Today I want to talk about subscription businesses. Subscription-based pricing is all the rage right now, and for good reason. When it comes to pricing your product or service, a subscription-based pricing model stands head and shoulders above the rest. Here’s why.
1. Recurring revenue
Having a customer pay you each month without going through the checkout process again is a huge benefit. Consumers are conditioned to assess the risk and possible regret of their purchase each time they go through the checkout process, so you would inevitably lose a good chunk of those customers every month. The subscription model mitigates this problem.
Having a customer pay you consistently every month allows you to increase your monthly income over time and maintain some level of continuity even when you’re not making new sales. Simply put, with a subscription model, new customers = growth, whereas with transaction pricing, often, new customers = mere survival.
3. Lifetime value
Generally, having a subscription based business model means your customer lifetime value will be higher. This is one of the main reasons software companies originally switched to the subscription pricing – they realized they could make more money charging customers $30/month for several years rather than a one-off fee of $150. The same logic applies to any of the business models I’ll cover below.
With that in mind, it’s clear that we should all be aiming to start subscription based businesses. But I don’t want to think that these business models are just for the big guys – here are some ideas about how you can start a business like this today.
There’s been a huge boom in subscription boxes recently – i.e. monthly boxes that contain goods based on a certain theme. In some cases there are practical considerations for the subscription – like nappies for children, or razor blades for men who shave (check out dollar shave club), but often the novelty of having a surprise box of treats shipped to is enough of a reason as any (they also make great gifts, literally the gift that keeps on giving). If I were to start a subscription box company, I’d think about a target audience first. Once you’ve got your target audience, think about a theme or the kinds of products that those guys would love to receive on a monthly basis. Put up a landing page or a sales letter explaining the concept, then drive traffic to the page. Use the first months sales to fund and send out the box, and pump and profits back into marketing to get new customers. Rinse and Repeat!
Software-as-a-service is another giant industry and some of the biggest companies in the world are SAAS companies – think Salesforce, Responsys or even Microsoft Office, all of which operate on a subscription model. But I don’t want you guys to think that SAAS is only for the big guys. There are thousands of small niches out there where entrepreneurial enablers are creating small apps to solve real problems in a variety of niches. Talk to the people in your industry, and find out what’s REALLY bugging them, causing them frustration or lost revenue in their day to day work, then ask them to pre-pay for you to develop it, at a steep discount. A great example of this I recently saw recently was Statement-Matching.com, an app that automates vendor account reconciliations for businesses. The founders were accounting consultants who saw this problem crop up time and time again – so simply created an app that solves this pain point. You can do the same.
There’s an array of regular services that can be sold on a subscription model. Basically, any service that fits into the category of productized consulting and sold as an off the shelf product – think accountants, financial advisors, marketing specialists, or graphic designers. Instead of selling one-off projects, switch your focus to selling your services as an off the shelf product for a monthly fee. Correlation is a great example of this – they offer ‘creative direction’ (design and brand consulting) as a monthly service, and it looks like they’re killing it.
Other than productized consulting, the other way I’ve seen specialists sell their services is in an information product or a community program. This usually comes in the form of a course, mastermind group, or forum (or all three). Whatever you’re a specialist in, there are people out their who want that knowledge. You can build an online course that shares your secrets with the world (bonus points if you leak out content weekly to maintain the subscriptions), and you can add more value by creating a mastermind group on top of the course in order for your customers to ask you questions directly or work together to improve at their craft. Some examples of this to get you started are the McMethod (email marketing course with associated forum) and the Stack That Money Forums.
My head is buzzing with ideas after researching and writing this article and I hope yours is too! If you have any personal case studies that you want to share with readers then drop me a line on the contact me page!