Subscription payments and customer lifetime value

Start-ups and scale-ups are disrupting current eco-systems, and an interesting shift is the rise of subscription business models. These models are already widely adopted across industries and have a substantial effect on the relationships between companies and their customers.

Peter Wilmenius

15.11.2021 | 4 minutes

The growth rate of companies driven by technology and customer centricity is outperforming the growth of most traditional companies. Traditional companies are therefore forced to review their eco-system strategy and business models to find new ways and partnerships to grow their business.

From a payment perspective, subscription business models create a new type of complexity. Customer conversion and acceptance rates are still important KPIs, but we also see a growth in the importance of customer lifetime value (CLV).

Different user journey for subscription payments

The user journey for a subscription customer is quite different compared to the customer journey in traditional purchases. The subscriber will, in most cases, accept to pay the subscription cost in advance to get access to a product or service for a predefined time.

The subscriber enters into a relationship with the company, expecting a friction free and transparent experience that allows the subscriber to keep control of subscriptions and costs. These expectations and the payment environment consisting of combinations of fixed fees, usage costs, discounts, tiered pricing options and add-ons can in many cases create challenges for the companies.

So, being aware of this complexity, why are subscription payments in many cases still such a beneficial business model for companies?

From a company’s perspective, subscription business models are divided into multiple key steps. It starts with customer acquisition via sales, marketing, or other sources, and is followed by activities to build a strong relationship.

Therefore, CLV is an important KPI within subscriptions. CLV is often broken down into several KPIs to measure and improve customer loyalty. These include all steps that can improve the lifetime value, such as churn, up-sale, cross-sale, onboarding processes and customer service interactions, to mention a few of the most important ones.

Extended customer journey

Compared to traditional e-commerce purchases where the relationship often is over when the customer has received and paid for the product, subscription business models have more steps in the customer journey.

With more steps to keep track of, the number of data points increase and can create valuable customer insights. If you want to achieve success with a subscription business model, it is important to simplify all steps in the customer journey and take advantage of the generated data. The data can provide insights such as; which customers are at risk of churn? Where in the onboarding is the risk highest for a customer to drop out? Which customers are most likely to move up in the value chain and be open to an up- or cross-sales offer?

Based on our experience and data, we conclude that invoicing is a preferred payment option for both customers and companies. With the next generation of digital invoicing, companies like Arvato Financial Solutions can ensure a customer friendly onboarding and transparency for your customers. By providing a clear overview of the active subscription, we create a safe environment where your customer is in control.

With digital Invoicing we also offer relevant communication options so you can reach your customers through their preferred channels.

It is vital that your customers have the freedom to select the communication- and payment option that works best for them.

This blogpost was originally published as an interview in PostNord’s website.