How to Educate Leadership on Your Subscription Revenue Model
Recurring revenue is a lucrative approach for any company working in the modern economy. The challenge is convincing your executives that a subscription revenue model is worth the initial investment.
This article is for you if:
- You recognize an opportunity within your organization to pivot to a subscription-based model
- You are looking for the best strategy for successfully pitching your ideas to upper-management
- You need help creating the recurring business model strategy for your business
More than half of e-commerce service subscribers have multiple active subscriptions, and you could be one of them. Perhaps you enjoy subscription products so much yourself that the wheels have been turning in your mind on how your company could pivot to a subscription revenue model that would generate recurring revenue.
You may have even read our previous blog post about how subscription offerings are possible in any industry.
Imagine planting the recurring revenue seed at your company and watching it blossom. You could very likely be the one to halt the financial landslide of 2020 within your organization. If you want to be that leader, first thing’s first: you must learn how to pitch the idea of a subscription revenue model to upper management. This is not a simple task, and it’s likely not something you were taught. Don’t worry — we’re here to help.
4 elements of successfully pitching a subscription revenue model to key decision-makers
At PowerSync, we have assisted many companies with making the switch into a subscription revenue model (particularly when it comes to Magento recurring payments). As a software company that uses Magento subscription management ourselves, it is something we truly believe in. Whether your company uses Magento or another e-commerce platform, here are some tips for pitching the concept of recurring revenue to your higher-ups.
1. Consider your audience
Who will you be pitching this idea to? When introducing a new process that affects multiple people across the organization, it’s important to learn what it will mean to all of them. You need to be able to speak to each of their interests specifically.
Pitching to your supervisor or department head
Your main objective here is convincing your supervisor or department head that implementing a subscription revenue model will help the company increase revenue. Furthermore, you will want to show them how the model will make them look like heroes to their management or the board. Leverage the DATA you have: the number of orders you get per day, the average order value, cost and profit if applicable. It’s also important to include the time invested in touchpoints with the customer, prepping them for their next repeatable purchase.
Pitching to your management team or executive leadership
They will want to know how implementing a subscription revenue model will give the company a competitive advantage, cut costs or boost sales. In this situation, your focus will be on more than just pivoting to subscriptions. It will also include how you market and sell subscriptions.
To align your idea with the goals of an executive team, you might want to develop an ROI calculator so they can easily see for themselves how a recurring revenue model can save or make the company money. This will look different for every organization, and if you are not sure where to start, schedule a time on our calendar to have us help you brainstorm. These strategy sessions usually take an hour and cost $997, but if you reference this article, the first strategy session will be on us.
Pitching to the IT team
Once your company adopts a subscription model, the IT department will inevitably play a part in the process. What type of new technology will be needed to support the recurring revenue model? At most companies, the IT department has significant influence and decision-making authority over large tech purchases.
Any of the stakeholders described above could become the biggest champion of your idea if you take their individual needs and goals into account. Conversely, they can become your most vocal opponent if you don’t. Be prepared to make your case for all of them. During your quest, make it your mission to identify peers that will join forces with you. There is power in numbers, and you will have a better chance at success if others offer their support.
2. Stress the problems and goals a subscription revenue model will tackle
Your job is to educate leadership that a subscription revenue model will help them achieve their high-level goals. One of the most advantageous things about this model is the fact that it provides a more predictable stream of revenue. This makes it easier to plan budgets, which ultimately places companies at a major strategic advantage when it comes to crunching numbers.
Subscription models also have the potential to turn one-time customers into recurring spenders. It’s a proven fact that it takes less of an investment to get current customers to spend more with a brand than recruiting new ones. One of the best ways to accomplish this is by making it easier for them to do business with you. Subscriptions allow for something all shoppers crave -- convenience. When you offer recurring orders, your customers are able to “set it and forget it.”
