Consumption-based Pricing: Refining the Subscription Model

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What is the simplest way to measure your subscription model’s growth and overall trajectory? By comparing the number of newly added accounts to the amount of customer churn you experience. And while 2020, a year fraught with strange and extenuating circumstances, brought a pronounced revenue spike to companies offering subscription-based services, especially OTT media which eclipsed $22 billion in sales, it was a year that left many consumers looking for a greater sense of choice and optimization. In other words, the average consumer’s palate has become more discerning. 

Products that rely on a subscription-based pricing scheme are still surging. The world of subscription services has enough gas in the tank to sustain itself for years to come, but there’s a new level of consumer restlessness brewing. The answer? Refining the subscription-based model itself.  

The Problem of Subscription Fatigue

What’s driving this new brand of consumer restlessness? Over the last decade, the world of subscription-based services has grown exponentially. Consumers now have access to subscriptions for everything from streaming video on demand (SVoD) to pop culture memorabilia. As of 2017, it was estimated that there were more than 28,000 subscription services available worldwide. That number has only skyrocketed in the interim. 

The problem is subscription fatigue. According to a recent Forbes article, the average American pays for 12 or more streaming services simultaneously. Simply put, the consumer has access to too many choices. According to Profitwell, 47% of consumers are paralyzed by the sheer amount of subscription options available. There’s a term for it: XaaS or “Everything as a service.” 

While XaaS has its roots in the tech-heavy SaaS arena, it’s an idea that’s made ripples across the subscription economy in general. The solution? Finding a way to enhance —or at least complement— the traditional subscription model.       

What is Consumption-based Pricing?

Consumption-based pricing is paving the way towards the subscription-based economy’s future. What is consumption-based pricing? Pay-for-what-you-use pricing.

Rather than paying for a time interval, as in a pure subscription-based service, you are paying for a specific quantity of use. Which brings up an important question: aren’t pay-as-you-go and subscription-based pricing in direct competition with one another? Aren’t they antithetical business models by their very definition? 

Yes and no. 

Choice Versus Fatigue 

From a business standpoint, mobile phone companies have done an exemplary job of balancing their monthly service contracts with less restrictive pre-paid options. At the corporate/ownership level, the trick is making your balance sheet work in harmony with both models simultaneously. For marketing purposes, the two options are rivals; they augment the customer’s range of choices in a meaningful way. At the business owner’s level, however, the two pricing schemes work in a complementary manner to cast a wider net across your given market. 

Let’s return to our cell phone example. Customers on a contract pay a recurring monthly fee for a set amount of plan features (minutes, gigabytes of data, etc.) regardless of their use. Other customers might opt for a plan that allows them to only pay for the services they use—this one would be our consumption-based pricing. Offering both options allows the phone company to appeal to both types of customer and capture more of the market.    

In recent years, more and more consumers are switching to consumption rather than spending exorbitant amounts every year on contract plans whose features they never use. It comes down to choice versus fatigue, and the general subscription-based economy can learn from the mobile industry’s success. 

Consumption-based pricing lets you offer customers a limited, yet germane assortment of amenities. Once they’ve consumed the product, they can instantly renew without the need to wait for a monthly renewal date. In all actuality, many consumption-based services have begun to resemble their older sibling with options for automatic monthly renewals available. If you are careful in the way you set up your subscription services and your consumption services, you can increase your business, all with recurring revenue over the long term.  

For more subscription news and trends, or to discuss our service offerings, please contact MaxQ Technologies today.  

Legislatures Need Cannabis Reform, not Confusion 

Until the United States and state legislatures address the tangled strands of myriad regulations and remove cannabis from its list of illicit substances, the burgeoning cannabis industry will continue to burden it with a labyrinth of restrictions such as outdated banking laws that continue to prevent the industry from joining other mainstream entities such as the liquor and tobacco industries. In the meantime, forward-thinking companies like MaxQ Technologies, a leading Value Added Reseller and an Independent Software Vendor specializing in business solutions to the Consumer Goods, Manufacturing, Distribution, and Professional Service industries, make sense of the governments’ nonsensical approach to regulating the marijuana industry. To learn more about how MaxQ can unleash its powerful arsenal of state-of-the-art tools designed to better manage your cannabis business, contact us

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