Subscriber lifecycle management and customer lifetime value
Consumers today prefer subscriptions. They would rather experience a product or service for a low monthly fee, rather than own it for a higher price. As a result, more and more businesses are adopting the subscription business model. They are looking to better understand the subscription business lifecycle in order to maximize customer lifetime value.
The subscription business lifecycle is a framework for describing the needs, processes, capabilities and knowledge that subscription businesses require as they acquire, bill and retain subscribers; grow their operations; and achieve financial success. Those businesses that excel at all stages of the lifecycle stand the best chances to succeed.
The phases of the subscription lifecycle include:
- Acquire: Cost-effectively attract and convert new subscribers.
- Bill: Deliver the pricing options and frictionless subscription billing that today’s customers expect, while supporting reporting, revenue recognition, and other financial processes.
- Retain: Measurably minimize all types of churn.
- Expand: Grow the business by upselling, cross-selling, and rapidly expanding into new geographies, new products, and new lines of business.
- Succeed: Learn and optimize by leveraging industry benchmarking data, subscription intelligence, best practices, and revenue-enhancing techniques.
Average customer lifetime value
Business success throughout the subscription lifecycle can best be measured by the metric average customer lifetime value (ACLV). In a subscription context, average customer lifetime value is the product of the average customer duration and the amount charged on a recurring basis: (average customer duration) x (amount charged) = ACLV. Increasing the average customer lifetime by just a few months can lead to significantly higher ongoing revenue streams.
Many subscription businesses focus customer acquisition efforts around optimizing the conversion rate, especially if they offer a free trial or provide a freemium offering. They then rate their various marketing campaigns and activities around that metric. For example, if webinars drive the highest conversion rates, they will pour more money into developing additional webinars.
However, a better approach is to focus business activities around maximizing average customer lifetime value. To identify long-term profitable customers and thereby maximize ACLV, acquisition, conversion and retention metrics should be viewed together versus in isolation.
Legacy billing systems can hamper the ability to attract and retain recurring customers, making it difficult to maintain long-term revenue streams and customer satisfaction. At Vindicia, we understand that subscription business success is about much more than just billing and payment transactions. It’s about improving average customer lifetime value across the entire subscription business lifecycle. Vindicia Subscribe is our comprehensive subscription management platform that helps subscription-based businesses increase ongoing revenue streams and customer satisfaction at every stage in the customer lifecycle.
Phase of the subscription lifecycle
The acquire phase
The acquire phase of the subscription lifecycle includes activities such as product and offer definition, segmentation, personalization, pricing, packaging, promotion, campaigns, testing, iteration, onboarding, and entitlements. Two essential capabilities that drive acquisition are go-to-market flexibility and agility.
Vindicia Subscribe offers a broad set of customer acquisition tools such as coupons, promotions, freemiums, free trials and gifting. Vindicia experts can recommend which acquisition strategies to deploy and how to deploy them, leveraging insights based on peer and cohort comparisons of price-points, bundling, packaging and more. Vindicia Subscribe also allows you to spin up new offers – and tear down old ones – rapidly, enabling merchants to optimize pricing and packaging strategies in real time.
The bill phase
The bill phase of the subscription lifecycle covers billing, invoicing, payment handling, tax calculation, fraud detection, chargeback management, accounts receivable, revenue collection, revenue recognition and reporting. Billing is not just a technical or logistic necessity; it is a strategic weapon for acquisition, income and retention. Flexible billing enables innovative marketing. For example, Vindicia Subscribe offers multiple pricing strategies to attract buyers with different preferences, like usage-based billing, recurring charges, discounts, tiered options, virtual currencies and more.
You don’t want to swap your billing platform frequently. That’s why Vindicia Subscribe is designed to support your growth and expansion. It is highly scalable, supports global currencies, global taxes and over 90 traditional and alternative payment methods, including national credit cards and digital wallets such as PayPal, Apple Pay, Amazon Pay, and so on.
