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It used to be that the only thing a subscription bought you was a magazine, the newspaper, or maybe a gym membership. Clearly, times have changed. Products and services now offered via a subscription model abound, and they range from the simple, such as a weekly box of organic snacks, to the sophisticated, such as Amazon Web Services (AWS). With such diversity in the types of companies providing subscription-based offers, what approach should education services (ES) organizations consider in building and maintaining a successful subscription business?
Subscription plans are as varied as the businesses that offer them, and covering all the possibilities is impossible. So in an attempt to narrow the field, TSIA’s Education Services Subscription Survey, conducted in September 2013, looked specifically at two subscription types―individual and enterprise, with each defined as follows:
Individual Subscription. A subscription that is issued to a single, named user.
Enterprise Subscription. A subscription that is issued for usage by an enterprise.
As shown in Figure 1, standalone enterprise subscription plans are the least popular, with 11 percent of respondents indicating that they offer only an enterprise subscription plan. Forty-four percent of respondents offer an individual subscription only, and 44 percent provide bothindividual and enterprise subscriptions.
Education services subscription type.
Modalities included in subscription plans.
Subscription plans for e-learning have been a common practice for several years now, and what was true then continues to be true now: When a subscription model is used, e-learning is the primary modality to which it is applied.[i] With the proliferation of all things mobile, I would expect to see mobile learning included in more subscription plans in the future.
Time will tell whether ES organizations break the mold and include classroom and/or on-site training in future subscription offers. As public classroom training and on-site delivery generate the most revenue for education services organizations,[ii] the cost model for the subscription would need to be adjusted accordingly to minimize a reduction in the revenue stream, particularly for on-sites.
When it comes to pricing subscription offers, there is a high degree of variation in survey responses. One question asked, “What is the average price range, in U.S. dollars, for an unlimited, individual subscription to all offerings?” Responses ranged from the low end to the high end of the spectrum, at $100 to more than $10,000, respectively.
TSIA’s subscription survey report, Subscription Plans: Optimizing a Subscription-Based Business, available to TSIA members, goes into more detail about pricing for limited and unlimited, individual and enterprise subscriptions.
One of the resounding observations I had from the survey results was the lack of formal practices associated with education subscription offers. Only 44 percent of education services organizations answered yes to the question, “Do you have a documented education subscription renewal process?”
Figure 3 further exemplifies this lack of adherence to formal practices. When asked the question, “Do you have a dashboard that tracks and monitors the renewal status of customers that expire in the same month or quarter?” only 11 percent of ES organizations responded yes, as compared to 84 percent for technology product and maintenance contract renewal organizations, both of which are well-versed in subscription-based practices.
Percentage of ES organizations using a dashboard to track renewals.
Final evidence of lax subscription practices is illustrated in Figure 4. Only 33 percent of ES organizations have assigned someone the responsibility of engaging with customers that do not renew their subscription. This is a practice that ES should consider, given the high costs associated with replacing customers that that do not renew.
Percentage of ES organizations that assign a team member to follow up on a subscription cancellation.
Measurement is critical to gauging the success of any education offer and while there are a number of metrics that can be used to gauge the performance of a subscription business, the following three are considered the most crucial:
Recurring revenue (RR). Money you are going to make in a given time period (e.g., month, quarter, year).
Churn. A measure of attrition or loss.
Cost to acquire a customer (CAC). Total cost to sell a subscription (marketing, sales, fully burdened salaries, commissions, etc.).
This blog article does not cover the formulas associated with each metric, but TSIA members have access to the full subscription survey report for this detail. To learn more about the benefits of becoming a TSIA member and having access to detailed industry research reports, exclusive webinars, and more, visit our website.
While on the surface a subscription model seems simple, there are significant nuances to it that create complexity. The surge in revenue and the predictability embedded in a subscription model make it enticing to the masses, and as Figure 5 illustrates, while SaaS companies are seeing revenue growth that outpaces the traditional, legacy business model, the traditional approach is vastly more profitable.[iii]
So, keep this in mind when assessing your current subscription-based offers or if you are thinking about adding this option to the ES portfolio.
SaaS business model compared to traditional business model.
Source: Impact of Cloud Webcast, Thomas Lah, September 2013.
Consider these guidelines to structure or restructure, as the case may be, your subscription business.
Formalize subscription processes and procedures in a written document. The document should include consumption/usage tracking, the frequency that usage results will be communicated to customers, how lapsed renewals will be handled, who will follow up with customers whose renewals have lapsed, how churn will be managed, and so forth.
Capture and analyze the reasons why customers don’t renew their subscription plans. Develop action plans that reduce customer attrition.
Track subscription consumption/usage and report results to customers on a designated schedule—quarterly is recommended.
Establish the annual recurring revenue rate, as this baseline provides the starting point for revenue growth.
Determine the annual churn rate, as you must know the percentage at which customers are cancelling subscriptions to be able to make up the difference.
Determine the cost to acquire a subscription customer, as this is critical for profitability. If it’s costing you more to acquire the customer than what was paid for the subscription, this is a going-out-of-business strategy.
Establish a Customer Success organization, or minimally appoint someone to work directly with customers to ensure that they are utilizing the subscription. A planned, versus random, interval of communication must be established.
[i] Manning-Chapman, Maria. “E-Learning Global Pricing Practices.” September 2011. TSIA.
[ii] TSIA Education Services 2013 Benchmark Survey.
[iii] Lah, Thomas. Impact of Cloud Webcast. Q3, 2013. TSIA.
Post Date: December 22, 2014
Maria Manning-Chapman, is vice president of research, Education Services, for TSIA. She has more than 25 years of education experience in the high-technology industry. Maria is well versed in the dynamics of running an education services business and has held leadership positions in operations, virtual learning, business development, curriculum development, delivery, and partner management over the course of her career.
The Technology & Services Industry Association (TSIA) is dedicated to helping technology and services organizations large and small grow and advance in the technology industry. Find out how you can achieve success, too. Call us at (858) 674-5491 or we can call you.