There are a lot of subscription services available these days, and it seems like there’s one for anything and everything – everything from software to movies to makeup. As more and more successful companies move away from one-time product sales and jump on the subscription bandwagon, it may be a good idea to consider whether you should do the same.
This guide provides an overview of how the subscription business model works, its advantages, and how to create your successful subscription service.
Subscription business models – what are they?
Usually, a subscription business model refers to a type of business model in which a customer pays a small amount for the first use of a product, followed by regular payments. A recurring sales business model is a business model that focuses on creating a recurring income, which can be based on a weekly, monthly, or yearly basis. There is a significant difference between this model and a traditional revenue model, mainly because subscription services place a greater emphasis on customer retention rather than acquiring new customers.
By adopting a subscription model, a business commits to earning the bulk of its revenue from customers who make multiple payments over a long period rather than paying a large upfront cost. There is no doubt that if you have ever subscribed to a magazine, a content service like Netflix or Hulu, or even a weekly meal delivery service, then you have already been introduced to the subscription business model firsthand.
The Subscription Business Model
There is nothing new about subscriptions. Book and newspaper publishers were the first to introduce them in the 1600s. In modern times, most subscription services are signed up online, with customers providing their credit card or checking account information. As soon as the subscription period has ended, the subscription will automatically renew if the customer does not cancel it before it expires. In the event the customer purchases a product or service, a charge will be placed on their account.
Subscription business models examples
Subscription businesses provide a wide range of services, including lawn care, HVAC maintenance, gym memberships, and storage units. In recent years, subscription boxes have become one of the most popular subscription business models. Among these are makeup boxes, meal delivery boxes, and date night boxes.
A few of today’s most popular subscription services illustrate just how diverse the subscription model can be:
· Entertainment – Netflix, Hulu, Amazon Prime Video, Apple TV, Spotify, Sirius XM, Disney+
· Consumables – Dollar Shave Club, Ipsy, Butcher Box, Man Crate, Barkbox
· Gaming – Xbox Game Pass, PlayStation Now
· Software as a Service – Google, Salesforce, Dropbox, Mailchimp
· In-Home Fitness – Peloton, Fitbit Premium, Mirror, Tonal
· Clothing – Rent the Runway, Stitch Fix, Trunk Club
Subscription Business Model Benefits
Providing ongoing access to products or services is a benefit of a subscription business model. Besides being convenient and cost-effective, it allows you to try out new things without taking any unnecessary risks.
The benefits of offering subscription services to business owners are even greater. Here are a few of the most exciting ones.
1. Predictable Revenue Streams
This model makes it easier to predict your business’s revenue each month because subscriptions are based on repeat business sales. Making business decisions is easier when you know how much is coming in and when it will arrive. Investing in your company, improving your product, or focusing on other areas of your business can all contribute to this goal.
2. An increase in customer lifetime value (LTV)
Over the course of their relationship with your company, a customer can generate a lot of revenue for your company. If you provide consistent value over a long period, customers will enjoy returning to your business. If your subscription continues to offer value to your subscribers, they’ll likely pay you regularly.
3. Lower Customer Acquisition Costs
In contrast to focusing your efforts on acquiring new customers who don’t know or trust your brand, a subscription business model allows you to concentrate on doing business with people who already love the products or services you offer. Word-of-mouth referrals are also important for subscription-based brands. In comparison to traditional advertising methods, this can be far more effective and less expensive.
4. Stronger Customer Relationships
Building strong relationships with the same customers over time is possible when you work with them regularly. Additionally, the fact that many of your customers share similar interests makes it easier to build a community. As long as you make your customers feel heard and validated, you will quickly be able to turn them into loyal and profitable followers.
5. Increasing the number of first-time customers
Customers may be discouraged from trying a product or service because of its price point. You will be able to set your price lower if you charge weekly, monthly, or annually. New customers may be attracted to your brand by offering the chance to try it out without making a big financial commitment.
Building a Subscription Business Model
You may be intrigued by the idea of incorporating a subscription service into your business plan, but there are some important things you need to do to be successful in this endeavor. Here are five tips that will help you get started.
1. Research the market first
Even though subscription business models have been successful for many businesses, they may not be right for you. Make sure you do some market research before offering a subscription service to determine whether you can benefit from it.
Take into account whether your customers will continue to need the products or services you offer. Ensure that you can provide a recurring subscription to an ever-growing number of subscribers as well. Before moving forward, address any potential weak points you discover.
2. Plan your pricing strategy
Consider whether or not you are going to set a fixed subscription price or create tiers and whether or not you are going to offer any incentives as part of the pricing scheme. Starting simple is often the best approach. It is common for business owners to launch their subscription service with one option, adding more levels as they learn more about their customers.
3. Establish a seamless sign-up process
Simple, straightforward, and easy sign-up procedures are essential. As a result, your marketing will be more effective and avoid confusion that can cause potential customers to give up before they click “subscribe.”
Your billing system should also be configured so that recurring payments can be accepted and processed easily. In addition, subscribers should be able to update their contact and billing information on your website as well as upgrade or cancel their subscriptions.
4. Infrastructure-based scaling
An automated process that allows your business to scale is essential to creating a successful subscription business model. Be sure your e-commerce system, payment gateway, logistics company, and fulfillment company are well integrated before you launch your subscription service. Consider integrating warehouse management software with your e-commerce site if you’ll be selling physical products. In addition to using bulk shipping services to streamline the process, you may also be able to lower the cost of your shipment.
5. Ensure stellar customer service
Providing outstanding customer support is a requirement of the subscription-based model. By doing this, you demonstrate to customers that you will always make things right regardless of what happens. When customers decide whether or not to renew their subscriptions, the service they’ve received can play a major role. You will be far more likely to succeed with your subscription business if you go above and beyond.
Conclusion
Would you benefit from a subscription business model?
A subscription business model can be an excellent way for you to rapidly grow your business if you’re able to mix creativity with a solid business plan and if you’re able to execute it well. You can get the support you need every step of the way from Fiverr’s experts.
