From coffee to your local library, there is a chance you are using a subscription product or service multiple times a day.
A subscription model is when a business charges a recurring fee for its goods and services. The recurring charges may occur on an annual, quarterly or monthly basis.
Studies show 15 per cent of online shoppers have subscribed to an eCommerce service over the past year, whilst 46 per cent of consumers subscribed to a digital streaming service.
So, what makes the subscription business model so popular for customers and businesses? For customers, it’s the convenience and personalisation offered whilst for businesses it is the predictability and sustainability.
Read on to discover the advantages of implementing a subscription business model and if it is the right fit for your business.
1. Predictable revenue
A subscription business model requires customers to make payments to your business on a regular basis. The recurring payment amount is established at its initial sale, creating a predictable future revenue stream. For businesses that face high demand fluctuations, subscriptions can help with demand forecasting and efficient inventory management.
2. Allows for revenue expansion
As subscribers gain trust in your brand over time, they are often more receptive to purchasing additional, complementary goods or services offered.
A subscription model allows your business to have continuous contact with your customers and therefore creates a strong customer relationship. As a result, upselling and cross-selling becomes easier due to their interest towards any further value, new features or additional goods and services.
This means your business receives additional revenue from the same customer without the additional acquisition costs.
3. Lower retention spends
With a subscription model, you don’t have to spend extra marketing dollars targeting your existing customers. Additionally, subscribers who pay periodically and have a long-term association with your brand are less likely to opt out, allowing your business to save money on customer retention.
Can your business leverage the subscription model?
Whilst a subscription business model boasts a range of benefits, it is essential to know not all businesses are a good fit for the model.
Below are a few key points to consider before implementing a subscription model.
Need
For your business to succeed with a subscription model, your goods or service must warrant a subscription.
Value
It is essential to ensure your customers see value in purchasing a subscription in comparison to a standalone purchase. Customers will only invest in a subscription if it offers them benefits such as saving money and time.
Competition
With many businesses already utilising the subscription model, there is significant competition for new entrants. Therefore, it’s important to ask yourself if your goods or service provide a solution to a need.
Target consumers
It is essential to understand who your customers will be, the problems they face and how your business provides solutions. If a subscription model does not suit your target market, it will not succeed.
Businesses offering goods and services such as car tires, printers, appliances, or home furnishings might not work well on a subscription model as they are not likely to be purchased on a short-term recurring basis. However, dispensable items such as beauty products, food, beverages or consultations would succeed as subscription offerings due to being a recurring need.
If your business doesn’t check off any of the above points, then you may want to reconsider the subscription model. On the other hand, if you tick all the boxes, it’s time to jump on the subscription bandwagon and take advantage of its opportunities.
