Entering the Subscription Economy Via Cloud Accounting
According to Zuora, the overall "subscription economy" has grown more than 435 percent over the last nine years, outpacing traditional business growth. Even major fast-food chains are jumping on the subscription service bandwagon, with Taco Bell most recently offering the Taco Lover’s Pass. This strategy can be seen as a more reliable stream of revenue for businesses looking to appeal to consumer demand for unique products and efficient service — especially as we've seen a pandemic-driven change in how people shop.
For those either looking to fully jump on board or dip their toes into creating a successful subscription service, here are some things to keep in mind:
- Customer preferences should be at the core of every business decision. Therefore, creating a seamless and convenient user experience from start to finish should be priority one.
- When it comes to making your subscription service stand out, remember that you’ll have to earn your money each and every month. Maintain brand loyalty with a customer-first experience and find ways to upgrade your offerings to keep them returning.
- When starting your subscription service, see how you can work out your pricing tiers to ensure you have the right subscription bundles. Create a fair value exchange and an upgrade path to grow your average monthly subscription as the business grows.
One thing that’s essential when launching a new service is finding an accounting solution that allows you to have a full understanding of the financial health of the company. Cloud-based accounting allows businesses to access real-time financial data from anywhere. Being able to track revenue and spend as well as getting access to dashboards with financial insights covering cash flow and bank balances allow business owners to make more informed decisions or adjustments to their subscription offering. Additionally, being able to look at insights around your product or service lines and how they're performing, particularly around margins, can help ensure you're balancing pricing in a fair way that's sustainable and profitable for your subscription service. You’ll have a better understanding of customer needs and how to grow your average monthly subscription base, putting you in a position for future growth.
Keep in mind — even from a general business perspective — the most important thing is to have proper billing, invoicing and member management systems in place to support the business and its ongoing growth. When it comes to managing the finances for a subscription service, there are additional challenges businesses will face while integrating subscription information within financial systems. Therefore, the tools you’re using need to simplify the financial process — not only for your own time and mental sanity, but also for the user experience.
One idea to simplify the process for consumers is offering a simple or flexible payment option. For example, you can accept subscription payments online through payment providers like Stripe and GoCardless. They also allow you to automate invoicing to help enable faster payments on a recurring basis by automatically charging the customer when the payment is due, alleviating late or missed payments. Apps like Chargebee automate subscription accounting and create a frictionless subscription experience for consumers. But you don’t have to be overwhelmed by the choices. Again, the right cloud accounting platform will already be integrated with many apps that can benefit your business and subscription service.
Consumers love subscriptions — and many businesses don’t want to be behind on the trend. However, don’t rush into a new offering without making sure your business will be financially sound at the end of the day. Work with your cloud accounting partner and accountant as guides as you engage in a new form of economy.
Ben Richmond is the U.S. country manager for Xero, an online accounting software.
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Ben Richmond is the US Country Manager for Xero, an online accounting software.