Ultimate Guide to Subscription Business Model
A subscription business is where customers regularly pay a fee to access certain products or services. You face various subscription services daily, such as streaming services like Netflix, e-commerce sites, readers clubs, etc. The subscription market is overgrowing, which provides a massive opportunity for existing and aspiring business owners. It offers a stable financial model based on recurring monthly revenue and can be structured around any niche. This article provides an in-depth account of starting subscription-based business models and gives detailed information about different aspects of this business model.
What is a Subscription Business Model & How Does It Work?
The subscription business model is a revenue model in which customers pay weekly, monthly, or yearly for your products or services. It benefits both the company and the customer. Customers can renew their subscriptions after a particular period. You can retain your customers for future sales by reengaging them frequently and securing recurring revenue, which keeps your business growing.
The subscription business model works by charging the customers for a product or service regularly. Customers can choose how long and frequently they want to receive an offer. They have the option to renew or cancel their subscription at any time. You regularly provide them with their desired products or services and generate recurring revenue.
Benefits of a Subscription Business Model
The subscription economy has been increasing for the past few years. There are the following advantages of the subscription model for businesses and customers alike:
Recurring Revenue
A subscription business is a great way to ensure a steady flow of income. Contrary to the pay-once model, customers pay regularly in a subscription business model, making revenue more predictable. Therefore, it gets easier to plan for your inventory supply and expenses. Recurring revenue makes a business more valuable for investors as well.
Great Marketing Opportunities
The advantages of the subscription model include engaging with your customers when it comes to marketing efforts. You can reach out to customers via monthly newsletters or email campaigns, which can help create more effective targeted marketing strategies. The consistent and continuous contact with the subscriptions builds a trustworthy bond with the customers and makes it easier to cross-sell or up-sell related products and services.
Growth Scalability
Subscription business models have a high level of flexibility in them. When you start the business, you can focus all your efforts on one product or service. However, it is easy to scale up your contacts and cash flow. Companies can scale up and down to suit the client’s needs. This flexibility allows you to play with different levels and pricing of services.
How to Build a Subscription Model?
Building a subscription business model looks similar to the business planning process as it involves research, analysis, knowing your customers’ needs, testing and implementation. You can develop a successful subscription model by following these steps:
Conducting Market Research
First, you must identify your target audience interested in purchasing a subscription. For this, you will have to understand what your users are actively struggling with so that you can regularly deliver your product or service to solve that problem. Moreover, you must actively anticipate how your customers’ issues will evolve. It will enable you to lay out an updated pipeline for your subscription business.
Conducting a Competitive Analysis
Market analysis involves diving deep into potential competitors to understand who you will be competing against in the subscription industry. The competitive analysis makes it clear to you the requirement to sell subscriptions in your niche. It enables you to define your subscription model to undercut the competition by providing excellent customer services or more attractive pricing, etc.
Define Your Audience and Connect with Them
Market analysis involves diving deep into potential competitors to understand who you will be competing against in the subscription industry. The competitive analysis makes it clear to you the requirement to sell subscriptions in your niche. It enables you to define your subscription model to undercut the competition by providing excellent customer services or more attractive pricing, etc.
Define Your Audience and Connect with Them
Defining your audience is a research-based strategy that categorizes your target audience. It gives you an accurate idea of how your customers see the value proposition of your products and their pricing. Connecting to the target audience is another big task. It would be best if you found the most efficient and effective ways to communicate to your targeted audience. One of the best things you can do in this regard is to treat sales and onboard initiatives as the start of a long-term relationship with your customers.
Pricing and Product Offerings
This is the most critical component of building a business subscription model. It encourages customers to sign up and increases customer engagement. It can be difficult to immediately know what price and feature you should go with while selling a subscription. You can start with subscriptions at discounted prices to attract the targeted audience. Landing on the best price is not a one-time decision as you must consider what resonates with your customers.
Types of Subscription-Based Businesses
Businesses Offering Access to a Product
Offering a subscription is the right strategy if your business needs access to video streaming content, written content, or software. The subscription services give access to your clients to exclusive products as long as they pay a recurring subscription. An example of this subscription-based business has a video streaming site where customers can access premium content such as Amazon Prime Video, etc.
Business Offering a Repeat Service
If your business involves physical products, you can turn your products into personalized services for your customers through subscription models. Monthly subscription boxes are a great example of this type of subscription-based business. It ensures a regular delivery of products for your clients according to their interests.
The DO's and DON'Ts of Starting a Subscription Business
DO's
● Conduct competitor analysis and take research-based initiatives.
● Create a social presence and implement advanced marketing tools for advertising the business.
● Understand the customers’ needs and keep them engaged and well-informed via different methods such as Emails and newsletters
DON'TS
● Do not only send promotional emails to your customers. Mix posts with content and information that benefits your customers.
● Do not make the cancellation process a nightmare for the customers. Try to keep it simple.
● Do not rely merely on automation tools to engage with your customers.
Conclusion
Building a subscription business is an endeavour worth all the efforts if you go through the right path. Subscription business models are changing the business landscapes for everyone: business owners and customers. This article provides detailed information about everything you need to know about subscription business models and guides you on how to develop one. Before you make a move to start your subscription business, make sure you avoid the common mistakes and go ahead with confidence.
If you want to learn more about the subscription model, check out our article on how subscription models can impact different industries like travel.
