Why and How to Leverage Subscription Services to Boost Profits and Expand Growth

March 8, 2019 by Christine

Marriage? Unpredictable.
Health? Unpredictable.
Kids? Unpredictable.
Business revenue? Unfortunately, still unpredictable.

Whether you like it or not, few things in life can be predicted. This is especially true with your business revenue. Though you can estimate earnings based on past data, market demand, and future sales, there is no guarantee that what you earn will come anywhere near your projections (it rarely does).

Walk into the Shark Tank and tell the investors you are projecting $10 million in revenue this coming year. If earnings estimates were so predictable, every Shark would jump right on the investment, duking it out with each other in the process. Instead, they drill the contestants on every single business figure until they can find something that gives them a glimmer of hope that the investment will pay off.

Go back into the Shark Tank and tell them you already have thousands of paying monthly subscribers. Now, the conversation goes a completely different way.

WHY Is the Subscription Business Model so Lucrative?

The subscription business model is not a new concept. Nowadays, you can subscribe to anything from healthy food and designer shoes to beauty products and beard oil. Subscription services have also been a business model used by the service industry for decades. Think cable, internet, phone, and utilities.

But, subscription services have exploded in the last decade with businesses selling consumables at a faster rate. In Q1 2018 alone, 18.5 million Americans visited at least one subscription site.

The subscription model is attractive mainly because it funnels in revenue monthly, which can remove some of the burden you may carry with constantly finding new customers to buy your products and services.

Sure, even with a recurring revenue model, you will still need to find new subscribers. But every new subscriber has the potential to bring in long-term value—revenue that could continue month over month, year over year.

Here are some other benefits:

It’s Trending (Big Time)

Take a look at your monthly bank statement. How many products do you pay for with a subscription?

Consider this scenario: You come home from a long day and you can’t wait to watch your next binge-worthy episode of your favorite Netflix series. But first you crack open your Plated box and cook up an easy dinner. While cooking, you realize you used up the last of your salt so you “Amazon Prime” it for next-day delivery.

Add to that, your workday consisted of handling Dropbox, Google Suite, CRMs, and multiple software programs. You are likely enveloped in the subscription model world without even realizing it.

Consumers are going subscription crazy and the trends aren’t dying down. Stanford Graduate School of Business alum and founder of software company Zuora, Tien Tzuo, states in his book, Subscribed: Why the Subscription Model Will Be Your Company’s Future — and What to Do About It, “If you’re not shifting to this business model now, chances are that in a few years you might not have any business left to shift.”

Consumers LOVE the Subscription Model

Monthly subscriptions represent ease and predictability for consumers. It gives them control over their monthly spending.

For example, if you subscribe to a monthly food service, you know exactly how much you will spend on groceries for that month, instead of randomly choosing products based on how hungry you are when you visit the grocery store.

It Lets You Collect Reliable Customer Data

If you know anything about us, you know that we are CRAZY about data here at Viral Solutions.

While we value your opinion, frankly, we don’t care what you say about your customers. We rely on what your customers and your data say about your brand and products. We focus on market orientation instead of your hunches and instincts.

Data-hungry businesses love subscription models because they make it much easier to gather data on customers.

Here’s why…

1. Trust – You are building trust over time, which makes it easier to poll and survey customers to get feedback on your brand and products.
2. Personalization – Long-term customers can provide feedback on their interests, allowing you to personalize your offerings to reduce churn and build lasting relationships over time.
3. Ongoing feedback – Even if the customer cancels the subscription, you will gain valuable feedback to inform your marketing strategy. Contrast this with customers who visit your website to buy your non-subscription product. If they don’t buy, it's much more difficult, if not impossible, to find out why they left your store and purchased elsewhere.

TIP: To gather reliable data from your subscribers, poll your customers regularly (without annoying them) to find out their interests, along with what they do and don’t like about your product. Use this data to improve your product, reduce churn, and attract new subscribers.

If you would like assistance coming up with a data-driven marketing strategy to reduce churn and attract new subscribers, we’d be happy to help. We offer free consultations here.

You Get Predictable Recurring Revenue

Do you sell software or services? Stop chasing down invoices. With a subscription model, the money gets deducted automatically.

Sell physical products? Stop chasing down customers just to fulfill your monthly customer quota to stay in business.

