Subscriptions in the Software Industry – A Powerful Model for Business SaaS Growth
Are you selling Software-as-a-Service (SaaS) or any subscription service?
Then you are probably familiar with the struggle of increasing your recurring revenue. As a SaaS company, it’s natural to look forward to the growth of your subscription business. But accelerating your business means juggling an increasing number of spreadsheets as you grow.
Subscriptions aren’t just everywhere – that’s why they seem inevitable. From Disney to Apple, everyone is adopting a subscription billing model related to popular digital media companies like Spotify and Netflix. Companies have quickly understood that they can make more money by charging you small amounts each month rather than a flat fee for their product. Companies like Salesforce.com or Amazon were at the forefront of the subscription economy. But the story is now much broader and deeper, involving almost every industry. There’s no doubt about it. The world is filling up with these subscriptions.
Consumers around the world prefer access to services over owning products as the Subscription Economy grows – from Businesswire
- 68% of adults believe that a person status is no longer defined by what they own
- 70% of adults agree that subscribing to a service frees from the burden of ownership
- US consumers already spend $237 a month subscribing to different services
- European consumers already spend $130 a month subscribing to different services
What is the Subscription Economy?
The Subscription Economy is a phrase coined by Zuora, describing the new business landscape in which traditional pay-per-product (or service) companies move toward subscription-based business models. The emerging subscription economy is the result of changing trends in consumer behavior. In addition, the COVID-19 pandemic has redefined the future of remote work, self-service, and, most significantly, rising consumer expectations. There is a direct correlation between increasing technologies and the expectations of the modern consumer.
Today’s customers are smarter than ever before. They are comparing your service to the best customer experience they have ever had. Its goal #1 is to reduce customer effort or friction. What happens if you don’t meet these high expectations? 78% of customers will walk away from a purchase because of a bad customer experience and will put their money directly into the hands of competitors. Early adopters are buying what you are selling because you’re promising a product that didn’t already exist — show them what makes you different from the competition and they’ll be your best advocates.
Driving Success in the Subscription Economy
The SaaS industry includes digital software solutions that help businesses and consumers. The SaaS model was already the predominant and favorite approach to access software functionality, and the trend toward software subscription has only accelerated in the Covid-19 post-pandemic era. Because these solutions are delivered via the cloud, customers benefit from any time, anywhere access. This was particularly important in 2020 when many people were working and learning at home.
There is a reason why successful SaaS companies use subscription models. Companies that offer subscription-based software solutions are generally robust because of many factors, one of which is a recurring revenue model. One of their key strengths is their ability to continuously answer customer demand and improve, update, and innovate via the cloud: consumers expect the product/service to improve over time.
Not to mention:
• Reduced time to benefit. Software as a service (SaaS) differs from the traditional model because the software (application) is already installed and configured
• Lower costs
• Scalability and integration
• New releases (upgrades)
“There’s a reason why successful SaaS companies use subscription models. Any as-a-service business needs to re-think the traditional go-to-market model and focus on building a customer experience that makes services easy to use, renew, and expand.”
Michael Fauscette – Advisor, G2
To optimize for growth, companies have to consistently innovate around the customer experience and build go-to-market strategies for retention and expansion as well as acquisition.
Benefits of Saas Subscriptions
The subscription-based business approach has undeniable advantages. One of the benefits of a SaaS platform is that it dramatically improves the customer journey, experience, and retention. But not exclusively.
1. Fast growth – if you get a product-market match quickly and can obtain funding, the potential to scale your business is huge and can be achieved extremely fast
2. Ease of deployment – as SaaS lives in the cloud, it can be easy to make quick adjustments to your product and to sell service from anywhere.
3. Predictive revenue – the subscription model allows you to know fairly consistently how much revenue you can expect. There is no seasonality in a subscription model. Annual or monthly contracts offer security that many other business models cannot guarantee.
What about the next Software Industry SaaS Model?
Subscription-based businesses have enjoyed great success in business over the past few years and are growing steadily even during the COVID-19 crisis. The subscription model is proving to be very resilient in these uncertain market environments that demand flexibility from businesses and value predictable and steady revenue streams.
But these favorable figures should not obscure some essential parameters to be considered. As SaaS matures, customer expectations for simplicity of use and ease of doing business will continue to rise. Platforms-as-a-Service (PaaS) from the big 3 cloud providers (Amazon Web Services, Google Cloud & Microsoft) are winning share and popularizing software. And as the COVID-19 pandemic has shaken financial markets, investors are looking more closely at financial health. To meet these demands, software companies will have to adopt a new way of doing business. Success will require a new strategic direction, a willingness to expand “as-a-service” offerings beyond subscription-based pricing, and a stronger focus on profitable growth.
Customers want SaaS products to improve over time and a customer experience that meet their needs
- Subscription pricing and the cloud are not enough. To win with SaaS, you need to rethink the end to end customer journey
- To compete in a PaaS world, software vendors will need to justify their unique value propositions over the technology giants, usually based on domain expertise or cloud neutrality
- Margins will be more critical in the post-COVID-19 world. To satisfy investors, executives must balance growth with a healthy profit and loss
Gartner recent report says SaaS still dominates one of the most significant market segments amongst cloud services and is expected to grow at least $145.3 billion in 2022. In terms of functionalities, versatility, and accessibility, SaaS remains a viable option for enterprises in a vulnerable business environment.
Worldwide Public Cloud Services End-User Spending Forecast
(Millions of U.S. Dollars)
The COVID-19 pandemic forced organizations to focus on three priorities quickly:
- Preserve cash and optimize IT costs
- Support and secure a remote workforce
- Ensure resiliency.
Gartner survey data indicates that almost 70% of organizations using cloud services today plan to increase their cloud spending in the wake of the disruption caused by COVID-19. As companies increase mobility, collaboration, and other remote working technologies and infrastructure, the industry can expect growth in a public cloud to be sustained through 2024.
With Nexway, selling SaaS online has never been so simple
Today, the SaaS application development industry promises excellent business opportunities for the software industry. However, technologies and customer demands are constantly changing. To win this digital battle, you need to be aware of what’s happening in this area. With Nexway Monetize, we take care of everything so you can focus on your product. Reach out to the team at Nexway to take your online SaaS-based business to a whole new level. Ready to grow your subscription business like never before? Contact us to schedule a demo.
