How to Build a Successful Subscription-Based Business

How to Build a Successful Subscription-Based Business

How to Build a Successful Subscription-Based Business

With everyone inside watching Netflix and getting their groceries delivered, subscriptions are at an all-time high.

But even if you account for the pandemic and lockdowns, subscription models are steadily taking over. From streaming services and gym memberships to grocery delivery subscriptions, consumers are increasingly opting for subscriptions. Why? Three simple reasons: pricing, convenience, and flexibility.

It’s often cheaper to subscribe to something you use often than to pay for everything you need upfront. If you’re paying $8.99 per month for Netflix and watch 3 movies per month that would otherwise cost $3 to $4 to rent, you’re already going even or saving money. And that’s without accounting for television series.

On top of this, some subscription services can even offer you products at a lower price than if you were to buy that product individually. Depending on the type of subscription, a company can both save money by buying in bulk and by cutting advertising costs. Normal companies need a way to turn a first-time customer into a repeat customer and often run paid ads to do so. With a subscription model, that isn’t necessary – a first-time customer is a repeat customer by default, advertising is only needed to get first-time customers. The money saved can then be passed on to the customer, allowing a subscription to be cheaper than straight-out buying that product.

Subscriptions can also be incredibly convenient, saving you from nightmare scenarios like forgetting to buy toilet paper or not having coffee in the morning. They can also increase quality of life in less dramatic ways. A food box subscription, for example, means not having to think about what to eat, not having to go shopping, and not having to cook.

Finally, subscriptions are great because they’re flexible. Instead of having to choose between buying and not buying, consumers can choose to pay for a service for one or two months, and then either continue or cancel their subscription. The choice becomes a lot more nuanced and consumers have a chance to try out a product for longer periods. This is why people will usually choose $30/month software over similar software that costs $300, even though the latter is cheaper after a year of use.

Delivering a good subscription is not rocket science, but it does take careful planning to acquire customers, price sustainably, and optimize. Here are some tips for creating a subscription service that makes both you and your customers happy.

Plan Ahead

Determine your goals and objectives early on. Ask yourself what you’re trying to accomplish? Are you trying to grow faster? Are you trying to increase your revenue?

Answering these questions will allow you to better plan your pricing tiers and overall strategy. This is absolutely vital for subscription models because of their reliance on monthly or even annual fees. Product prices can’t be adjusted day-to-day, as is usually possible with traditional business models, so it’s important to do your research beforehand and develop a strategy you can stick to.

Offer a Free Trial

Offer people a free version of your product to get them hooked on your subscription. If what you’re offering is valuable, people will get used to it and not want to cancel. This would not lead them to become a repeat customer if you were selling a product or service normally, as “being used to it” might not be a good enough reason to go to all the effort of purchasing again. But with a subscription model, all they have to do is not cancel, greatly increasing the retention rate.

“Freemium” models work especially well for service-based subscriptions, as the free version generates interest and use. People will be heavily inclined to upgrade to the paid version. The trick here is to offer enough in the free version that it is usable, but not so much that upgrading to the paid version isn’t worth it.

The most important thing to remember is that free trials are a way to acquire customers, not to generate revenue. They’re an investment in acquiring customers that pay back this investment over a longer period of time. This is important to account for when you are looking at your return on investment or ad spend and are assessing your business strategy.

Price Sustainably

A lot of subscription-based businesses offer discounts on the products or services they provide. And while one of the great things about subscription models is that it is possible to offer competitive pricing, it is important that you price your offer sustainably.

To do so, balance the predictable income from subscription against churn rates and operating costs. As these variables and your products or services change, adapt your pricing to ensure profitability.

Increase Flexibility

As already mentioned, subscriptions offer great flexibility. Depending on what you’re selling, allowing customers to tailor your offer to their needs will increase flexibility and their satisfaction, as well as allowing you to increase profits.

This can take many different forms. What a lot of software subscriptions and streaming services do is allow you to pick different packages with different features. Netflix offers packages for different numbers of users and streaming quality and Zoom offers basic, pro, business, and enterprise packages. Product-based subscription packages could differentiate between amount, frequency, and content. Subscription food boxes, for example, often allow you to pick different box sizes, determine how often they get sent out, and select from vegan or vegetarian options.

Moving away from a one-size-fits-all approach and offering more flexibility can be great for your subscription model but needs to make sense. Offering different packages simply for the sake of doing so can create confusion and overcomplicate your service.

Experience

Good customer experience is the foundation of any good business. If your business sells subscriptions, a good user experience will both help you acquire more customers and reduce customer churn.

How to improve user experience will depend on your individual business and the product or service you are offering, but what is important for all kinds of subscription-based companies is streamlining billing options.

Make sure that each step of the billing process works flawlessly and that users have a clear pathway to purchasing a subscription. On average, unreliable payment options are responsible for up to 40% of churn rates. Make sure yours work!

Test

As with everything else, collecting data and testing is essential to a successful subscription. Rest and continuously re-evaluate your results to gauge customer reactions to changes to your products, services, and pricing to optimize your marketing strategy.

Tracking customer behavior will also help you calculate the average customer’s lifetime value, which you need to price your subscription sustainably.

Conclusion

The main takeaway here is that subscriptions rely on customers that stay subscribed. Focus on customer relationships first and foremost, and you’ll have the foundation you need to tap into this growing trend.

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