Nowadays, every successful business is using the Subscription model. With the rapid use of modern technology and SaaS products, businesses are adopting the subscription model at a faster rate.
The arrival of digital platforms such as Stripe, PayPal, and Wepay has made it quite easy to set up and process recurring payments.
Companies such as Netflix, Spotify, Dollar Shave Club, Blue Apron, and Microsoft utilizing subscription-based revenue models for several years have made huge profits.
According to Digitalist Magazine, the subscription model will help in generating 53% of the software revenue by 2022. Now, there is a subscription for every product and service.
The subscription business models are helping businesses to grow as they enhance customer retention, help in gaining recurring revenue, and delight customers.
In this post, we are going to discuss the subscription model, its types, working, and benefits.
Subscription Business Model
A business model in which products and services are sold to customers on a recurring payment basis such as weekly, monthly, or yearly is known as a Subscription business model. Here, the customers have the flexibility to either renew or cancel the subscription according to their choice.
A subscription business model can be an extremely effective strategy for maintaining business revenue. It gives an opportunity to businesses to build long-term relationships with customers.
On the other hand, customers can easily repurchase the products or services in the future. In this manner, a strong bond is built between the customer and the business.
According to Zuora, subscription businesses are getting 6x faster revenue growth than the S&P 500.
The subscription model provides businesses stability and forecast revenue. Therefore, many businesses are moving towards this model.
Subscriptions For WooCommerce Pro Plugin
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Types of Subscription Business Models
There are three most common types of subscription models:
- Access Model
- Replenishment Model
- Curation Model
In the access model, the subscriber pays regular fees for getting special offers such as early access to new products and attractive discounts.
This type of subscription model is commonly used by businesses selling digital subscriptions, as well as businesses indulging in fashion and food products.
In the replenishment model, customers can automate the commodity items purchase so that they can receive replenishment deliveries regular intervals of time.
This type of subscription model is commonly used by businesses indulged in providing services for healthcare, food, drinks, etc.
In the curation model, subscribers receive a selected collection of items regularly segmented to their requirements and choices.
Working of Subscription Business Model
In a subscription model, customers pay on a recurring basis to buy products and services. They can choose the time and frequency for which they want to take advantage of the service or product.
Also, they can cancel or renew their subscription whenever they want. In this way, a single customer pays multiple times to leverage the benefit of a product or service.
The subscription is automatically activated and renewed via a checking account or pre-authorized credit card by the customer.
A subscription model connects both business and customer. The customer pays for a product or service for a subscribed period. During this time, the business fulfills the requirements till which the recurring payment is paid by the customer.
Example of a Subscription Business Model
One of the simplest instances of the subscription model is a magazine subscription. Magazine companies offer subscription services for providing magazines weekly, monthly, or yearly basis to customers.
Customers will have to pay a recurring amount for the subscription plan they want to purchase. There is no one-time purchasing option.
Suppose, if a customer wants to buy a weekly subscription to a magazine. In this case, after every week the magazine will be provided to the customer and the customer will have to buy the subscription plan for it.
Hence, the subscription model makes the whole business process much more efficient. Predicted revenue helps businesses to stay motivated and grow.
Grow Your Business With a Subscription Model
Businesses are switching from one-time payment policies to subscription models. It is going to be a necessary model for businesses in the upcoming years. Most software providers are adopting this recurring billing model to gain profits.
Subscriptions are the source of a constant flow of revenue. The subscription model helps in speedy as well as sustained growth for businesses.
Here, we are going to discuss several benefits of the subscription model:
Attracts More Customers
Higher product pricing has always been a barrier to product buying. Subscription payment gives customers the ease to use the product by paying a recurring bill at a fixed amount of interval. Hence, it enables potential customers to buy the product or services.
Charging weekly, monthly, and yearly drives the customers to buy your product. Also, the customers will be able to enjoy the products as they are upgraded by the businesses.
Predictable Recurring Revenue
The subscription business model ensures a consistent flow of income. You will not need to put much effort into attracting new leads and converting them into customers. With a subscription model, you can focus on customer retention rather than customer acquisition.
In the subscription model, customers pay regularly. This leads to predictable revenue. This makes the businesses able to plan their ahead strategy and manage their inventory easily. They will not need to order unnecessary supplies.
Also, businesses can measure their growth. Calculation of MRR (Monthly Recurring Revenue) becomes easier.
The predictable revenue model gives companies the confidence to scale up and improve their resources.
Simplified Business Process
The subscription model makes the flow of the business process much easier. Customers and businesses both benefit from it.
Customers will not have to buy the product again and again. Also, businesses will not have to struggle in acquiring customers. This makes the entire business process smoother and more efficient. Because the customer will get the product on time.
Also, customers will have a fair idea about the product pricing in advance. Businesses will have a solid idea of economic forecasts. Hence, there is no complexity between customers and businesses. This leads to a simplified business process.
Strong Relationship With Customers
Another benefit of the subscription model is that it helps to build stronger relationships with customers, enlighten them, and provide the best user experience to them.
