Subscription Management

What is Subscription Management?

Subscription management refers to the process of handling the entire lifecycle of a customer’s subscription, from sign-up to renewal or cancellation. It involves managing billing, payments, upgrades, downgrades, customer communication, and retention strategies.

There are five stages in the subscription lifecycle:

1. Acquisition
2. Activation
3. Product usage
4. Renewal, upgrade, or downgrade
5. Churn or cancellation

Throughout these stages, subscription management plays a crucial role in maintaining a positive customer experience and ensuring the success of a subscription-based business. It encompasses all the activities they carry out to onboard customers, manage recurring billing, engage and retain their subscriber base, handle compliance, and track metrics like subscriber growth and churn.

Synonyms

• B2B subscription management
• SaaS subscription management
• Subscription lifecycle management
• Subscription management software

Importance of Efficient Subscription Management

For businesses using a recurring revenue model, subscription management isn’t just an optional function that streamlines the billing process. It’s the core of their operations. It facilitates the business model — there is no subscription business without it.

So, handling it efficiently is the difference between a successful subscription business and one that’s doomed to fail.

Good subscription management boosts customer retention.

Think about how frustrating it can be when your subscription unexpectedly gets messed up—maybe you’re charged incorrectly, or your renewal date slips. Those little headaches can lead customers to cancel.

A solid subscription management process ensures your renewal processes run smoothly, any changes to a plan are properly handled, and your customers feel supported. Happy customers stick around, which is the key to lower churn.

It also prevents involuntary churn (e.g., from outdated payment info), which accounts for as much as 40% of overall subscription churn.

It optimizes billing, invoicing, and collections processes.

Nobody wants to deal with payment hiccups every month. A solid subscription management system automates most of these processes—sending out bills on time, collecting payments, and even following up with reminders if someone’s credit card is about to expire. Taking out the manual grunt work can reduce errors, save time, and keep the payment experience seamless for your subscribers.

It facilitates revenue recognition.

With subscription models, revenue recognition is more complicated because subscription businesses generally collect payments upfront and deliver the service over the next month or year. That means the money hits their account right away, but isn’t “earned” (and therefore not recognized) until the subscription period is complete.

This is especially difficult if you’re dealing with multiple different billing periods (e.g., annual vs. monthly plans), free trials, add-ons, or proration for mid-cycle changes — all of which are common with this model. A well-structured system will handle all those nuances so that you can accurately recognize revenue in the right periods.

It improves cash flow and revenue forecasting.

Effective collections and dunning processes (enabled by subscription management) also mean fewer instances of missed or late payments. That means your cash flow will be healthier overall.

Because you’ll have a clearer picture of your recurring revenue and billing cycles, it becomes much easier to predict how much cash you’ll bring in. That reliable forecasting helps you plan future investments — like hiring new team members or expanding your product line — without worrying whether you’ll have the funds to cover it.

It guarantees compliance with financial regulations and tax laws.

Finally, subscription businesses often operate across multiple regions with different tax rules and accounting standards. A robust subscription management platform can automatically calculate taxes, apply the right regulations, and generate compliance reports. This means fewer headaches for your finance team and reduced risk of costly mistakes.

It improves the customer experience.

Research compiled by Zendesk finds that more than two-thirds of today’s buyers prefer using self-service tools to talking to an actual company representative. And for ServiceTarget, a no-code self-service app builder, their clients see an average CSAT score increase of 45% after implementing self-service tools.

Subscription management software integrates with your website, customer portals, and app interfaces, so customers can update their subscriptions and billing information in seconds, without having to talk to anyone. It’s a lot more convenient for them and you.

Industries Leveraging Subscription Management

Maybe you’re wondering, “So, which industries are really taking advantage of subscription management, and how?” Different types of businesses monetize through subscriptions differently, and with varying levels of complexity.

Now, let’s dive into a few examples of industries that are seeing success with subscription models and leveraging subscription management software.

SaaS and cloud services

Subscription management is one of the must-have tools for SaaS businesses. Since customers pay a fixed amount for their software licenses and services (and occasionally usage), SaaS companies need the ability to manage and track subscriptions efficiently.