The MOST important benefit of a recurring business model is its predictability. Instead of chasing money and customers, the subscription business model allows you to predict your monthly revenue based on the number of subscribers you have and your churn rate.

Are subscription services a guarantee of revenue?

Let’s get a few things straight. Moving to a subscription model is NOT going to magically remove all of your business challenges. If anyone tells you that, they are dead wrong, and you know better.

What moving to a subscription model will do is help you more accurately predict your monthly revenue, which will help you expand your business quicker.

Aside from more predictable revenue, subscription services also streamline operations, allowing you to more accurately estimate your workload so you can better optimize your resource allocation.

How to Get Started Implementing the Subscription Business Model

One of the challenges of businesses wanting to implement the subscription model is figuring out how to convert what they are selling into a monthly service or product offering.

Virtually any consumable can be sold as a monthly subscription. If it can be consumed monthly, it can be sold monthly.

Clothing manufacturers probably never thought consumers would buy (or rent) clothing as a subscription service. Yet, you can get a subscription for personally styled clothes, shoes, and accessories from hundreds of retailers.

Ever think we would be getting food, recipes, and cooked meals delivered straight to our doors? The online meal kit industry generated $1 billion in 2015 and is projected to reach more than $10 billion in 2020.

So if you think you can’t create a subscription product, think again. Here are some examples of what you can sell as a subscription service.

Digital Information

If you sell digital information, consider making it available as an ongoing subscription. For example, instead of just selling one-off courses, Study Gateway compiled all of its video training into an online video portal of Bible lessons.

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Services like these are also accompanied by a tiered pricing model (with free trial options). Consumers like pricing models because they can try you out (for free or a low cost) before they sign on for a more robust, higher-priced package.

Coaching and Consultation

If you sell expertise and skills, consider offering your services on a monthly subscription. Coaching is prevalent in many industries, wherever consumers want to increase their knowledge in an area without wasting time learning on their own.

Offer services on a retainer, blocking out a number of hours per month or quarter, depending on the demand. For example, a health coach may be in demand monthly as students learn how to develop better eating choices. However, a tax and financial coach may only be needed per quarter.

Financial firm LaineCPA offers tax preparation as well as consultations that include a quarterly financial review.

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Physical Products

The key to selling physical products on a subscription is to sell items that are consumable (they run out) so people need to repurchase.

Also, think about the reasons why consumers buy subscription services. They want an easier option to acquire their desired goods, and they don’t want to miss out on purchasing an item if they forget. It also brings in a feeling of exclusivity for consumers, like they belong to a “premium” club, which can be attractive for the right customer.

Here are some physical product items that could be sold as a subscription:

• Clothes
• Cosmetics
• Baby care
• Food and drink
• Supplements
• Personal care
• Flowers
• Office supplies
• Home supplies
• Content (magazines)

What about items such as notebooks or home office chairs? Though items such as these do get used up and break down over time, they are not consumed as quickly as food or baby wipes. But, you can still think about related items or industries that complement your product.

So to brainstorm a subscription product, consider a related product you can offer that consumers use much quicker.

For example, if you sell notebooks, think about monthly and yearly planners to help consumers organize and plan their lives every month and year. If you sell home office chairs, what items do your home office customers use up quickly? Consider offering a subscription service for printer ink, paper, file folders, and other office supplies.

While we cannot guarantee these subscription services will be winners, if you want to break into the subscription model business and you don’t sell a consumable, consider related items to your current product so you can leverage your existing customer base.

Partnerships

Another way to break into the subscription services market (or test it out) is to partner with a retailer that can offer your product in their subscription.

So if you sell skin care, consider partnering with a beauty-focused subscription box to offer samples of your product. If you notice a boost in sales, this could indicate your product may be a good fit for a subscription service.

Boost Profits with Predictable Recurring Earnings

We can’t promise you that your marriage will succeed, your kids will get scholarships to Harvard, and your dog won’t tear up your new Cole Haan shoes. Life IS unpredictable, and business is no different.

But inviting some predictability into your business with subscription services can bring in some much-needed stability and help you expand quicker. And that’s something we can get behind.

Filed Under: Business Tips Tagged With: business model, new customers, reliable revenue, subscriptions