One of the most powerful points you can make is the fact that subscription companies carry a higher valuation. Christopher George, co-founder of the Subscription Trade Association (SUBTA), gave great examples of this in a recent podcast episode. He explained that MVMT Watches, a non-subscription business that generated $71 million per year, sold for $100 million. Compare that to the $200 million a year subscription-based Dollar Shave Club, which sold for $1 billion. The drastic difference in business valuation is attributed to the fact that subscription businesses are bringing in a continual stream of recurring revenue.
3. Arm yourself with statistics
There is a treasure trove of subscription data that will help you make your case, and we’re going to do part of the work for you here.
- The likelihood of selling more products to an existing customer is 60-70%. That’s compared to a 5-20% likelihood of closing a deal with a new prospect. (Invesp)
- The global subscription commerce economy has a Compound Annual Growth Rate (CAGR) of 17.33%. (SUBTA)
- The global subscription economy makes up 18% of the $41 trillion credit card processing industry. (SUBTA)
- 75% of distributor to consumer (D2C) organizations will offer a subscription commerce business model by 2023. (SUBTA)
- In the software industry, 53% of revenue is projected to come from subscriptions by 2022. (DigitalistMag)
- Video streaming subscription services are in-demand, with 69% of all U.S. households paying for at least one. (Deloitte)
- Almost half — 41% — of U.S. households subscribe to a music streaming service. (Deloitte)
- More than 50% of e-commerce service subscribers (think subscription boxes) have multiple active subscriptions. (MarketingCharts)
- 15% of online shoppers have subscribed to an e-commerce service in the past year. (MarketingCharts)
- From January 1, 2012 to June 30, 2019, the subscription economy grew more than 350%. (Zuora)
- During COVID-19, 53.3% of companies did not see a significant impact on their subscriber acquisition rates, and 22.5% of companies saw an acceleration. (Zuora)
4. What tools are available to help?
When pivoting to a subscription revenue model, there are many logistics to consider.
- How will subscription orders be managed?
- How will you ensure recurring orders are processed on time?
- Will customers have the flexibility to change or cancel subscriptions themselves?
- What kind of shipping options will be offered?
- Which payment gateways will be used for recurring automatic payments?
- Will you have the ability to offer discounts to recurring customers?
All of the different pieces can feel intimidating and overwhelming. Luckily, there are ways to automate the process. We handle our Magento recurring payments with the mPower subscription management solution. In addition to enabling support for recurring orders, transactions, memberships and services, it allows customers to easily place and change orders at their convenience.
According to research from Zuora, businesses that allow customers to change their subscriptions themselves see a much lower churn rate than businesses that do not offer the option. Additionally, businesses that allow customers to suspend and resume recurring services see a 5% lower annual churn rate. If you’re implementing a subscription revenue model, providing this kind of flexibility for customers is a must.
Another option is to manage subscriptions through your customer relationship management (CRM) platform. Recurrex is a solution that works with the popular Salesforce CRM. With this cutting-edge software, opportunities within Salesforce can easily be converted into subscription accounts. Customers are given payment reminders before their automated renewals take place.
Both of these options include easy integration with common payment gateways. They also come with hands-on onboarding and support as well as built-in reports and dashboards so you can manage your accounts with clarity. Customers are also given payment reminders before their automated renewals take place, which offers a better customer experience.
If you want to see our powerful and dynamic subscription management solution for Magento 2 watch this little demo of mPower!
Do you need individual guidance?
As a society, we have arrived at the subscription economy tipping point. If pitching a subscription revenue model at your current company has ever crossed your mind, now is the time to make the move toward accomplishing that goal. Many worry that they may hit a dead end, but thus far we have not seen any business where a recurring business model cannot be implemented. Make a name for yourself within your organization by pitching and helping implement a recurring business model.
If you are new to this mindset, the recurring business model strategy, or simply looking for someone to help you get started, we are here for you. Our $997 strategy sessions helped several companies this year grow their revenue by more than 20% in most cases. Reference this article, the first session is on us.