Benefits of Subscription-Based Services
Subscription-based services are on the rise. In fact, it is estimated that the subscription market will grow to almost $500 billion by 2025. Many companies are moving away from a business revenue model, where revenue is made from a customer’s one-time purchase to a subscription model, where revenue is made on a recurring basis in return for consistent access to a product or service.
While subscriptions services used to be reserved mostly for print media, more and more companies are catching on to the indisputable benefits of a recurring billing model.
What Is a Subscription Business Model?
Subscription business models are based on the idea of selling a product or service to receive monthly or yearly recurring subscription revenue. They focus on customer retention over acquiring new customers.
With a subscription business model, your business could see substantial and sustained growth due to recurring billing, as well as higher revenues and customer lifetime values (CLVs). This type of business model creates a deeper connection to your customers by allowing them to customize their individual needs, which in turn creates more loyalty to your brand.
3 Types of Subscription Business Models
Subscription business models are applicable not only to physical products but to most industries! Those industries could include; software, digital downloads, hair cutting services, lawn care, gym memberships, storage units, entertainment services, and many more. There are three basic types of subscription programs- curated box, auto-ship, and access.
Subscription boxes are a recurring service that delivers new niche products curated to the customers personal taste. The items in the box vary from month to month and are usually a surprise to the customer, which adds a fun element of intrigue and excitement. Examples of subscription box services include Birchbox and Barkbox.
Auto-ship or replenishment subscriptions are the most popular type of subscription model. This type of model provides convenience not only to customers but to the business as well.
Auto-ship works best for companies who sell regularly-purchased goods, like vitamins, skincare items, cleaning products, or pet food. Customers select the item(s) they want to receive, and can then select the delivery frequency.
Orders are automatically generated and sent to the customer. This saves the customer time, energy, and trips to the store. Companies like Dollar Shave Club and Chewy have greatly benefited from this type of subscription model.
Access subscriptions offer recurring billing functionality and provide customers access to exclusive discounts, member-only perks, and services. Amazon Prime and Costco are two great examples of an access subscription. The customer is billed yearly in exchange for member-only perks.
Access subscriptions can also be found on education websites, professional associations, and Saas products. For example, NLC is an access-based subscription company that allows you access to unlimited graphics for one low monthly rate!
5 Benefits of Implementing a Subscription Business Model
The most successful companies have figured out that the key to profitability is building long-lasting relationships with their customers. Implementing a subscription model helps shift the focus away from customer acquisition and more towards customer retention.
When your customer signs up for a subscription they’re essentially committing to becoming a returning customer. As long as you’re keeping your subscribers happy, this type of model ensures a consistent source of recurring revenue from repeat customers.
Subscription models provide you with a unique and comprehensive understanding of your customers’ preferences and behaviors allowing you to produce targeted content, recommendations, and ads for each individual subscriber.
When done right, subscription models create a sense of loyalty and belonging.
A high price point can often turn away potential customers. A subscription model allows you to be creative with your pricing and gives the customers more payment options.
Customers are often more willing to sign up for a subscription plan knowing they can make smaller monthly payments instead of one large payment, even if it means they end up paying more overtime. This allows you to market to a wider audience and makes it possible for more potential customers to purchase your products or services.
A traditional business model often results in large monthly and seasonal revenue fluctuations. One bad month or quarter can be devastating to a small up-and-coming business.
With a subscription-based business model, customers make payments to you on a consistent basis. Since the amount of the recurring payment is predetermined, it allows you to accurately predict your revenue each month. While customers may still decide to cancel a subscription without much warning, financial forecasting is much easier with a subscription-based business model.
Having a better grasp of your revenue stream can help you to make better business decisions, especially when it comes to budgeting and inventory management.
A subscription makes life easier and more convenient for your customers. They get what they want when they want it and it can even show up on their doorstep! The delivery of a curated subscription box often ends up being highly anticipated and an exciting part of your customer’s day!
When customers are in love with your company and the products or services you offer, they often become your most valuable marketing tool! Happy subscribers will often take to their social media accounts and share pictures and information about their subscription, spreading the word about your brand to their followers.
Unboxing videos have become popular on Youtube and Instagram and are a great way to share the contents of your subscription, especially if it’s a curated box. This leads to an increase in engagement, loyalty, and overall customer satisfaction, which in turn drives retention.
This is a great way to raise awareness of your brand and build your subscription base without the acquisition costs!
Revenue Expansion Opportunities
A happy, loyal subscription customer is an easy upsell. You have earned their trust and they are already sold on your company and products. This creates an opportunity for revenue expansion as they will be more open and receptive to any up-selling, cross-selling, additional services, and/or new products that you promote to them.
This means that you get additional revenue from the same customer without additional acquisition costs, all while building brand loyalty. It doesn’t get much better than that!