SaaS companies are letting consumers be more productive than ever through their services. And almost every company has a free plan or a scalable pricing model on offer to make sure you don’t break your bank using their services.
Why would these companies go out their way to make customers happy? Well, unlike most brick and mortar stores, subscription based companies don’t make a profit of their customers right off the bat. Companies wait around for a whole year or more to recover customer acquisition costs (CAC). Customer retention becomes a top priority.
Here’s a look into the proliferation of the subscription model and how this business model has set a new milestone for the business-customer relationships.
How it’s good for the consumer
The value of a product is measured through “real value” and “perceived value”. For a very long time, businesses have been selling customers on perceived value for their products. Customers had to rely on gut feeling and reviews from other buyers to decide if a product was worth the purchase.
The subscription model takes away the mirage of perceived value and lets customers realise first-hand how much value the product holds for them. This is achieved through freemium plans and free trials that are on offer by a majority of service providers. Long term customer retention for companies depends on customers continually realizing this value. If customers fail to realize the real value in a product, they’ll easily move on to another company that offers better services.
A subscription model allows customers to spread the cost of using a service across a period of time. That means you can avoid high upfront costs and start using a product on a small budget.
With the emergence of SaaS companies, customers were suddenly spoilt for choice. Services can be tried out to ascertain which makes the right fit for your business strategy. You also have the flexibility to cancel your subscription and switch to a more favorable service if your realize higher value there.
How it’s good for the company
Predictable Revenue Stream
With a SaaS model, companies know exactly how many people have signed up for their services and exactly how much revenue to expect over upcoming months. Unpredictable revenue streams are the reason for stress at every company. You can throw money at a splendid marketing campaign, create hype with a viral video, offer massive discounts; all in the hope of attracting the target customer, but there's always the chance that your efforts could fall flat. A predictable revenue stream takes a huge load off the backs of CEO’s and investors who constantly worry about how long they can keep the ship sailing forward.
When customers put money on a subscription service they’re sure to have done their research, tried out freemium plans and maybe given competitors in the niche a chance. So when a customer finally decides to pay for a subscription plan, it’s safe to say they’re looking to stay on for the long run. This is great news for companies. They now have customers who have tried out the product, found real value in it and are willing to put money month on end to use it. The business gets recurring payments while the customer receives great service. These satisfied customers effectively become brand ambassadors for the product.
High Customer Retention
Customers who sign up for a paid subscription plan have already filtered out the bad eggs. They’ve tried out a bunch of free trials and finally found a service that works just right for them. As long as the business keeps giving them consistent service, they’ll be sticking around for a long time.