The subscription business model is on the rise, with 70% of business leaders saying it will be critical to their growth in the coming years.
This model is not new, but new technology is driving growth. Just think of the growth in streaming services and how smartphones have made subscriptions more accessible globally. It’s also taking root in industries where it hasn’t traditionally, like manufacturing and specialty markets.
But what’s fueling growth besides technology? How can you ride the wave? Here’s what you need to know.
What is a subscription business model?
In the subscription model, customers pay a recurring fee to use products or services. They typically provide payment information upfront and are automatically charged on a set schedule.
Businesses offering a product or service on a recurring basis can benefit from this model, including SaaS companies, retail and e-commerce businesses, service businesses, nonprofits requiring donations, and manufacturers producing consumables.
Examples of subscription business models
Common subscription models include:
- SaaS subscription model: Customers pay a recurring fee to access software. Examples include QuickBooks for cloud accounting and Fishbowl for inventory management.
- Subscription box: Customers pay a regular fee to receive a box filled with products. For example, Dollar Shave Club provides a subscription service for men’s grooming products.
- Streaming service subscription: Customers subscribe for access to online content, e.g., Spotify and YouTube
- Food service subscription: Customers pay a monthly fee for delivery of meal kits or pre-made meals, e.g., HelloFresh.
Why is the subscription model popular?
Subscriptions have a broad appeal among customers and businesses. For businesses, it provides a predictable revenue stream, which helps with budgeting and business planning.
You can also build a loyal customer base: customers who subscribe are more likely to stick around. You can then upsell these customers on new products without spending as much money on acquiring new ones.
For customers, it’s convenient. For instance, they can subscribe to have products automatically delivered to their door each month without reentering payment and delivery details.
Challenges around implementation
Despite its popularity, there are challenges around implementation; a couple are:
- Customer acquisition. Customers may be hesitant to commit to a recurring payment. You must offer them something unique or a better customer experience than your competitors.
- Constant innovation. The novelty of new services or products can quickly wear off. Consider keeping things fresh by introducing new products, features, or services.
- Payment processing. Managing payments becomes complicated if systems aren’t reliable and efficient. Having an efficient, robust payment solution like Fishbowl Payments can increase the customer experience and internal work processes.
- Order fulfillment. Companies need infrastructure to meet demand, like a strong distribution network to fulfill orders and a robust inventory management system for real-time stock visibility, tracking, and reporting.
With an understanding of the challenges around implementation, here’s how to get started.
Steps to implement a subscription model
Follow these steps:
- Establish if offering a subscription makes sense. For example, if you sell a product requiring regular refills like consumables, this model is ideal.
- Determine what products or services to offer. If you’re a manufacturing company selling cleaning products, you could focus on the most popular products only or those requiring regular refills. Next, bundle them together.
- Set the price. Consider the competition, the value of the offering, costs, and commitment term. For example, you could charge $60 per month for access to popular cleaning products annually.
- Establish your marketing strategy. You could target existing customers through email, giving them a discount on their first order, and reach new customers with social media.
- Establish your retention strategy. You could give loyal customers access to discounts and early access to new products. Be sure to provide superior customer service to stand out from the competition.
- Choose a subscription platform for managing your subscription. Consider features, security, support, pricing, scalability, and ease of use.
- Launch your subscription model and optimize it. Over time, you may learn that customers want eco-friendly cleaning supplies as part of their subscription.
Use the subscription business model to grow
Subscription models will continue to grow due to their convenience and ability to provide predictable revenue for businesses.
So why not take advantage of them?
Just ensure offering one makes sense. Then, implement it by following the right steps—from choosing your offering and pricing it effectively to determining your marketing strategy and how you will keep customers. Establishing a recurring revenue stream is a strategic business decision, but maintaining your customer base is the key.