When businesses regularly engage with customers and provide them with outstanding support, then it develops trust among customers. It ultimately increases customer loyalty. Also, businesses have the option to offer to upsell and cross-sell opportunities to customers.
With a deep understanding of customer behavior, businesses can perform customer segmentation. This can help them to provide tailored content, and perform other promotional activities.
Suitable for Customers
Subscription models are highly convenient for customers. Here, customers need not rush to the shops and research their products.
In the subscription model, customers have the flexibility to try out new products that they have not purchased on their own. It enables customers to get the products by signing and subscribing to them without any hurdles.
Platform For Marketing
In the subscription model, the business remains in continuous touch with the customers. Hence, there is no need to remarket with your customers. You will have enough time to improvise other things in your business. Also, you will not need to spend money on retention marketing.
High Customer Retention
A subscription model helps in retaining customers regularly. It assists in getting upgrades and increased revenue from subscribed customers.
Keeping in touch with regular customers helps to know them better, solve their issues, and provide the best solution.
Long-term loyalty boosts the customer retention rate and increases the customer’s lifetime value.
Efficient Inventory Management
In a traditional eCommerce business model, it was difficult to have an idea of how much inventory was required. The variation used to occur in the demand and supply.
But, in the subscription model, you can easily plan and manage your inventory in advance. This can help you in saving your valuable time, money, and effort.
With advanced planning, unnecessary production costs can be avoided in the subscription model.
Reduced Customer Acquisition Cost
The subscription model helps to do business with customers who frequently engage with the business. This lowers marketing costs.
In the subscription model, businesses rarely engage with people who are not aware of the brand and not frequently using their products. They emphasize customer referrals more.
Earn More Through Upsell And Cross Sell
To add value to the products for customers, the subscription model gives an opportunity to businesses to upsell and cross-sell. The subscription model helps to market additional products and provide complimentary services.
Because as the businesses get recurring bills, it becomes flexible for them to provide more services and add additional products for customers. This can be highly beneficial for customers who are utilizing subscription services to grow up more.
How to Build a Subscription Model?
Perform Market Research
Initiate building a subscription model. Look at what is trending in the market, conduct competitor research, understand your customers, and find ways to target them.
You will be able to understand what kind of products the customers are looking for and find the position where your company stands in the market.
Competitor analysis helps you improve your product, establish your brand identity in the market, and add additional features to your product.
You will be able to grasp various factors:
- What issues are faced by the customers?
- What features are not provided by competitors?
- What are the problems whose solutions are not provided?
- What are the products most companies are offering?
- What is the customer reviews about your competitors?
To position your company in the market, you will have to understand these questions and plan a strategy to have their answers. After finding the position of your company in the market, you will be able to deliver the best products for your potential customers.
Competitor analysis gives you the opportunity to provide the solutions that have not been provided by your competitors that can attract your customers towards you.
Finding Targeted Audiences
After conducting market research, it is important to focus on the potential customers. Improve your product, your market strategy, and your positioning in the market. This is necessary for targeting and attracting customers.
Set Goals for Your Business
Plan your short-term as well as long-term goals. This will help you build your strategy and measure your success rate.
Depending on your goals, you can set a pricing plan for your subscription product.
Figure Out Whether Your Business Will Benefit From Subscriptions
Before making a subscription plan, think about whether the subscription plan makes sense for your product or service or not.
Analyze whether your product requires continuous requirements to access. Such factors will determine how to build subscription plans for products and services.
Create Buy Personas
For building a subscription business, it is significant to create buyer personas. It will help you in finding customers who may be interested in buying your product.
Start segmenting the data you collected during the data research. Segment the customers based on their specific characteristics such as language, age, and income.
Target persona with specific features, pricing, and marketing to understand their requirements.
Build more actionable insights by further segmenting them and analyzing the difference between the buyer personas. Target these buyer personas according to it.
Product pricing strategy is one of the most important stages of building a subscription business.
Firstly, to attract customers, start providing subscription plans at discounted prices. It may attract customers to sign up to get access to the service.
Then, you can offer subscription plans to customers to provide upgraded features. You can vary the features and pricing to test out which is most preferred by customers. Then, you can fix them.
So far we have had an in-depth discussion about the subscription model. I hope that you have now gained a solid understanding of it.
The subscription model can greatly help you in the speedy growth of your business. You need to create a smart strategy, make the right decisions, and plan for it. Your right approach can impress your customers, attract them toward you, and increase customer retention rates.
The subscription model offers infinite growth opportunities.
So, what are you waiting for? Go ahead and scale up your business with a subscription model.
Himanshu Rauthan is an entrepreneur, Co-Founder at WP Swings, MakeWebBetter, and the Director of CEDCOSS Technologies. He has worn many hats in his career – programmer, researcher, writer, and strategist. As a result, he has a unique ability to manage multi-disciplinary projects and navigate complex challenges.
He is passionate about building and scaling eCommerce development.