Subscriptions are the new normal in today’s increasingly service-based economy. That said, while they can be convenient and flexible, they also present a risk of hidden costs. Businesses often end up with unused subscriptions that create additional and wholly unnecessary costs. To enjoy all of the unique benefits of the ever-popular subscription model, businesses need to retain visibility and control over their various plans, especially in their indirect procurement strategy.
The hidden costs of digital subscriptions
In any subscription model, customers are charged for a product or service on a recurring basis. However, these models come in different forms, some of which are more suitable than others, depending on the product or service in question. For example, plans may use a replenishment model, in which businesses pay for the replacement of products at given intervals or for new consumables once they have run out. Other subscriptions are charged only when a customer actually uses or accesses a product, as is often the case with cloud-hosted virtual desktops.
For software products, subscriptions are typically priced per user, allowing for a certain degree of flexibility. For example, a business might purchase subscription plans for ten users, adding and removing ones as required. However, unless there is adequate oversight, this also means there is a high risk of subscriptions going unused or having multiple subscriptions for the same user. Abandoned and unused subscriptions cost extra money and deliver no business value. In the case of software-as-a-service (SaaS), they may also present an added security risk, due to the higher potential of unused accounts being misappropriated by cybercriminals.
In other cases, a business might not have enough subscriptions for a particular service due to issues with payment systems failing to accommodate automatic renewals. This can lead to reduced functionality and costly downtime. Unintentionally suspended subscription plans are a common problem when it comes to long-tail suppliers, where manual procurement processes can result in lengthy delays.
Yet another hidden cost of subscriptions are trial periods that are charged automatically after the trial period ends. While legal regulations require that vendors warn their customers if their trial periods are due to expire, things like emails can easily end up being overlooked, and unwanted subscriptions can end up going on for months.
How to reduce the cost of subscriptions
Correct subscription management can greatly improve scalability and cost-efficiency at a time when demand is ever-changing and often unpredictable. Products and services can be purchased on-demand, and capacity scaled back and forth to meet current circumstances. In the case of SaaS products, customers also get to enjoy regular updates and client support, thereby reducing or even eliminating the cost of maintenance.
However, to enjoy these benefits to their fullest, businesses need transparent management software that gives them full oversight and control over their subscriptions. This is vital, given that the average number of SaaS subscriptions per organisation currently stands at 177 for companies with more than a thousand employees, and it is constantly growing. This figure does not even take into consideration individual plans per employee or team.
To manage these subscriptions effectively, organisations must ensure their procurement and finance systems are able to handle subscriptions with ease. At the very least, it should be immediately apparent who owns which subscriptions, the duration of those subscriptions, and the total cost of each plan. Going eve