Subscription business model: recurring payments

Subscription business model coming from Saas (software as a service) is now being used by many entrepreneurs and startup founders. It is a beautiful way to build a successful business based on retention and new acquisition. Recurring subscription has different advantages but the main one is predictable cashflow. If we go more deep in the value of your product or service; If you are able to get users to subscribe and pay every week or month, It means the value you create is perceived as high and you have a path to dig in to build something great!!

Churn comes into question as you get new users, you also have some that leaves you and this is a very important aspect you should focus on. An important churn rate can kill your business, as acquisition cost for a new user is pretty high, if retention is low, your long term value per user is decreasing and it can become dangerous for your business. 
This is why acquisition is important, but building a community of users and a strategical retention method is a key to long term success. The interesting story of Homejoy (Uber like platform in the cleaning industry, raised 38M$, accelerated by Y Combinator, crashed in 2015) taught us an important lesson on how churn can really put an end to your startup story. Staying focus on the the retention rate as a KPI will tell you if you are mistaken anywhere. If users leaves you, it mean there is a problem somewhere… It can mean that value is to low for the price and users won’t buy again. 

Even if you have a subscription business model, you have to keep in mind that nothing is forever, and that users can leave at anytime.
Here are some aspects you shouldn’t forget while you acquire new users: 

  • develop your product or service (users have to see that you are continuously building or offering something better)
  • be there for your users, a great customer support is a key to success and to retention. Communication is the root of relationship at all levels. 
  • don’t forget marketing, follow up emails, news, offers, upgrades ,coupons..

Payment providers such as Stripe have introduced this new feature in their product to let us charge recurring payments which is very nice!!! . Stripe is a good tool to help you reduce churn rate because it renews credit card and makes you save some users that are just not paying attention to their subscription and automated processes. 

Your users are your guests!! Never forget.

As subscription business model is good for predicable cashflow as I mentioned before, It is often the case that your customers can leave you at anytime. For this it is important to have some flexibility in your plans and to be able to suggest upgrades when it is necessary, or downgrades also. It is much better to have 10 users downgrading then 10 leaving your service/product because they don’t get as much value as they pay for it. I believe that to really succeed with this type of models you have to be in the users mind; If i were the user of my own service, what would I love to see? to have the possibility for? … Just remember you are there to make your users an happier or easier life! That’s simple.

Worldwide customers? Worldwide recurring payments!

One of the hard part with recurring subscription business model is to have an automation of the tax calculation, since you sell worldwide your checkout has to be worldwide compliant and has to know for who and when to collect taxes. 
Since the new tax regulations in 2015 introduced by EU, businesses selling e-service in Europe have to collect taxes (VAT) for each country they sell in. 
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Octobat makes it now possible to automate this collect. As you have a new subscriber on your website or App, the  is automatically creating in stripe the subscribed plan with the appropriates VAT rates.

 I hope this insights can help you go the right way on your business and on your recurring payment journey :). 
If you have any questions or feedback, contact us! 
have a great day.

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