Switching from one-time sales of product packages to a subscription model can come with multiple benefits for tech service companies, including ongoing revenue streams and the opportunity to forge strong customer communities. However, such a strategy overhaul isn’t a simple undertaking, and leaders must be ready for the new processes a subscription model entails, as well as its unique risks.
Companies making the switch will need to rethink how they deliver value, manage costs, ensure a smooth customer experience and more. Below, 16 members of Forbes Technology Council detail some of the challenges that come with moving to a subscription service model. If leaders consider and address these issues early on, it will help them (and their customers) navigate the transition more smoothly.
1. Retaining Customers
Customer retention is a major challenge in the subscription model, as customers can easily cancel. To address this, companies must focus on delivering consistent value—through ongoing updates, customer support and engagement strategies—ensuring users see the benefit of staying subscribed, thereby reducing churn and increasing loyalty. – Ayush Gupta, LayerEdge
2. Rethinking Cost Models
Many companies switching to a subscription model face the challenge of rebuilding their financial and cost models—specifically, switching from a CAPEX model to an OPEX model. While a subscription model simplifies the forecasting of operational costs, it makes it more difficult to track and manage the cost-to revenue ratio, especially when there’s been a substantial initial investment. – Ziva Hallaji, Wipro
3. Conveying The Value Of A Subscription
A key challenge is educating customers on the ongoing value of a subscription. Many clients are used to one-time purchases and may resist change. To address this, offer demos, webinars and clear content that shows the benefits of the continuous service updates, new features and superior customer support included in the subscription model. – Manasi Sharma, Microsoft
4. Developing Robust, Flexible Service Plans
One challenge in switching to a subscription model is customer retention, as users may hesitate to commit to continuous payments, fearing loss of service if they cancel. To address this, companies should offer flexible plans, establish clear value propositions and maintain strong customer support to build trust and encourage long-term loyalty. – Somdip Dey, Nosh Technologies
5. Gathering Data To Guide The Switch
The primary challenge is getting enough data to guide your switch. At the end of the day, switching to a subscription model requires customer experience and customer satisfaction acumen. Obtain relevant data, and have the right people crunch it. If the resulting information shows that you can attract new customers without sacrificing existing ones, you’re golden. Otherwise, get more data. – James Stanger, CompTIA
6. Updating Products And Processes
One of the challenges is updating products, including legacy products, to support the subscription model. A subscription model requires a flexible and modular product along with the ability to meet customers’ expectations—these include a consistent value offering, flexible pricing tiers, an exceptional customer experience and support. To overcome this challenge, companies must embrace new technology and automation to reduce costs and meet customers’ expectations. – Nanthakumar Muthusamy, Uprise
7. Adapting To Revenue Volatility
Potential revenue volatility is one issue IT service providers face when switching to a subscription model. This is because subscription models frequently entail regular payments, which are subject to fluctuations due to consumer attrition and economic downturns. Companies can solve this by providing flexible subscription plans and cultivating strong customer relationships. – Jas Bagga, Abusiness LLC
8. Tracking And Managing Revenue Data
Subscriptions require a shift in a company’s revenue management strategy. Transitioning from upfront to recurring revenue makes pricing, payment and account data accuracy even more critical. Spreadsheets don’t deliver the necessary fidelity. An automated, integrated revenue management system is essential to reduce administrative workloads, ensure billing accuracy and build effective pricing strategies. – Suresh Kannan, Model N
9. Managing Customers’ Expectations
In a subscription model, customers expect continuous value, regular updates and reliable support. To address this challenge, establish clear communication channels and set realistic expectations. Invest in customer success teams to ensure customers get the most value from the service. – Dr. Avi Boodram, Hammer & Nails AC
10. Ensuring Ongoing Value
One challenge in switching to a subscription model is managing customers’ expectations around ongoing value. To address this, tech service companies must release consistent feature updates, provide strong customer support and clearly communicate new benefits. This approach fosters loyalty and justifies the recurring cost, driving long-term customer retention. – Ken Pomella, RevStar
11. Explaining The Rationale For The Change To Stakeholders
You must be able to explain the “why,” the “how” and the “what” behind the switch. Why is this going to be a better model for your customers, employees and the business? How is it better for everyone? What will it mean for all stakeholders in both the short and long terms? The “why,” “how” and “what” all need to be communicated effectively to stakeholders so they understand the value of the new model and its impact—financially, operationally and strategically. – Gladwin Mendez, The Global Centre for Risk and Innovation
12. Balancing Customization With Scalability
Switching to a subscription model often comes with the challenge of balancing customization with scalability. Your clients want customized services, while scalability alone can provide growth. The solution lies in creating flexible frameworks—automated processes for core services, along with options to customize them, in order to make each client’s service unique without sacrificing efficiency. – Sandro Shubladze, Datamam
13. Preparing For A Temporary Dip In Revenues
The biggest challenge relates to recognizing the impact on revenue. Organizations making the switch to subscription services should expect a temporary dip in revenues as the transition is made from one-time payments to recurring subscriptions. Make sure the executive team, board and investors understand that this will happen, budget accordingly and manage cash flow to cover the transitional period. – Josh Dunham, Reveel
14. Balancing Customer Acquisition With Retention
One of the biggest challenges in switching to a subscription model is balancing customer acquisition with retention. Focus on increasing lifetime value by delivering personalized, high-quality experiences. Build an exclusive community with ongoing value, perks and experiences that keep customers loyal. Retention drives long-term success, while acquisition costs diminish over time. – Vamsi Krishna Dhakshinadhi, GrabAgile Inc.
15. Aligning Sales Incentives
A major challenge in switching to a subscription model is aligning sales incentives with a recurring revenue model. Traditional sales teams may resist the change due to lower upfront commissions. To address this, companies should redesign compensation plans to reward customer retention and long-term growth, ensuring sales teams are motivated to support the subscription shift. – Jagadish Gokavarapu, Wissen Infotech
16. Scaling Customer Support While Maintaining Its Quality
One challenge tech service companies face when switching to a subscription model is scaling customer support while maintaining quality. As the user base grows, the demand for support increases. To address this, companies should invest in automated tools like AI-driven chatbots for common issues, while reserving human agents for more complex problems, ensuring personalized and efficient service. – Roman Vinogradov, Improvado
This article was originally published on Forbes.
