Subscription-based models promise predictable revenue and long-term customer relationships.
Unlike one-time sales models, businesses who operate subscription models thrive on recurring revenue and customer retention. These unique dynamics also bring distinct challenges that require tailored go-to-market (GTM) strategies.
Many companies struggle to execute effective Go-to-Market for Subscription Businesses. In our go-to-market practice working with subscription businesses, notably in SaaS and media, we have identified four deadly sins we see repeatedly:
Four Deadly Sins
1. Overemphasis on Customer Acquisition
Many companies allocate the lion’s share of their resources to acquiring new customers while neglecting retention and upselling. This imbalance erodes profitability since acquiring a new customer can cost five to seven times more than retaining an existing one. Moreover, customer retention is a key metric to value a subscription business.
2. Fragmented Customer Journeys
Disconnected Sales, Marketing, and Customer Success functions create a disjointed experience for customers, which delivers poor key moments of truth, like customer onboarding. Typically, this happens when Sales close the deal but do not effectively hand over new accounts to Customer Success for onboarding. A poor onboarding process drives high customer effort, which leads to frustration and attrition.
Companies who are a victim of this waste their investment in customer acquisition, and damage their reputation: Over 40% of new users of software drop out post-signup due to insufficient onboarding; almost 75% of customers switch solutions if the onboarding process is too complicated.
3. Ineffective Use of Customer and Usage Data
Despite having vast amounts of usage data, many organizations fail to leverage it effectively to create value in the form of higher usage, lower churn, and upselling.
4. Underutilized Indirect Distribution Channels
Direct sales dominate in many subscription businesses. Other channels, such as distribution partnerships and marketplaces, are often underdeveloped. These channels are powerful levers to extend a company’s reach, namely when it’s expanding into a new market or customer segment. Companies with weak indirect channels miss out on the opportunity to scale rapidly. They frequently overpay for their growth: distribution partners and marketplaces are often paid success fees for performance.
Best Practices for Subscription Go-to-Market
To address these four deadly sins, subscription companies can overhaul their Go-to-Market for Subscription Businesses playbook with best practices:
1. Selectively Emphasize Customer Acquisition and Retention
Emphasis on acquisition and retention depends on where a company is in its lifecycle:
- Early-stage subscription companies need to prioritize acquisition to drive revenue, and build a defensible position in an industry, segment, or use case. In some cases, they should then expand into new segments or industries to increase their valuation.
- Mature businesses should prioritize retention and expansion within accounts to drive profitability. These companies’ recurring revenue and consistent profitability give them bond-like characteristics, qualities highly valued by investors.
2. Redesign the Customer Journey
A low-effort customer experience is critical to retain customers in subscription businesses. If churn is your issue, redesign all interactions that require high customer effort. Some ways to achieve this are:
- Integrate Sales, Marketing, and Customer Success functions into a broader Revenue Operations (RevOps) team.
- Use self-service portals and digital onboarding tools to empower customers while reducing operational costs.
- Use professional services partners. We helped a SaaS company onboard at a medical devices company. Reducing the onboarding effort increased their client’s satisfaction with the product, who over a year tripled their number of licenses.
3. Leverage Customer Data as a Strategic Asset
Mining customer and usage data is non-negotiable for subscription businesses. Key use cases to develop are:
- Develop customer health models to identify customers at risk of churning along with upselling opportunities.
- Use data insights to personalize campaigns and optimize pricing strategies.
4. Build Your Indirect Channel
An indirect channel partner network can extend your commercial reach cost effectively. Two main thrusts of that effort should be to:
- Design a robust partnership program that incentivizes your partners and supports their commercial efforts.
- Tap into ecosystems of your industry if they exist, e.g., marketplaces
Let us know what you thought about our Go-to-Market for Subscription Businesses Best Practices here.
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