Many of today’s fastest-growing companies offer subscription services — companies like Netflix, Dollar Shave Club, Blue Apron, LifeLock and Birchbox. The appeal is obvious. Pay a recurring fee and get anything you want delivered to your home, from movies to mouthwash, from socks to underwear. Just about every product available is now available from some subscription service. There’s Bacon Freak and Scentbird, there’s Tie Society and Dive Bar Shirt Club.
Consumers love the ease of subscription services. They like automating their purchases so they always have what they need without having to think about it, whether it’s a TV show or toilet paper. Those are the two keys of the booming subscription industry: ease and variety. And both depend on an efficient and agile system for recurring billing. Many subscription companies figure they can build the billing software themselves. How difficult can it be? Just hard-code your offers and you’re ready to go, right? A few different pricing options for a few different boxes: $25 for the value kit, $59.99 for the high-end selection.
But it’s not nearly as simple as it seems. Once you hit the market, you might find that your $59.99 price has to be scaled back to $49.99. And what happens when you want to offer special coupons or introductory discounts? What if you want to make an offer based on the season or the proximity of a major holiday? What if you want to offer promo codes for customers who come to you through an online ad or a TV commercial?
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What started out as one or two pricing models quickly morphs into one or two hundred — or even 10 or 20,000. And it should. Indeed it must. The reality is that, to grow your subscription business, your marketing team needs a tremendous amount of leeway to offer a wide variety of pricing plans to attract new subscribers and to prevent existing subscribers from leaving. The billing technology you need to scale to the next level of subscribers is far more complex than the technology you needed to accommodate your first hundred customers.
Once you have all your pricing options and promo codes, you need to ensure sufficient security for them and build bulletproof cryptography around your billing system. If you’re a big company and some hacker figures out the algorithm behind your one-month-free code, you will soon find yourself in a world of hurt.
Here’s another problem I see all the time at subscription companies: Chief Marketing Officers who have great online marketing experience but who underestimate the importance of the online subscription technology they will need in the battle for customers. I see CMOs asking their CTOs for a credit card billing system. But that’s not enough. Instead they should be asking for a fully functional marketing-operations platform that can handle any and all business models that the marketing team can think up. This is a very different ask than simply, “Hey, we need the tech guys to build us a billing system.”
For subscription services, an efficient and flexible billing system is absolutely fundamental. But building such a system is a massive undertaking, not a weekend project for the software engineers. You don’t see successful heads of sales asking the software development team to build a customer relationship management system from scratch, you see them leveraging a state-of-the-art system like Salesforce.com. The same holds true in the subscription industry. It doesn’t make sense to spend your time, money and technical resources trying to develop your own billing system when you can take advantage of feature-rich, cloud-based subscription billing services right out of the box.
Too many subscription companies are pouring scarce development resources into building their own proprietary billing systems that don’t offer pricing differentiation and fail to deliver what consumers want. Off the top of my head, I can think of more than a few companies with great ideas for a subscription business that ultimately flamed out because their in-house billing system lacked the flexibility to make pricing and promotion changes on the fly.
How many new subscribers did those companies forego because they couldn’t test new subscription models? How many subscribers churned as a result? How many good marketing ideas were ignored because they were too complicated from a billing system standpoint to try them out?
The subscription economy is here to stay and it is getting more competitive by the day. That’s why companies can’t afford to be constrained by in-house systems that limit their ability to sign up new customers and keep existing ones. I’ll be blunt. The foundation of any subscription company is its billing system. And you can’t expect to build a large company on top of an inadequate foundation.
To paraphrase Mike Dubin, founder of Dollar Shave Club, you don’t need a billing system that’s just good. You need a billing system that’s f**king great.
Gene Hoffman is Chief Executive Officer of Vindicia. Recognized by the San Francisco Business Times with the “40 under 40 Emerging Leaders Award” in 2012, Hoffman has experience with building companies that disrupt markets. Prior to serving as Vindicia’s CEO, Hoffman co-founded eMusic in January 1998 and served as president, CEO and a director. As head of eMusic, he was featured on the cover of Forbes Magazine as a member of the July 1999 E-Gang, and named one of the 100 most influential entrepreneurs in technology in Upside Magazine’s November 2000 Elite 100. Hoffman led the acquisition of eMusic by Vivendi/Universal in June 2001.
