When Are Subscription Managers Worth The Money?

Everyone who runs a subscription business has to eventually decide if they’re going buy a subscription manger.

They are expensive, can definitely be worth the money, however they work best for subscription products at a certain scale.

These are products like Recurly, Chargebee, Maxio, Stripe Billing, Zuora, Paddle, among

You might have heard these names before, but not exactly understand:

• What does a subscription manager do?
• When should I think about using one?
• How do these help make you more money?

If you are currently asking these questions, then this blog post is for you.

If you’re not currently asking these questions, this might be the most boring post that you’ve ever read.

Feel free to skip it, I understand.

What is a Subscription Manager?

You can think of a subscription manager as the “brain” of your payment systems.

To understand what it does, lets first look at a single transaction without a subscription, such as e-commerce).

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When a user clicks “pay” on your checkout page, the following things happen:

1. The payment details that they entered on your page get sent to a payment gateways (like Stripe, Adyen, Braintree, etc)
2. The payment gateway validates whether their details are valid and whether their account has money to pay for this.
3. If both of those things are true, you get access to the customer money (in a bank, or credit card account or an equivalent) and the transaction is approved.

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Now lets look at a recurring transaction. All of the same things happen, except in this example the payment details are sent through the subscription manger, which contains your:

• Pricing Packages
• Plans (Weekly, Monthly, Annual, etc)
• Customer Payment Information (card numbers, addresses, billing info, etc)
• Logic - Who to charge, when and via which payment gateway

In this example, when a customer clicks “pay”:

1. The payment information get sent from the checkout page to the subscription manager, which stores it and locates the plan that the customer is trying to buy
2. The subscription manager passes this information to the payment gateway
3. The payment gateway checks to see if its valid and if the customer has the money.
4. If both of those things are true, you get access to the customer money (in a bank, or credit card account or an equivalent) and the transaction is approved.

This is basically the same as an e-commerce transaction, just with another step in it.

However, the core difference here is that you now have the payment details stored and can use this to run recurring transactions.

Because the subscription manger has the payment info, as well as the pricing and plan details, it can act as the “brain” of your payment system and can orchestrate your payments.

In the early days, some companies build their own subscription logic, other user off the shelf tools with the most common one being Stripe Billing (which is their subscription manager product).

Quick note: Stripe (the company) sells both a payment gateway (which clears the transaction) and also their Stripe Billing product (which is a subscription manager). This causes understandable confusion. I’ll do my best to distinguish these, however when a subscription company says they “use Stripe” it typically means they us both products, but in reality you can use either one.

When should I think about using one?

The most common “triggering event” that causes companies to start researching subscription managers is when they want to set up a second payment gateway that is more effective in some parts of the world.

A lot of the time this is Paypal, which doesn’t integrate with Stripe Billing (as of this writing) for US based Stripe. This means they now have to duplicate all of their pricing and subscription logic for Paypal and manually keep them in sync.

A company starts to seriously think about subscription managers when one or more of the following things happen.

• The headache of managing pricing, plans in multiple places becomes to much
• Their homegrown solution or manual work arounds starts to break down
• They want to improve their payment processing in another part of the world and therefore want another payment gateway
• They want their financial information to centralized and easier to report.

Once you have one set up, you can now configure it with multiple gateways which (hopefully) improves you payment success rates in different parts of the world.

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Once you have a subscription manager running, it makes opens up the following capabilities:

• Quickly implement new gateways and payment methods (such as Google Pay) without needed to re build all the logic
• Customize which payment gateway you want to use for which group of users (by payment method, geo location, etc), which improves authorization rates, which lowers churn
• Centrally manage all of your pricing and plan information
• Have a central source of truth for your MRR, churn numbers, plan performance, etc.

So How do These Make You More Money?

Because these products will all cost you thousands or even tens of thousands per year, its important to understand their ROI.

In my experience, the sales teams of most of these companies position their products as your “platform for growth” or retention or whatever.

Ignore that, subscription manager primarily allow you to lower involuntary churn caused by payment fails. They can also increase the initial payment success rate, which raised your conversion rate.

Those happen through the following mechanisms:

1. Centralizing your failed payment tactics - As mentioned in this article, every subscription company should be using a machine learning based retry process, emailing people when cards fail and when cards are about to expire.   Some payment gateways have this built in, others don’t. A subscription manger will allow you to do this and it makes a big difference in your involuntary churn.
2. Strong Checkout Page - Many of these products come with an “out of the box” checkout page, which will naturally integrate well with the subscription manager itself.  Checkout pages are very important.  It takes a lot of engineering resources to build an excellent checkout page, so if you can’t afford that, then these hosted pages are great. This impacts your initial conversion rate to paying.
3. Implementing Additional Gateways - Different gateways and wallet products are effective in different parts of the world. If you have a more global audience, then signing up to a payment gateway that is more effective where you customers are can help raise your checkout success rate, which impacts conversion to paying.
4. Gateway Fallback Logic -  Depending on the subscription manager, you can set up a backup payment gateway that you can send the transaction through if it’s rejected by the first gateway. This will help lower your involuntary churn.

These are the core ways that these products actually impact your revenue.

Additionally there are many “soft” benefits that come along with centralized reporting, easier price changes, customizing plans without an engineers help, etc.

So What Do You Do With This Information

If you are thinking about this, it can be a long project but worth it.

1. Make sure you can get the ROI - Depending on your revenue, these platforms probably cost 10k USD+ per year, take a few weeks to set up and effectively lock you in. This is probably not worth it until you are doing at least $100K USD MRR and maybe higher.  Do the math.
2. Really Think Through Requirements - Its unlikely that you will have more than 1 or 2 subscription mangers in your product’s life, so you don’t want to mess up the initial vendor selection. Really think through what you need and take the time to do your research.
3. Check EXACTLY how each vendor’s features work - Again, you’re not going to migrate multiple time. So when a vendor say that “manager your cancelation flow” make sure you know exactly what they mean by that.
4. Plan Out Access Management - If you are thinking about doing this in the near future, you want to plan out how your access systems within your app work (e.g how do we know someone paid and what kind of access they should have). This is a common place companies trip up.
5. Feel Free to Email Me - I periodically asses these vendors for clients, so I might be able to answer questions and can give you any cost info I have. Here is my contact page.

Good luck out there.

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