Death by 1,000 Subscriptions

I just cancelled two membership services. Big news, huh?

Not really. The move will save me about $160 month, not quite $2000 a year. That’s a significant savings, but it won’t make or break my business.

What if I had 10 times that number of subscription services? For a business with 16 employees using just one service that costs $14.99 a month, that’s $2878 a year. Extend the costs over multiple services and pretty soon the numbers get big. Very big.

Subscriptions Spell Profit

For the past several years, providers of SaaS (Software as a Service) and Cloud services have been celebrating what my colleague Robbie Kellman Baxter dubbed “The Membership Economy,” with good reason.

Converting users to monthly subscriptions, especially when billed annually, is an excellent way to create recurring revenue streams. It’s predictable and consistent. Churn is usually manageable. Simply bill the credit card on file and cash flows in.

Many users “set it and forget it,” paying for services they no longer use. The annual subscription renewal date comes and goes, and they think, “it’s only $120, I’ll let it go,” or “maybe I’ll cancel next year.”

Sellers bank on this, benefiting from additional income that amounts to pure profit.

Who can blame them?

Bleeding from the Bottom Line

The problem for business owners is that what’s good for your vendors may be bad for your bottom line. Sure, there’s simplicity in the model. It’s easy to sign up and frequently “you can cancel any time.”

Do you?

There’s a much lower decision threshold for a subscription that costs $15-20 a month than a purchase of $2500 or even $200. These low monthly fees hover under the radar, unnoticed, until you start wondering why your profit vanished.

The Free Trial the Wasn’t

Subscriptions services are so common, your staff is probably signing up for things you don’t even know about. You’re probably aware of core services like Salesforce and Quickbooks.

Do you know who’s paying for cloud backup, stock photography, and social media tools, and how much they cost?

Often, these services start with a “free trail” that requires a credit card. Users aren’t charged until the trial ends, and those who forget to terminate an unused service can pay a lot for something they don’t need.

In fact, some sellers bank on this because it’s extra income for them.

The Cost of Convenience

These days, just about anything a business needs can be purchased with a subscription. Legal services, bookkeeping, tech support, PR. We can and do embrace the subscription model for its convenience and accessibility.

It’s a wonderful way to amortize costs over time, removing big hits that used to happen when you needed to upgrade to the latest software version or renew a long-term contract. It’s easy to budget, especially for small businesses on a cash accounting model.

Unfortunately, problems develop as the cost of everything adds up. When unnecessary subscriptions roll on from month to month or year to year, vendors are profiting from their customers’ laziness or inattention.

Break the Subscription Cycle

If you want a healthy bottom line, break the spell. Track every subscription. Know what it’s for, what it costs and when it renews. Can a service truly be cancelled any time, or only when the annual renewal date rolls around?

Instead of waiting for an annual budget cycle, the membership model demands regular oversight. Employ monthly or quarterly diligence: look at what’s renewing in the next 2-3 months and decide if those are services you still need.

If you want to maintain a subscription, be sure you’re getting the best rate. Have prices come down since you first signed up? Does a newer competitor offer more favorable terms? Can you negotiate a better rate because you’ve added more employees?

It takes work to monitor and manage the proliferation of subscriptions, but it’s necessary for a financially  sound business. To make it easier, use this 8-point checklist to evaluate your subscriptions:

8 Questions Smart Subscribers Ask:

  1. Do we still use this service on a regular basis? For something you only access occasionally, a pay-per-use option might be better.
  2. Are we using similar services that could be consolidated? For example, do you need Dropbox, Box and Google Drive? Standardizing and save.
  3. Is there an option for an outright purchase that would be more cost-effective? You’ll may add maintenance, support and upgrade costs, so do the math carefully.
  4. What’s the going rate? If we want to keep this, are we getting the best price available now or paying a higher fee although costs came down?
  5. Is the list price real? Have we applied discount codes, coupons or other savings (such as those available through associations)?
  6. Is it negotiable? Can we negotiate terms instead of paying published prices?
  7. Do we have the right number of licenses? Some services require a license for every employee user, others charge per concurrent login. Don’t pay for more than you need.
  8. What’s the ROI? The most important question of all: does this service return value to your business in terms of revenue generation, productivity, strategic insight, security or cost savings?
{"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}