Determining contracts to offer your customers is a crucial part of setting up subscription model companies. That's because contract types and terms can have a large impact on other parts of the business. But once you understand what your target market is, and what the price driver is for your products or services, you want to match the right pricing arrangements to your contracts. What goes into deciding pricing arrangements? Look at charge types and payment terms.
Different charge types for different scenarios
When we use the term charge types, we are typically referring to how and when your customers will be invoiced and charged for their subscriptions. Charge types fall into three categories: recurring, metered, and one-off.
While you should certainly take into consideration what you need in terms of your own business cash flow, and how your recurring revenue impacts your ability to scale, you want to also do what makes sense for the types of contracts your customers have and what the value driver is.
For example, flat recurring payments are the most common for things like newsletters, simple SaaS solutions, or subscription box memberships. Each monthly, quarterly, or yearly billing period, customers are charged the same fee. But for enterprise solutions, telecom companies, or services-based subscriptions, metered charge types dependent on actual customer use may make more sense.
One-off charges can be used for things like onboarding charges, in-app purchases, or physical product orders in combination with your main recurring charges. Most often, a combination of these arrangements are necessary, incurring the need for more dynamic contracts.
How you will charge your customers and for what is a huge part of ensuring profitability for your business. It can be easy to set up simple recurring charges as part of your standard contract offering, but then find yourself being stretched thin when it comes to delivery of account management services that customers are not paying extra for.
Take into consideration that while consumers enjoy subscription models for their ease of use and predictability, there are cases in which you should determine from the start when there will be conditions in which they may pay differently. Also consider that it's also much more difficult to introduce additional charges to customers once they have already agreed to contract terms. That is why deciding on charge types together with your contract terms is so important.
Look at the subscription data
Having a handle on your subscription master data is important for many different reasons. But one crucial reason is so that you can determine if your pricing arrangements are, in fact, matched appropriately to your offerings.
Subscription data can help you when it comes to pricing arrangements in a few different ways: you can track what pricing works for different audience segments, and use data to be able to adjust and experiment with pricing plans.
Having a handle on subscription data as it pertains to pricing arrangements can also allow for greater flexibility for custom quotes to enterprise customers. Insights for full life cycles also help you to understand how customers evolve over time, within one plan, or when making the journey to more high-value plans.
It's important to not only have a handle on your subscription contract types, but also your payment arrangements. The two should be well suited together for the sake of your customers, but also your own subscription and business management. Backed by intelligent insights, you should have a clear picture of your charge types and payment terms in order to ensure success.
Want to learn more about contract types and how important they are for subscription business? Download our E-Book: The Subscription Contract Guidebook: Types, Uses and Pros and Cons