Top 3 Reasons Why Your Business Needs a Subscription Business Model

The primary appeal for a recurring revenue-based business from an owner’s perspective is its predictability of revenue or cash, which would be used interchangeably in this article. Any business owners who can foresee its recurring revenue in the next 6 months or even a year are always going to be in advantage. WHY?

Not only it brings stability to the business, but also adds confidence in paving its strategies forward. One quick example is a business with seventy percent (70%) recurring revenue can plan on using seven million dollars from its 10 million annual revenue for an upcoming marketing and expansion strategy. This number provides predictable annual revenue for the management to work upon and invest accordingly.

On the other hand, company with zero percent recurring revenue along with its 15 million annual revenue doesn’t have the stability to plan for investment. The company has to start the year at zero, which reduces its flexibility to base its expansion plans.

A business, especially subscription-based business, will depend on Annual Recurring Revenue (ARR) to accurately inform about the health of their business. ARR allows business owners to predict the amount of future revenue. While its common to calculate ARR as the total value of their subscription contracts, many smaller businesses prefer to calculate monthly ARR to do their monthly planning.

Last but not the least, subscription based business develops simple pricing, which is beneficial for the business as well as the customers. A company managing one or two pricing tiers is clearly easier to manage than a company working with an array of pricing tiers. On top of that, the customers can also reflect convenience, as they understand how much money are they going to spend monthly or annually.

Most subscription-based business, such as the SaaS, depends a lot on ARR and cash flow to grow or even run their business. If you are one of them, I would suggest you to implement a recurring payment model, which gives you the benefits as discussed above.

On top of that, you would be able to focus on your customers through your customer retention rate or the churn rate (the annual percentage on which a customer stops to subscribe to a service).

I would also suggest you to try one of our core products, Razer Merchant Services recurring payment, as the base of your subscription-based business.

With more than 10 years of experience in the payment industry, we can equip your business with a simple and safe subscription payment service. Thus, you can be sure that you can put your effort on things that are more important, like attracting more customers.