Sometimes trends aren’t trends because of buzz or visibility, but because they actually work. Sometimes those trends work so well, they start spreading across all industries. Enter subscriptions, the “new” business model that’s actually been around for centuries. It’s always been standard practice for newspaper and magazine customers to pay for their products on a periodic basis. Although the subscription model diminished at the onset of the internet, it’s come roaring back according to The Automatic Customer: Creating a Subscription Business by John Warrillow.
All you have to do is look at WhatsApp, the messaging app that built a 450 million-strong customer base with ZERO advertising. How? Because their subscription service was so genius — $1 a year after the first year — that friends starting getting other friends to sign up by the millions. Customers had become automatic!
You may have noticed that a lot of the companies you’re familiar with are suddenly offering subscription services. Subscription services are certainly very hot at the moment. Why?
There are three main reasons the subscription model is going through a renaissance. First, there’s the rise of the access generation. The access generation favors access to material rather than ownership of it. Second, people aren’t afraid to make financial transactions online anymore. In the dawn of the internet most people only trusted big companies with their credit card information. Those days are long gone. Finally, data has become a key asset in today’s economy – and subscription-based companies rely on data collection even more than most other businesses do.
These changes have convinced a number of the world’s most successful companies to shift their business strategies and make more use of subscriptions. Apple, for example, launched Joint Venture in 2011. Through Joint Venture, Apple helps companies transition to using Mac products in exchange for a yearly subscription. Microsoft did something similar by offering their Office software through subscription rather than distributing it in stores.
The new subscription economy also allows businesses to offer specialized services, which adds new competition to the marketplace. Amazon, for instance, has had a lot of success with subscription through Amazon Prime. Amazon Prime allows subscribers to pay $99 a year to stream movies and get free two-day shipping on most purchases. Prime subscribers often prefer to buy a pair of running shoes on Amazon instead of at the local sports store.
They’ve also just opened a grocery service called AmazonFresh, where customers can have grocery purchases over $35 delivered to their home with no shipping charge. Amazon’s subscription services allow it to compete with small businesses and big businesses alike. They can now compete with major companies like Walmart and Target.
The financial perks aren’t the only reasons to shift into using subscriptions. Subscriptions actually make your life as an entrepreneur much easier. First off, subscriptions significantly increase your company’s financial value. For potential investors, subscriptions are a predictable stream of cash flow.
In the long run, a monthly subscription of $10 is much better than a single sale of $100. Think of a home security business. Investors won’t be that excited about the revenue generated from doing a one-time installation. They’d much rather get a monthly charge for monitoring the property.
Subscriptions also make many parts of running a business much simpler. When you have steady subscribers, you don’t have to estimate the demand for your products or services – which is always a difficult challenge.
When you know in advance how many subscribers you’ll have, you can optimize your labor and raw materials, decrease your inventory and plan ahead much more easily. Subscription fees are also a much more reliable form of payment. When people use their cards, the money is usually paid on the day it’s supposed to be. Finally, recurring revenue offers powerful protection against any potential recessions.
Subscriptions also improve the relationship you have with your clients. They’re really based on loyalty: the customer offers a consistent payment because they trust that you’ll offer a consistent service. They also increase the overall contact you have with your customers, because they have to pay you regularly.
Of course, this sort of customer loyalty may also lead them to seek other services from you. Subscriptions ensure that they won’t just be one-time customers. So subscription services are certainly beneficial, but how do you switch from theory to practice?
If you sell goods online, there are two models you can follow to implement subscription services: the consumables model and the surprise box model. In the consumables model, a company offers a subscription for a product that customers need to replenish regularly.
The Dollar Shave Club is a perfect example of this. Its members pay to get disposable razor blades sent directly to their homes by mail. The Dollar Shave Club provides more than just shaving equipment. Like many smaller businesses, they’ve managed to survive being taken over by building their brand. They add a bit of fun to their service by giving their blades nicknames like the Humble Twin and the Executive.
They’ve also managed to take control of their brand and service even though they don’t manufacture the blades they sell. That’s why they never display the manufacturer’s name on their boxes: their image would suffer if they appeared to be just a middleman.
In the surprise box model, a company regularly ships a themed package of goods to their subscribers. It might be a different selection of goods each time – the important thing is that the customers are passionate about the theme. Bark Box, for instance, is a subscription service that sends out various dog treats and toys. They essentially act as a curator, deciding which products to ship out each time.
However, bear in mind that you may face challenges if you want to offer completely different products from different manufacturers each month. Some manufacturers won’t be flexible enough to agree to one-time orders. Imagine if you had to find a different manufacturer of specialty chocolates each month.
Surprise boxes are also useful because they can serve as Trojan horses. Conscious Box, for example, offers a monthly subscription for samples of all-natural products. Their real aim, of course, is to entice people to buy the full-size products online.
Big and small companies alike are discovering the benefits of implementing subscriptions. They’re convenient for your clients and they make things easier for you, too. So figure out which model works for your business, do your research and attract the right customers. You have to understand and use subscriptions if you want to keep up.
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