The retain phase
The retain phase of the subscription lifecycle starts from the moment a subscriber signs up. It encompasses customer engagement and loyalty programs, as well as ongoing challenges such as churn prediction, churn prevention, retry, dunning and crucially, recovering failed transactions.
Customer retention is high stakes for subscription companies. It is the key to maximizing customer lifetime value, The cost of retaining a customer is one fifth the cost of acquiring a new one, so smart businesses invest in customer relationships and retention from the moment a customer converts.
There are two types of churn: active churn and passive churn and each needs to be combatted differently.
- Active churn occurs when a customer leaves by choice. Businesses should protect themselves from active churn by modifying the product or pricing, improving the communications of the value of the product, offering loyalty points, bonuses, and other tools to encourage customer engagement.
- Passive churn is when a customer leaves your service not by choice but as a result of a glitch in the payments network resulting in a failed credit card transaction. The traditional tools for combating passive churn are limited to retry, account updater and dunning.
Using subscription intelligence and machine learning technologies, Vindicia’s data scientists innovated a new solution for passive churn called Vindicia Retain. Vindicia Retain analyzes failed credit/debit card transactions to evaluate the reason for the failure, and then applies business rules and logic to “heal” the transaction, allowing the payment to be processed successfully and money to flow into your bank account. The result: a dramatic reduction in passive churn, increased revenue and extended customer lifetime value.
The expand phase
The expand phase of the subscription lifecycle is about extending your horizons and vision. It includes core processes such as cross-sell and up-sell, but also daring to launch new products, new properties, and expand geographically Revenue growth is the life-blood of subscription businesses. Revenue growth funds acquisition, expansion and innovation. Expansion is primarily in two dimensions:
- Grow existing revenue: Build up by attracting more customers and then cross-selling and up-selling to your customer base.
- Grow new revenue: Expand your area of operations to new products, new lines of business and new geographies. Vindicia Subscribe’s wide-reaching support for languages, currencies and global tax compliance make it easy for subscription businesses to expand domestically and internationally.
The succeed phase
The succeed phase of the subscription lifecycle includes one-off activities such as implementation, integration and migration, but more significantly, also ongoing optimization driven by consultation, benchmarking, analytics, and business intelligence.
Great products and great service do not guarantee success. In addition, you need business acumen. That means domain expertise – in subscriptions, payments, marketing, sales, financial management and more. Working with Vindicia gives you access to our business acumen. You benefit not just from Vindicia Subscribe’s leading functionality, but also from Vindicia’s unparalleled industry data, expertise and experience.
Vindicia offers our clients:
- Client Business Reviews: Tailored assessments that visualize and contextualize your company’s success and identify areas of improvement
- Technical implementation support: A 15-year near flawless deployment record
- Business intelligence: Configurable dashboard, the independence to extract and analyze any data point, and track and define your own KPIs
- Customer success teams: Intimate involvement in your business from Vindicia experts who can offer advice on growth initiatives and challenge resolution
- Customer service: Available, accessible and dedicated support
Maximizing customer lifetime value through the Network Effect
The “Network Effect” is key to Vindicia’s expertise in helping our clients maximize customer lifetime value. With over 15 years in the subscription and payment business, Vindicia has processed massive volumes of data. We have processed $38 billion in recurring payments, involving 940 million transactions, 273 million payment accounts, and 351 million digital accounts. These transactions cover a huge range of payment methods, card networks and banks.
The Network Effect of this vast and varied data set, coupled with machine learning methodologies, enables Vindicia experts to derive actionable insights and best practices that no merchant or service provider can achieve on their own. These Network Effect insights are embedded in our software, best practices and consulting.
Vindicia clients get a lot more than a subscription billing platform. They benefit from subscription intelligence, differentiating capabilities, consulting and best practices that help them maximize customer lifetime value across the entire subscription lifecycle.