Subscription management software allows them to automate billing, invoicing, and renewals, saving time and resources. It also triggers reminder email sequences for failed payments, and automatically restricts access to the software if a customer’s subscription expires or payment fails.

This is especially valuable if you’re using a consumption or seat-based model. Let’s say you’re using a project management tool in the cloud, paying a monthly fee per user.

Some months you add a few team members temporarily, then drop them again. Instead of juggling individual invoices every time your team size changes, a good subscription management system automatically adjusts your bill based on how many units/seats you actually use, and for how long.

Telecommunications

Telecom companies have two main priorities when it comes to subscription management: complex usage-based pricing and service renewals.

Think about your phone bill. Maybe you have a family plan with data caps, unlimited calls, or even international roaming. Telecom companies deal with a huge variety of packages, add-ons, and promotional deals.

Customers want transparent, accurate bills that reflect their usage and the promotions they signed up for. A subscription management tool helps them manage renewals for each line, apply proration if someone changes their plan mid-cycle, and automate billing for different data usage levels.

Media and publishing

Consistent, tailored user access is critical for publishers. If a loyal subscriber loses access unexpectedly, you risk losing them for good. And from a business angle, clear reporting on subscriber growth, churn, and revenue helps them forecast better and invest in new content.

Online news sites and streaming services are perfect examples. They frequently offer different tiers of content; maybe the basic plan only gives you a limited number of articles or a smaller movie library, but the premium plan unlocks everything.

Subscription management handles who has access to what content, how often they’re billed (monthly vs. annual), and automatically upgrades or downgrades subscriptions as customers change plans.

Manufacturing and IoT

You might not think of manufacturers as subscription businesses, but a lot of them have certain products and service contracts they bill on a recurring basis. Think about industrial equipment, like printers or security systems, that require regular maintenance and updates, or which are leased.

And with IoT (Internet of Things) becoming more ubiquitous, the software element built into these physical products is sold on a subscription basis as well. You pay a monthly fee that includes maintenance, software updates, and even performance monitoring via IoT sensors.

Whenever the machine needs servicing or a replacement part, that’s covered by your subscription. Some models even have usage-based billing, where you pay more if production ramps up.

Professional services

Retainer-based agency, consulting, and service agreements are effectively the same as a digital subscription. Instead of billing hourly each time, professional service providers packaged their expertise into a fixed-price recurring subscription.

This smooths out the financials for both the client and the service provider. The client knows exactly what to budget every month, and the firm doesn’t have to chase down late payments, send out separate invoices, or make calculations for every little task.

Subscription Pricing Models

There are a few different ways you could structure your subscription model. Here are some of the most common pricing strategies for subscriptions:

Fixed pricing

Fixed pricing is one standard rate for all subscribers. It makes the most sense if your platform has just one instance and everyone gets full access.

The best example is a music streaming service that charges a flat monthly fee, no matter how many songs or playlists you consume. Everyone pays the same amount for the same level of access.

It works because it’s super straightforward. Customers don’t have to worry about hidden fees or price changes based on usage.

However, if your user base is diverse (some use your service constantly while others barely log in) you might be leaving money on the table from heavy users, while light users might feel they’re overpaying. That’s why it’s best for lower-cost subscriptions.

Tiered pricing

With tiered pricing, you offer multiple levels of access to your product, at varying price points that reflect the value each package provides. Think of a project management tool with a “Basic” package for smaller teams, a “Pro” package for mid-sized teams with advanced features, and an “Enterprise” level for large organizations that need all the bells and whistles.

The biggest advantage tiered pricing has over a simple fixed-rate model is it caters to different segments of your market. If you’re a small startup, you pay less and only get what you need; if you’re a larger company, you pay more for added functionality. So, you can simultaneously be the ideal software for both.

That said, you want enough distinctions to encourage upgrades without overwhelming potential subscribers. It’s important to map out which features are integral to the product’s/service’s functionality and which are more of a luxury. That way, the lower-priced tiers don’t cannibalize higher ones, and ensures that each tier offers enough value to justify its price.

