An economic crisis is characterised by a fall in economic activity due to a decline in spending, consumption and investment across the economy. In current times, we have witnessed consumers tightening their belts in order to see their way out of this crisis but, with this, we have also seen businesses suffer from a reduction in revenue and cash flow, increasing expenses, poor growth and in the worst cases, business failure.
Here’s how a subscription-based business model could be your antidote to getting your business through this economic downturn.
The SEI (Subscription Economy Index) has found that subscription revenue has grown by more than 350% for the past seven years as recurring revenue-based business models exploded due to digitally enabled, pay-as-you-go services. Subscription services have even shown to be more stable and more resistant to fluctuations in the economy. Customers often prefer to make subscription purchases, which offer greater value for a lower up-front cost, than large one-off payments as these are easier on budgets during times of financial hardship.
Meanwhile, for a business, a subscription model can be preferable for many reasons. Most importantly, it allows for a more predictable cash flow through recurring revenue from existing customers. If your business typically offers one-time sales, it may be beneficial to switch to a subscription model for greater business stability.
Why may a business struggle during economic crises?
A business model that relies on one-off sales is likely to face a myriad of difficulties during economic crises compared to their subscription counterparts. The key difference between the two is that one off sales transfer ownership of the product to the consumer, while subscription businesses do not.
Cash flow is crucial in times of economic downturn, and unfortunately some businesses suffer from unpredictable cash flow. While efforts to forecast revenue may help, small changes in the market can result in drastic changes for businesses. The issue here is usually a lack of an ongoing customer base. Businesses that rely on traditional one-off payments tend to have much less of an ongoing relationship with their customer base and therefore it is not easy to up-sell or cross-sell to existing consumers.
Many businesses also face persuasion challenges. During poor economic conditions, consumers are more cautious with their spending, attempting to convince them to make large one-off payments can prove to be a difficult task. Along with this, even if businesses are able to overcome the persuasion barrier, one of the biggest drawbacks of one-off payments is the lack of customer retention. The Customer Lifetime Value of each customer is limited and there is little guarantee of selling to them again, especially during downturn.
The Magic Pill: A transition to a recurring/subscription model
Subscription-based businesses are on the rise. A recurring billing model, like that offered by Curlec, may enable your business to see steady growth, benefit from higher revenues and increase in scale.
Attractive and more affordable pricing
Perhaps the main advantage of subscription business models arises from the fact that this type of pricing is much more attractive to consumers. Higher prices act as a barrier to entry and reduce customer acquisition, especially during times of economic downturn.
Larger customer base
The lower barrier to entry may also allow your business to capture a larger customer base, who otherwise would not be able to pay large one-off prices for your products. A great benefit is that it is also easier to offer proof of concept. With one-off payment systems, it can be difficult to offer consumers a trial period. As customers gain full access to the product immediately after subscribing, it is much easier for them to assess the value of your product.
Reducing churn through automation with Curlec
With Curlec’s billing automation, not only is revenue and cash flow much more predictable, Curlec’s services mean that there are fewer gaps between billing cycles, helping to plug revenue leaks and expediting receivables. It is important to note however, that with a subscription model, reducing churn is essential. An easy way to ensure minimal churn for your business is to provide a seamless billing and payments collection process.
Easier to up-sell or cross-sell to existing customers
Subscription based models could also increase customer cart sizes through up and cross-selling. A subscription model enables a business to build a deeper relationship with customers as a result of its customer-centric nature. This ongoing customer relationship means that it can be easier to market additional sales to customers. The customer is already aware of the value that your business provides and is likely to be more receptive to any additional services that can increase the value of their subscription further. Additionally, customers already accept the subscription fees and this means that any additional sales may be viewed as more affordable.
If you are a business seeking to make a transition to a subscription based model, or you are already a subscription business seeking to make your payments collection process seamless, learn more about how Curlec can help here. Keen to know more about the subscription economy? Check out this blog post by Curlec.