The subscription business model is one of the hottest trends in commerce. Subscription e-commerce has doubled over the past five years, according to a recent report from McKinsey & Company, and roughly half of U.S. consumers have signed up for an online subscription of some nature.
For businesses, this rise in popularity of online subscriptions presents an opportunity for significant growth. Capitalizing on this very trend has helped Freedom enable users to reclaim 10 million hours of their time from distracting websites.Freedom launched as a tool to block distracting content on desktop computers so internet users could concentrate on the work they set out to accomplish. As more of our work migrated online, we started seeing a significant rise in demand for the product.
The way customers consumed content also began to shift with the increased adoption of mobile and tablet devices. For example, in December 2010, U.S. internet users spent a total of 543 billion minutes online, with 74 percent of that coming from desktop computers. By December 2016, usage skyrocketed to 1.50 trillion minutes, with just 31 percent of that from desktops and the remainder from smartphones and tablets.
These shifts in behavior presented a strong need for us to offer multi-device functionality for customers, which called for a requirement to design pricing that was suitable for device-specific usage. With the growing adoption of subscriptions, we decided to take a plunge and make a shift to a recurring revenue business model so customers could pay us a monthly fee to block websites across multiple devices.
What We Learned: The Need For a Customer-Focused Subscription Solution
One of the earliest lessons we learned after making the shift to subscriptions was that under a subscription model, monthly recurring revenue is directly related to customer retention rather than one-time sales. Every member of our business began to have a role in expanding and retaining our customer base and revenue. Streamlining the subscription experience while making it easy for our team to control customer subscriptions became a priority for us.
The original online payment gateway we selected to manage subscriptions was initially helpful, but we quickly realized we needed a more comprehensive solution that would scale with our expanding business and give customers the options and flexibility they demanded. Managing subscriptions on top of a payment gateway alone fell short of our needs and forced us to compromise on the subscriber experience.
We then switched to Chargebee’s subscription management service, which was a strategic decision that proved beneficial from a business perspective. Chargebee has improved our subscription conversion rate by helping us enhance our product’s capabilities and its overall subscription experience.
How Our Subscription Management Product Drove 30 Percent Growth
Your subscription management product can be an effective lever to accelerate acquisition, monetization and retention. At Freedom, we’ve configured Chargebee to help us move the needle on these three core business levers by focusing on the following strategies:
Multiple Payment Options
Adding diverse payment options has evolved into an important acquisition strategy for us. In today’s growing digital landscape, consumers have vast differences in payment preferences. Some customers prefer to pay with a credit or debit card, while others prefer a web-based payment service such as PayPal or Amazon Pay. By adding multiple payment options, we were able to onboard international customers and scale globally.
Under the subscription model, we also encouraged users to set up backup payment methods for recurring charges. This helps recover revenue that could have otherwise been lost.
Offering discounts is an effective way to drive acquisition for B2C businesses. We extensively used the capabilities of the subscription model’s coupon functionality to test different coupon codes and discounts, such as limited-time access to promotions, or one time, limited validity offers.
We also tested several pricing strategies to help drive monetization and upgrades, and subscription analytics has helped us understand how customers responded to pricing. For instance, we found that some customers prefer paying a monthly fee for our product, even if our annual plan was cheaper in the long run.
Using a subscription management tool for pricing experiments helped us drive revenue from new customers while still honoring existing customers by grandfathering them in on the old price.
Self Management for Subscriptions
Offering customers an easy way to manage their subscriptions can significantly improve user experience. Expecting customers to manually upgrade via customer support teams creates friction in the upgrade experience, causing some of them to drop off or delay their upgrade. Offering a built-in customer portal has helped us empower customers to manage their own subscriptions, while our customer success team is freed up to focus on more strategic initiatives.
Transactional emails can be a great way to communicate and engage with customers while helping recover revenue. We use transactional emails to communicate with customers about the details of their transaction and send one-click card update emails, reminding them to update credit card information if their card is about to expire. At Freedom, we’ve used Chargebee’s Engage toolset to drive up-sells, retention and revenue through email.
Optimizing our customer subscription experience and internal subscription management process helped us grow the business by 30 percent. While shifting our business model away from one-off sales and moving to subscriptions has been a key factor in our business growth, creating an enhanced experience with a subscription management system helped us identify areas to further accelerate adoption and retention.
The fundamental nature of the recurring revenue business model creates opportunities for long-term customer relationships, and using a subscription management system has provided us with an added layer of operational efficiency to leverage these opportunities better.
Fred Stutzman, Founder and CEO of Freedom, a platform that enables people to be more productive by managing digital distractions.
Fred Stutzman is founder of Eighty Percent Solutions, a LAUNCH Incubator company which builds the innovative productivity software Freedom and Anti-Social. Previously, he was co-founder of ClaimID.com and technology researcher at UNC-Chapel Hill and Carnegie Mellon University. He holds a Ph.D. in Information Science, a graduate certificate in quantitative research, and a B.A. in Economics. Currently, he is adjunct professor at UNC’s School of Information and Library Science, where he teaches courses about privacy and social media.