Usage-based pricing

With usage-based pricing, subscription businesses charge customers based on their actual consumption, like an email marketing platform that charges you for each email sent. If you run a big campaign, you pay more, but if you’re only sending a handful of messages, your monthly bill stays low.

Usage-based pricing feels fair because customers pay for exactly what they use. This model can help attract cost-sensitive users who prefer not to commit to a high fixed fee, and it gives each user to be able to control their usage. It can also make heavy users more profitable.

Keep in mind, however, that this means revenue will fluctuate more from month to month, making your subscriptions less predictable. You need strong usage tracking and forecasting capabilities alongside consistently high user engagement to handle these variations.

Hybrid pricing

Hybrid pricing is exactly what it sounds like: a model where a business combines elements of more than one of the abovementioned pricing strategies. You see this a lot in the cloud storage industry, where companies charge a base monthly fee for up to a certain amount of storage (a fixed, tiered component), plus additional fees if you exceed your data limit (a usage-based component).

The plus here is it balances predictability (a steady monthly rate) with flexibility (customers can pay extra only when they need more resources). But it’s also more complicated, so communicating the pricing structure clearly is crucial. Otherwise, customers might be confused by their bills if they go beyond their usual usage.

Freemium and trial models

Freemium and trial strategies are product-led growth tactics, where you bring in new customers by offering them a free version of your product (freemium) or allowing them to test out the full version for a limited time (trial). They’re common in the SaaS industry.

There are tons of examples you’re probably familiar with:

• Productivity apps that let you use core features for free
• Streaming services that let you try free for 30 days before you have to commit
• Online courses that offer a handful of free lessons before you have to pay for the rest

These models lowers the barrier to entry. People can test the product without any financial risk. If they find value, they’re more likely to pay for premium features. They’re also less likely to churn since they know what they’re getting before they start paying.

But converting free users to paid subscribers can be harder than it sounds. You need a clear strategy to illustrate the added value of paid features. A good benchmark is somewhere between 17% and 19%, but the B2B industry average is higher, at 25%.

Challenges Businesses Face with Subscription Management

The biggest advantage of subscription models is the fact they give you the ability to shift your focus from customer acquisition to retention. You aren’t constantly worried about what it takes to introduce new customers to your product. And that’s a good thing, because it costs as much as 7x more to acquire a new customer as it does to retain an existing one.

That said, this also carries some significant challenges that many other types of businesses do not:

Challenges Businesses Face with Subscription Management

The biggest advantage of subscription models is the fact they give you the ability to shift your focus from customer acquisition to retention. You aren’t constantly worried about what it takes to introduce new customers to your product. And that’s a good thing, because it costs as much as 7x more to acquire a new customer as it does to retain an existing one.

That said, this also carries some significant challenges that many other types of businesses do not:

Customer churn and retention

In a subscription model, your revenue depends on customers staying with you month after month. Churn is the bane of your existence—every canceled subscription represents a loss of recurring revenue.

People’s reasons for canceling can range from budget constraints to dissatisfaction with your product. Sometimes, they’re not even the ones trying to churn; they could have simply forgotten to update their payment info.

You need to pinpoint those reasons fast.

• Continuously gather feedback and monitor usage patterns.
• Offer flexible pause or downgrade options instead of cancellation.
• Implement win-back campaigns (like special discounts or limited-time offers) for customers on the fence.

Billing complexity

Subscription billing is rarely just a flat monthly charge. Customers upgrade, downgrade, sometimes mid-month. Maybe they add extra features or seats. Or maybe you closed them on a ramp deal and they’re planning on expanding or contracting usage from one month to the next.

Those mid-cycle changes mean you have to prorate fees accurately. And what if someone fails to pay on time? Do you suspend their service or give them a grace period?

The solution is to automate as much as possible. An automated billing engine within CPQ can handle proration, which reduces errors and administrative headaches. Clear communication about payment terms and renewal dates also helps minimize late or failed payments.

Flexibility in your pricing strategy

Your market might shift, and you’ll need to tweak your pricing to stay competitive. But existing subscribers will usually be sensitive to sudden changes, especially if you’re changing your structure and not just your price.

If you adjust prices too often or without a clear explanation, you risk damaging trust. If you don’t adjust prices at all, you could lose ground to competitors.

