Subscription businesses have proven to be stable and sustainable during the Pandemic Era. Most software vendors, from cloud hosting providers to developers of enterprise-level applications, rely on subscriptions. But this approach is not limited to IT. If you are selling a product or providing access to a service based on a subscription business model, you might be on your path to success.
This strategy will continue to attract more companies, as customers increasingly rely on online shopping and door-to-door delivery to satisfy their needs. If you integrate subscriptions into your business processes the right way, you can grow and scale up fast. But before you decide to implement it, let's take a look at how this model works.
Understanding the Subscription Business Model
At its core, the subscription business model means that users have to pay monthly or annually for a product or a service rather than making a one-time payment. Successful subscription businesses like Salesforce, Amazon, or Netflix rely on this model to capitalize on the strength of customer relationships. For this approach to work, your clients have to understand the value you are providing. They also should be ready to commit to a long-term business relationship with you.
If your product is great and customer service is impeccable, then the recurring revenue model will not only provide easy access to your goods but will also help you gain the trust and loyalty of your audience. This model relies on the willingness of your customers to renew their relationship with you every time they have to pay.
The subscription business model helps to increase your customer lifetime value. While creating a steady flow of new clients is important, retaining them becomes crucial. Companies build communities around their products and treat customers like family. If you do it right, you will unlock compounding growth that will put your business ahead of the competition.
Basic Recurring Revenue Models
Companies that seek to create a steady revenue stream, choose one of the three basic payment strategies.
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Fixed-revenue approach.
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Consumption approach.
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Hybrid approach.
First, the fixed-revenue model. You determine how much and when the customers have to pay. Subscription businesses that offer monthly and annual flat rates belong to this category. If you take this approach, you will have to manually adjust your prices. This model can be too rigid when it comes to offering a personalized customer experience.
The second one is the pure usage model. The amount a customer has to pay is usually determined by the algorithm that compares supply and demand at a given moment. Uber is a prime example of this payment strategy. While this approach offers customers a flexible price, it may suffer from transparency issues.
The third basic subscription business model is called hybrid. It is often used by software vendors and mobile services providers. The basic subscription package comes with a flat fee, with additional usage options being billed on top of that fee. To successfully implement this model, you will have to understand customer behavior and include popular requests in the basic package while leaving enough room for revenue growth.
Whichever approach you take, make sure that the customers see value in your product and agree that your pricing policy is transparent and fair. The subscription model alone won't make your business flourish unless you build a strong rapport with your audience.
Subscription Businesses in 2022 and Beyond
Subscription businesses worldwide have seen a rapid increase in their customer base during the Covid-19 pandemic. The subscription box sector, for example, grew more than 70% during this period. But as the lockdowns are being lifted, and the craze for subscriptions fades, a lot of companies face the challenge of retaining their customer base.
While the subscription business model has seen its market value double in 2020, the market growth has halted almost to a standstill as physical retailers and vendors open up shops. While it can be assumed that we are past "peak subscription," this shopping tactic is going to last. According to surveys, 20% to 30% of customers will continue using their subscriptions regularly.
A growing need for a personalized shopping experience has led to the expansion of the curated subscriptions niche. More than 70% of buyers, most of them Millennials, are willing to pay more for a brand that provides them with personalized service.
Start a Subscription-based Business Today
If you integrate subscriptions into your business processes, start by implementing a multi-channel customer acquisition system and a reliable billing software. Use a Customer Relationship Management Platform like Bitrix24.
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Businesses That Benefit the Most From Subscriptions
While most companies can integrate a subscription-based fulfillment strategy for some of their products and services, several sectors rely on this model heavily.
Streaming services and news media are two examples of value-based pricing. They provide access to their digital content for informational or entertainment purposes. A free tier is often offered to give potential customers a taste of what the platform has to offer.
Subscription boxes contain popular grooming products, clothes, or household items that are delivered door-to-door. The strategy relies on providing a superior product, shopping convenience, and leveraging data to gain insight into the needs of every customer.
Food delivery also relies on the convenience-based subscription approach. People choose specific providers based on the quality of their offerings, speed of delivery, and special selections geared towards different types of cuisines or diets. Health-conscious customers are willing to pay a premium to have a steady supply of natural food items.
If your business has tons of great content not available elsewhere, offers necessities that have to be bought regularly, or caters to a niche that is willing to pay a premium to accommodate their lifestyle, the subscription business model will be a great fit.
How To Start a Subscription-based Business
The subscription business model can increase revenue and offer additional benefits beyond immediate profit. It can be one of the factors that strengthen the resilience and sustainability of your business.
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Create a predictable revenue stream. If you have a regular audience, you can build on top of a baseline revenue.
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Develop recurring relationships that increase trust. Long-term customers are the best customers. This approach allows you to upsell easily.
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Be able to scale to meet customer demand. Offer flexible payment options.
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Improve your overall adaptability. Use the data that you gather from customer interactions to better understand your niche, and respond to new opportunities fast.
Building a successful subscription business is impossible without understanding your typical customer first.
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Learn their preferred payment methods. Experiment with pricing models to find out the one that fits the largest share of your audience. Focus on how they buy and how they choose to pay.
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Measure customer satisfaction. Use data tracking to get insight into customer behavior. Use a Customer Data Platform in connection with a popular business CRM like Bitrix24. You need a reliable customizable solution that allows you to integrate sales funnels, marketing channels, and customer analytics.
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Bring your sales to a new level. Subscribers crave personalized experiences. You have to win them over and over just to keep them loyal to your brand.
Tips for Successful Businesses
Whether you are building your new company around the subscription business model or trying to improve already existing processes, follow these tips to increase your chances of success.
- Start with the end goal in mind. Are you focused on growth or revenue-building? It will determine your approach to pricing tiers. Focus on long-term benefits when you analyze your potential customers.
- Improve the rate of acquisition. You don't want your customer jumping through the hoops to sign up for a product or a service. Make it as easy as possible and provide friendly and competent onboarding if you are offering a sophisticated product. Think about implementing multi-channel customer acquisition.
- Implement a reliable billing system. Having a CRM solution that has all the necessary features to provide a seamless billing experience, is a must in 2022 and beyond. Look for platforms like Bitrix24 that offer a robust billing system, payment gateways integration, and easy recurring deals management. Set an interval to be automatically reminded every time you need to contact your client about renewal. Don't make your billing more complicated than it needs to be.
- Build lasting relationships with your customers. If your customer base is not satisfied with the quality of your product or how you treat them, they will start leaving in droves. Analyze buyer personas and create tailor-made offers. Always fulfill and exceed their expectations and learn everything you can about your customers.
- Have a strategy for future growth. Many businesses are not ready for rapid expansion. But an opportunity usually presents itself once. If you have a reliable subscription model, the right pricing strategy, know your conversion and churn rates and market depth, you can predict growth before it occurs.
- Create a perfect pricing model. Use free tier and freemium options to attract new customers. Adjust your prices when you introduce an improvement to your product or observe a shift in customer behavior. Test constantly but leave the final choice to your customers. Having several pricing tiers increases your market appeal.
In short, when creating a subscription business model, put the needs of your customers first, think about building long-term relationships, be flexible with your pricing, and you will succeed.
