Addressing Seasonality in Your Subscription Business
Software as a Service—also known as the SaaS model—was one of the earliest adopters of the subscription model concept. There are, of course, a multitude of compelling, strategic reasons to adopt a subscription model based on access rather than ownership: more predictable recurring revenue streams (and compounding revenue); improved subscriber experience and greater subscriber loyalty; access to more consistent data from the confluence of marketing, customer, and billing events; and easier inventory management.
Despite the benefits to both the business and the subscriber, almost every subscription business can experience seasonal ebbs and flows. For some, this seasonality is predictable and expected. For example, subscription businesses that serve students frequently experience seasonality based on the school calendar, which influences when students are most likely to need the service. Or subscription businesses in the e-commerce space may see a revenue bump during the holidays and then a spike in returns and chargebacks the month or two following or even cancellations due to consumer guilt over increased holiday spending.
Seasonality can also be irregular, i.e. not driven by a discernible or predictable outside event. For example, a pet-sitting subscription service used by members when they go on vacation.
Minimizing seasonal churn
Knowing that they face some kind of seasonality, what can subscription businesses do to minimize the impact of seasonal downturns and maintain their momentum—and revenue—throughout the year?
One option is to offer only annual subscriptions, which may provide a discount on the monthly price in return for a commitment to an annual (or other longer-term) plan. While this guarantees year-long revenue, some subscribers may seek out a different service if they are uncertain about committing to an annual plan. Causebox does an effective job of offering an annual subscription that saves subscribers $20 a year vs. a quarterly subscription, but they offer both options.
You might also see if a usage-based billing model will better meet your subscribers’ needs. Different billing models can result in different pricing, which can save the subscriber money and encourage them to maintain their subscription.
Offering a hybrid model of subscriptions plus the flexibility to make one-time purchases is also a useful way to keep subscribers engaged and loyal while keeping your revenue stream alive. FabFitFun is an excellent example of this, as they supplement their subscriptions with discounted “Add-Ons” that members can include in their next subscription box shipment, with no extra shipping fees.
Take a pause
To keep subscribers from cutting loose, you can also enable subscribers to pause their subscription for a period of time. This can be useful when the effort to set up their account and preferences was time-consuming, either for the subscriber or for you. Knowing all their information is saved may make them more willing to reactivate their subscription when the time is right. A paused subscription could entail no fees, or the subscriber might have to pay a monthly maintenance fee which may encourage them to continue the subscription rather than pausing.
ClassPass enables members to temporarily switch to a lite membership with a limited amount of credits they can use to book classes for a small monthly fee.
Insight from data
Ultimately, subscription businesses thrive when they have a thorough understanding of their subscribers’ needs and desires and how best to meet them. The data that can be gained from the confluence of marketing, billing, and subscriber-lifecycle events is one of the major benefits of the subscription model over the ‘traditional’ one-time purchase model. Benchmark data can also be invaluable.
Recurly Research has completed a number of analyses on important subscription trends in order to provide meaningful insights that can help subscription businesses to improve their results. For our analysis of the effectiveness of subscriber retention efforts, visit this page.