Ideally, you should consider grandfathering existing subscribers at their current rates and apply new pricing to new signups. If you can’t do this, provide ample notice and a clear rationale for any pricing changes—transparency is key to maintaining loyalty.

Revenue recognition compliance

Under accounting standards like ASC 606 and IFRS 15, you need to recognize revenue as services are delivered, not just when you receive the cash. With multiple plan types and billing cycles, it’s easy to get tripped up on how and when revenue should be recognized.

Using software that automates revenue allocation can help ensure you’re compliant. Work closely with your finance and accounting teams to set up processes that handle partial periods and deferred revenue properly.

Integration with your other systems

In a subscription model, you might need to track everything from the initial subscription configuration and quote (CPQ) to ongoing customer engagement (CRM) and integrate it with your ERP for financials.

But each system uses different data formats and processes, which creates information silos and messy manual workarounds. That’s why you need to choose a subscription management software that offers strong APIs and prebuilt integrations with the platforms you’re already using.

Subscription fraud and payment failures

When payments happen regularly, there’s always a risk of things like stolen credit cards, chargebacks, and intentionally canceled payments. You also have to manage involuntary churn (when payments fail because of expired cards or technical errors).

Fraud undermines your revenue and creates extra work dealing with disputes. Meanwhile, legitimate payment failures cost you loyal customers if you don’t handle them properly.

Your subscription management system has to include fraud detection and security measures (like address verification services). And your billing team needs to handle involuntary churn by sending reminders before cards expire and retrying failed payments in a structured manner.

Best Practices for Subscription Management

While subscription businesses have distinct operational hurdles, there are a few subscription management best practices you can follow to largely prevent them:

• Create as many self-service touchpoints as possible.
• Automate subscription billing and invoicing processes.
• Integrate with your CRM, CPQ, ERP, and contract management systems.
• Use churn prediction algorithms and proactively reach out to at-risk customers.
• Use churn data and customer insights to improve your product, pricing, and overall subscription experience going forward.

And if you’re using a billing engine or subscription management platform, it’s important to choose one that offers strong APIs and prebuilt integrations with the platforms you’re already using.

Subscription Management Solutions

Automating the subscription management workflow saves your billing team, account managers, and finance department loads of time, and it gives customers more of the self-service tools they’re looking for. It’s a win-win.

Popular solutions for this include:

• Chargebee
• Paddle
• Recurly
• Zuora

For more complex subscription businesses, like those in the SaaS industry, it helps to use an end-to-end revenue lifecycle management platform like DealHub or Salesforce Revenue Cloud. With these, you’ll have CPQ to supercharge your sales and billing processes, and you’ll have additional RevOps tools like analytics, churn prediction, and deal insights.

Subscription Management in the Revenue Lifecycle

A big chunk of a subscription business’s revenue depends on what happens after the initial sale. Renewals, upgrades, downgrades, and cancellations all have a direct impact on your recurring revenue stream:

• Renewals: If the subscription management platform can handle auto-renewals, customers often stay subscribed by default, lowering churn risk. You may also prefer manual renewals for high-value contracts. Your system should make it easy to prompt customers to renew and seamlessly process any changes.
• Upgrades and downgrades: If a customer’s needs change, they will jump to a different plan. The software prorates this to make things fair.
• Cancellations: You need clear final billing, confirmation of the service end date, and a win-back offer to encourage future re-subscription. A good subscription management solution helps you track why people cancel, which informs your retention strategies moving forward.

Month to month, revenue typically isn’t “earned” the moment you swipe a credit card; it’s earned over the duration of the subscription. For example, if a customer pays an annual fee upfront, you can’t (under current accounting standards like ASC 606 or IFRS 15) recognize that entire amount on Day 1. You’d spread it out monthly across the subscription period.

Where subscription management shines is by automating those allocations. And through its features and integrations, it aligns sales, finance, and customer success teams around the same data.

FAQs

Andrew Parker

Andrew is a professional copywriter with expertise in creating content focused on business-to-business (B2B) software. He conducts research and produces articles that provide valuable insights and information to his readers.