collections to shore up your subscriptions businessBy focusing on collections, subscriptions businesses can eradicate missed payments and build a more stable business all-round. However, this doesn’t mean they need to hire a team of collections agents. Collections management software provides subscription businesses with an all-in-one portal where they can devise dunning strategies, send out messages en masse in just one click, analyse customers’ behaviour, and segment them accordingly. In other words, it acts as a single source of truth for their entire collections operations. The post How Can Your Subscription Business Improve Its Collections Performance? first appeared on receeve.
Originally posted on receeve