Subscription business models surged during the pandemic, but as Europe now contends with a recession, subscribers are cutting back. This is particularly true of SaaS subscriptions, as businesses attempt to reduce costs and consolidate their services to a few providers.
But in an economic downturn, subscriptions can also help those companies that offer them grow recurring revenue, create operational efficiency, experiment with new pricing and reduce churn. By evolving and not abandoning subscriptions, companies can build more predictable revenue — critical for investors looking for a path to profitability.
“In uncertain economic times, businesses look for predictability,” says Vivek Sharma, business lead for revenue and finance automation at payments processing platform Stripe. “If you can predictably chart out how your revenue will grow, it gives you confidence as a business owner.”
So to stay competitive and deliver value that aligns with customers’ shifting needs, SaaS companies need to refine their models — while remaining cost-efficient.
Drawing from insights from the State of subscription and billing management report from Stripe, here’s what’s in store for subscriptions and recurring revenue.
Churn on the rise
More than 80% of subscription business executives, founders and leaders say that stable recurring revenue is more important now than before, according to Stripe’s report. But as subscribers cut back, customer churn — which Stripe found that 43% of businesses expect — can lead to significant uncertainty about money flows.
To combat involuntary churn (where a customer attempts to pay but the payment fails), working with the right billing provider can help businesses automatically update expired cards and try to reprocess failed transactions, improving the chance of a successful (and predictable) payment. Among companies experiencing increases in involuntary churn, Stripe found 32% are yet to adopt revenue recovery tools.
Both B2C and B2B companies are also seeing an increase in voluntary churn (where people deliberately cancel a subscription), as consumers and businesses become more conscious of their spending. To tackle this, companies are seeking out ways to gather feedback from users that might inform personalised win-back offers or suggest the need to introduce broader services and features to meet user expectations in a competitive environment.
In uncertain economic times, businesses look for predictability
Subscriptions can also build a better relationship with customers in the first place. Alexandre Louisy, cofounder and CEO of B2B startup — and subscription model from the start — Upflow, says subscriptions allow his company to have a more “trusting relationship” with its customers, one based on the product continually improving, not just money.
“We don’t even think about it, but every time we download an update for an app or there’s a new feature coming in, you usually don’t have to pay for that, it’s baked into the subscription model,” he says.
Founders experimenting with pricing
Naturally, pricing also comes into play when it comes to churn. Globally, Stripe found price is the most cited reason for users to end their subscriptions.
Stripe’s report shows that 40% of subscription businesses plan to optimise and update their pricing, but they don’t have to be limited to simple price increases or decreases.
For example, subscription plans could be usage-based, dependent on the number of active users, or have multiple price points that increase according to the value offered. Free trials and introductory rates also fit well with subscriptions. The flexibility to tailor subscription plans keeps businesses agile, and better positioned to meet customers’ needs.
Subscription businesses equally need to work with flexible providers. “The number one feedback we get from customers is to have the ability to iterate and experiment with subscription models… they don’t want a one-size-fits-all solution,” says Sharma. “Every company has a unique set of constraints and opportunities.”
For instance, modern ecommerce businesses have to consider steps before and after payment, not just the transaction itself — such as when conducting payments overseas and having to account for additional charges.
Offering local payment methods can also lower costs — and improve retention. Stripe found 71% of businesses plan to add at least one new payment method in the next year.
The value of using the right platform
So to keep up with evolving needs and reduce pain points, startups can turn to all-in-one platforms to get clearer oversight of data and make things more manageable.
Before using a subscription management tool, restaurant booking startup Zenchef fell into a lot of trouble.
“It sounds very silly but before we did all of our subscriptions in Excel,” says Xavier Zeitoun, its cofounder and CEO. “There were a lot of errors made.”
Subscription businesses can now choose a more comprehensive revenue management stack: one place to cover billing, payments and other obligations such as tax. While Stripe got started in online payments, its RFA suite includes billing and invoicing for acquiring customers and earning revenue, tax tools, data analysis and more.
Payments is a slice of the larger problem for businesses. They have to consider what is the best way for their organisation to run, to be efficient and, more importantly, to serve their customers
This type of technical stack powers savvy scaling and also frees decision-makers from administrative tasks, allowing them to double down on strategic measures.
“Payments is a slice of the larger problem for businesses,” says Sharma. “They have to consider what is the best way for their organisation to run, to be efficient and, more importantly, to serve their customers.”
Automating revenue and finance in subscription businesses doesn’t only aid them in navigating the present downturn, it allows them to expand within it.
“In uncertain times, the nature of entire businesses changes,” says Sharma. “Subscription models are powerful because they create long-term, enduring relationships. Ironically then, the best thing for subscription businesses in uncertain times is to invest back into their business.”
If you want to learn how you can accelerate your growth by capturing recurring revenue, get in touch with the Stripe team today.