The meteoric rise of subscription service companies has been well documented and publicized. In the past decade, consumer and enterprise customers alike have gravitated to these fixed-price services due to the convenience and cost certainty.
Already well pronounced before Covid, the pandemic accelerated both subscription uptake and the emergence of new providers. More established companies pivoted to introduce subscription offerings of their own. Consumers embraced services for video streaming and food delivery, while enterprises turned to video conference and collaboration platform subscriptions to keep employees connected and business activity moving forward.
Today, however, all signs indicate that the market for simple subscriptions has reached an inflection point. The sheer volume and total cost of subscriptions, combined with macroeconomic headwinds necessitating widespread belt-tightening, have created a level of “subscription fatigue” that continues to gain traction. Users don’t want to be locked into paying for things they are not using.
The proof is compelling. A recent survey focused on video streaming found that 65 percent of respondents had canceled at least one service in the last year, with either expense or lack of use as the primary driver for cutting ties. In a separate survey, 72 percent of US consumers said there are “too many” subscription services.
For service providers, the threat of significant churn and revenue loss is very real as subscription fatigue takes hold. Yes, users want continued access to the services they’ve come to rely on and enjoy. But now they want greater control over usage and increased visibility into the value for money.
Migrating from simple subscriptions to consumption-based models can help suppliers adapt to the changing demands of more discerning customers and potentially survive the wave of fatigue-inspired cancellations.
Consumption-based models enable service providers to offer more accommodating and flexible billing arrangements to their customers while providing the ability to control costs and understand the actual value derived from the service. They provide customers with access to a service they may use inconsistently, or not as much as they originally intended. In an enterprise environment, consumption models enable corporate users to turn usage on and off, more easily select from various applications, and scale up or down as business conditions and headcounts change.
Consumption billing offers benefits for suppliers, too, presenting an opportunity to extract greater revenue from power users and enhance profitability. At the same time, suppliers can proactively engage users who under-utilize the service with a lower recurring monthly fee to prevent them from churning. Reducing the base monthly fee keeps the customer in the fold and creates the potential for upsell opportunities down the road.
While moving to a consumption-based model seems like a solution all service providers should consider, it’s important to underscore that managing usage-based billing is a more complicated proposition than the simple subscription engagements under which many of today’s subscription companies operate. While many of today’s SaaS and cloud billing platforms support simple subscriptions, where there is little or no variation to monthly charges and no requirement to track and account for customer usage, they are limited in their ability to handle anything more complex.
Consumption models require a more sophisticated billing platform capable of collecting and tracking usage and converting it into accurate invoices that can be delivered to the user on time. Suppliers seeking to pursue a consumption strategy need a platform that can access and analyze critical data in a timely fashion, manage complex billing rules across multiple customer profiles, and do so in an automated way to reduce the possibility of errors that can negatively impact customer experience. Suppliers will also require the capability to provide account management access for customers who, as they move to consumption, will likely interrogate their bill more often and review their usage in more detail to guard against bill shock.
Consumption billing is not new. Telecoms and utility companies have been doing it for decades. Some industry segments, like software, have already moved down the path to usage. A recent SaaS pricing survey found that 45 percent of providers now offer usage-based pricing, with the number expected to increase to 56 percent in the coming year. For the many simple subscription companies, it’s “adapt or die” time. Moving to consumption and investing in the technology infrastructure that can support complex, usage-based models can stave off an untimely demise.
Learn how Aria automates complex, consumption-based billing