An important question many businesses are asking themselves these days is how to offer more “sticky” features. With more and more competition, and often increasingly tight profit margins, many firms want to figure out how to boost customer loyalty. This is as true for B2B firms that sell large, $10,000+ equipment as it is for B2C firms that sell $10 bags of coffee beans sold as a monthly subscription.
On the surface, it might not seem like these two types of businesses have anything in common, but when you look at them in light of e-commerce trends and all the benefits that technology enables them to do, you’ll see that the B2C subscription service model can actually work in the B2B context. Let’s take a look at how this works and how you can implement it in your business.
What Is the Subscription model?
A subscription model is where users pay a monthly or annual fee to access an asset. This model has worked very well in both B2B and B2C realms. In B2B it’s often associated with software (think a monthly subscription to cloud-based accounting software or SaaS), and in B2C it can be anything from a wine of the month club to a monthly shipment of coffee beans delivered directly to the consumer’s door.
Many businesses have discovered that they can offer a slight discount in exchange for buyers purchasing a full year of service (a year of software access, a year of coffee, etc.). This has led to massive growth in offering other, larger products in a similar pricing model. The prime example of this is Car as a Service (CaaS), where car dealers basically sell a modified one-year lease, but without the option to purchase at the end. This provides both the seller with a number of benefits, including:
- Higher monthly profit margins
- Faster inventory turnover
- Potentially higher resale value of used cars
And for consumers, the benefits include:
- Greater flexibility and product selection
- No long-term commitment
- Lower maintenance costs
The question is: If the car industry can do this, can others?
Applying Subscription Services to B2B
There are really three ways B2B firms can benefit following the subscription model.
First, businesses can follow the CaaS model directly, offering what essentially amounts to an equipment lease. Using this model, businesses don’t necessarily have to offer the option to purchase the equipment at the end of the lease. Think of it more of a monthly license fee to use the equipment.
Second, businesses that supply consumables for machinery can create monthly subscriptions (also potentially sold annually at a small discount), where a buyer gets charged each month (or each year) and is automatically sent the consumables. This is ideal for companies that sell things like ink for industrial printers, for example. Of course, this model somewhat presumes that customers consistently purchase the same quantity of consumables per month. But with experimentation, B2B firms that sell consumables can figure out where that sweet spot is. The goal here is to get the revenue sooner rather than later and to lock the buyer into a longer-term relationship. Coincidentally, offering a subscription can also create a better customer experience.
Third, B2B firms that sell larger pieces of equipment often also sell installation, maintenance and service packages. These are often billed as part of the equipment purchase, but are often financed separately. By breaking these packages into monthly payments, customers will likely enjoy some savings on finance charges. Thus, customers can save significant amounts of money while your business still gains monthly recurring revenues at no additional cost. The only trade-off may be receiving the full amount at once, however, this is likely to be made up by selling more packages overall.
How Credit Key Can Help
Financing is the glue that holds this type of model together, and Credit Key is an ideal vehicle for this. By offering low monthly fixed rates, along with 0 percent for the first month, buyers can make larger purchases and stretch their capital dollars even further. And for sellers, the biggest benefit is being paid up front with no risk.
Want to learn more how to implement subscription services using Credit Key? Contact us to get started!
