As we tighten our collective belt in the wake of the pandemic, subscription services are escaping the dreaded ‘unsubscribe’.
By Engel Schmidl
Subscription services have become commonplace in our lives. As consumers, we might binge on the latest offerings from Netflix, listen to our favourite music on Spotify or even receive a monthly delivery of a subscription box of underpants, socks or cosmetics.
The beauty of such services is they are relatively small recurring expenses and require minimal effort beyond the initial sign up. It is truly a matter of set and forget.
According to Zuora's Subscription Impact Report: COVID-19 Edition, the uptake of subscription services remains robust despite downturns in other areas of consumer spending caused by the knock-on effects of the pandemic.
In Q1 2020, S&P 500 sales contracted at a – 1.9 per cent annual rate while subscription-based revenue continued to grow at 9.5 per cent in the same quarter. While those figures are lower than last year's average annualised growth rates (S&P sales grew at 5.4 per cent and subscription revenue at 18.7 per cent), subscription companies continue to outperform traditional business models even through this crisis.
Accountancy has seen the rise of such subscription services, from basic consumer-level bookkeeping services through to complex industry-specific accountancy software for large firms.
Software as a service providers like MYOB, Sage and Xero have all made their mark in this regard, becoming staples of business, with such providers targeting small to medium-sized enterprises.
Accounting software’s rapid response
In responding to COVID-19, accounting software vendors had to react quickly to a rapidly changing economic and regulatory environment. Plenty of businesses were relying on vendors like MYOB, Xero and Sage, as well as their accountants, to help them understand and navigate the Australian Government's new initiatives like JobKeeper.
“We pivoted quickly to make changes to our software so that our customers and partners could connect to things such as the economic stimulus that were coming from the government,” says Trent Innes, Xero Australia and Asia managing director.
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“We built an eligibility test for JobKeeper into the product so small businesses and their advisers could work out straight away if they were eligible for JobKeeper. Then more importantly, if they were eligible, to be able to process it and submit the application as well,” he says.
Similarly, MYOB quickly responded with new features for their customers.
“We have released features and support specifically designed to make reporting for JobKeeper easier for small business,” says Dale Dixon, head of product at MYOB.
“We simplified the process for small businesses to notify the ATO when JobKeeper for their employees starts and finishes and created reports to help with monthly declarations to the ATO.”
The capacity of these vendors to respond and update promptly points to one of the critical attributes of the cloud-based subscription model, which allows for vendors to ensure their customers have the latest tools via software updates informed by current requirements.
Subscriptions can provide a complete package
The appeal of the subscription model is about not only an attractive price point but also the value built into an ongoing relationship between the vendor and customers, says Gary Katzeff, general manager enterprise resource planning, Sage Australia.
“I think subscription is much more than just a pricing model. It essentially includes a whole lot of wrap-around services that should come with it, including security, infrastructure and ongoing support.”
Part of that value proposition is the overall user experience. Katzeff says consumers, especially younger ones, want a high level of design and functionality from the work platforms they use, including accountancy software.
“They're expecting the equivalent to the apps they have grown up with on their mobile phones,” he says.
Another vital element of the subscription model is for vendors to build a community around their products and services. The subscription model is equally as much about the support a vendor provides as it is price point.
Supporting their respective communities was imperative for MYOB, Xero and Sage as the full scale of COVID-19 made its impact on their customers.
“Some of our customers had a significant reduction in their income and relied on being able to use our product to survive. We expanded our hardship policy to make sure they could still access the product,” MYOB's Dixon says.
Innes says the need to rapidly roll out updates and ramp up support to their community of users energised his Xero team.
“When the announcement of JobKeeper and the other stimulus packages came out it was a real rallying point for our people,” he says.
“As an example, the JobKeeper rules rolled out late on Thursday afternoon before Good Friday. The team had to build something in a short time that normally would've taken months. I think everyone just felt this is something that needs to get done and part of it is that we've created a strong community of Xero users.”
Like and subscribe
“By changing each piece of your business model to focus on maintaining a long-term relationship rather than on quick acquisition of new customers, you can enjoy higher profitability, more predictable cash flow and customers who are your ambassadors,” subscription business model expert Robbie Kellman Baxter writes in the Harvard Business Review.
The capacity to provide complex cloud-based software packages over the internet has revolutionised business practices and led to an accelerated shift to subscription-based models across all kinds of industries and with a myriad of services.
Thriving subscription model businesses ensure they maintain close contact with their customers and listen to feedback, regularly improving their products in keeping with the requirements of their customers, especially during difficult times.
The regular income stream a subscription model provides is a critical financial benefit for vendors. The additional benefit of building and maintaining meaningful engagement with a customer base (or in truly successful models, a community of users) provides a golden opportunity for subscription-based businesses to secure their long-term profitability and success.