SaaS and mobile applications have at least one thing in common – subscription business models that fund ongoing innovation and predictive revenue streams.

And now AI companies are following a similar path, starting with subscription models and then layering on consumption-based pricing for end users who need higher utilization. According to Growth Unhinged, 70% of AI spend is shifted from the tech/software budget, so the model can be an easier onramp for buyers before unpredictable token spend kicks in.

Subscription models look easy but are hard to get right

Subscription models seem easy to implement, but they are ripe with missteps that can turn away prospects and frustrate customers. During my yearly tour of Silicon Valley startups, founders latch on to subscription models as growth hacks, leaving off the hard parts: attracting prospects with a real problem statement that aligns with the startup’s value proposition and then delivering value.

At a recent Coffee With Digital Trailblazers, we discussed Growth Hacks in the AI Era: What’s Actually Working Now. We didn’t cover subscription models specifically, but many of the speakers highlighted the importance of customer-centricity.

“Is it making my life easier – or is it actually making the customer’s life easier?” asks Amy Swanson, strategic marketing advisor at Network of Advanced Specialty Healthcare (NASH). “Because at the end of the day, if you have not removed that friction, then you’ve already lost the customer before they ever get to a salesperson.”

I reached out to several experts to share their recommendations on implementing subscription models.

Deliver value, not just new features

“Subscription models can be a great example of a win-win when done right, turning individual transactions into an ongoing revenue stream and customers into communities,” says Andy Sen, CTO of AppDirect. “But subscription success isn’t just about charging monthly. It’s about constantly delivering ongoing value. Every invoice sent is both a source of revenue and a reminder to the customer to evaluate whether the value they’re receiving is worth the price of the subscription.”

Too many SaaS companies translate “delivering ongoing value” to launching new features and products. What’s often left out is the work to help customers succeed with the product while helping sponsors grow adoption.  

“Subscription success comes down to aligning your tech, your practices, and your mindset around long-term value,” adds  Sen of AppDirect. “Customers’ needs change, and the subscription model has to flex with them. Some best practices include frictionless onboarding, flexible billing infrastructure, relevant Insights, and humanization of IT.”

My advice: AI and SaaS companies can’t leave it to CIOs to figure out a change management and adoption plan – this is an opportunity to partner and develop a lasting relationship.

Price for what customers actually use

You know that gym membership that wooed you in after New Year’s that you used only 1-2 times? For SaaS and AI companies, following that model may be a short-term win that can lead to inflated numbers overshadowing a struggling value proposition.

“Subscriptions work really well when done right, profitable for the provider and predictable for the buyer,” says Johnny Halife, CTO at Southworks. “Where it breaks is when pricing isn’t tied to actual usage. Charging by company headcount instead of active users, or billing full price for someone who just needs to read a doc, creates cost unpredictability that customers will eventually optimize away. Price it to what they actually get, and it clicks.”

My advice: Don’t wait until the closing months of a subscription to review usage metrics, then offer financial incentives to renew. Build flexibility into the model upfront.

Build a culture of continuous delivery

The biggest failure I see with subscription models is the lack of a culture that continuously serves customers across sales, delivery, success, and support.

At the Growth Hacks episode, Grant Barrick, founder and principal of Barrick Advisory, shares the story of a major ad platform that shut down somebody’s account. “They didn’t know why. Their AI agent in support could not communicate with the AI tool they used to assess this person’s account. It was such a failure in delighting the customer. It was the complete opposite of it and really one of the worst customer experiences I’ve seen,” says Barrick.

Finding an AI ROI in customer experience isn’t just an AI story, because customer support requires a hybrid approach that pairs human agents with AI capabilities. What’s more, closing tickets shouldn’t be the end story – capturing the feedback that flows back to customer success, product development, and sales is absolutely required in subscription models where renewals are not guaranteed.

“Transitioning to a subscription model requires redefining ‘done,’” says Adam Evans, EMEA GM and global services delivery leader of the Google Solution Line at Insight. “Leaders must reject the legacy, transactional mindset of closing a traditional sale and accept that the ink on a contract is merely the start line. In a recurring revenue economy, you are continuously re-selling adoption and driving value realization—and if your product and/or service teams aren’t delivering that continuous value, your customers will fast-track their path to churn.”

My advice: Some startups modeled a humanless experience; trials lead to credit-card-paid subscriptions, in-app help experiences, and chatbot support. That might work for SaaS as a point-solution – it doesn’t work for AI reshaping and aiming to help transform the business.  

The takeaway: remove friction, keep it human

Closing advice from my good friend, Joseph Puglisi, growth strategist and fractional CIO at 10Xnewco, who stated this during the Growth Hacks episode. “My advice with respect to using AI and other technologies is to try to remove the friction in engaging customers or clients with your product or service. Try to provide what I would refer to as a concierge experience.”

StarCIO is here to help CMOs at SaaS and AI companies win mindshare and also offers enterprise workshops on AI Strategy and Governance.