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At a Glance
No one likes to pay for five features for software, monthly or weekly, if they use only one of the five. There even comes the question of ethics on charging an idle customer.
Among SaaS companies specifically, pay-and-use models are gaining traction. While subscription-based business models that provide a business with recurring revenue every month or week helps in their scaling, some of their potholes cannot be neglected.
Adam Riggs, the CEO of Frameable and a former CFO of Shutterstock, has said, “Every software company now looks to sell by subscription ASAP, but the model itself might not fit all industries or, more importantly, align with customer needs, especially early on.”
So, what are the problems?
No business likes churn- when a customer stops availing their services. It is said that shifting more focus towards user experience alongside wanting to keep customers for a long time is an ideal option. However, most SaaS businesses shed more energy on the latter than the former.
A good user experience is attained when a customer understands how or what they are paying for beforehand. Tying closely to this, another issue with these models, especially for SaaS businesses, is that they overlook the fact that customers enter into long-term agreements by paying for a product they are yet to understand entirely.
Before a customer pays for the software, the lack of complete transparency has repercussions, eventually leading to churn.
A demo version might do the job but does not provide the experience of a complete version. Short-term contracts like the one-month free trials we see today might also not provide the best user experience. What if customers could not experiment with the product’s incorporation into their workflow and draw the necessary conclusions before the time runs out?
Also, what if customers start doubting their service? Allan Willie, Co-Founder of Klipfolio, has enunciated a worst-case scenario of how customers might feel manipulated in the long run- that service providers tricked them into buying the product even if the services were beneficial.
Disinterests and frustrations were observed among users when Adobe put out a creative cloud subscription model, with netizens raising petitions to eliminate it. Irrespective of the benefits or cons of the move, it did cost them some loyalty and customer engagement.
It will be much more problematic for companies whose products do not have a wide range of adoption like Adobe. Making your customers angry is simply unaffordable concerning sales and customer retention.
What to do then?
Can we let customers access every feature of your product? Every shiny button and dark corners?
“What you want to do is to create a transparent buy experience. Let customers assess the product on its own merits. Customers need to know what they are buying. This might lower initial sales, but it will dramatically decrease churn and increase upselling opportunities and referrals.” Well, this is what Adam Riggs says. Subscription offerings can come, hopefully soon, after customer satisfaction.
But for how long can a business continue to do so? It is also to be noted that doing so essentially provides businesses a way to invest in product innovation and make their products more appealing to users, paving the way for creative thinking to enter into any business. Companies must challenge themselves.
User experience, and satisfaction on one end, it is advisable to go for hybrid pricing models or ones such as pay-as-you-use. Like mentioned before, dissatisfaction increases when one is expected to pay for unavailed services. Here is where introducing innovative features to retain customers or piquing their interest and satisfying them to use the remaining services will do the trick. This does two things- help achieve user satisfaction and increase recurring revenue.
Other ways include exploring other models in the subscription-based system, such as multi-dimensional models, which involve charging different rates for primary and pro features. Companies like Salesforce and Slack had made use of this model.
Lastly, it is also not just about giving your product away, and certainly not about ‘You use it. So keep paying’ motto. Adopting a calculated strategy to increase customer experience, keeping a check on churn while not letting your sales go deep down is essential for SaaS businesses. It will not hurt to see beyond traditional subscription-based models.