Do you want to start a subscription company? If YES, here is everything you must know about the subscription business model plus examples of successful companies.
When it comes to starting a business, there are several business models that you can adopt from the onset. The truth is that you can hardly make success out of your business if you don’t build your business on an existing business model and most especially a business model that suits your business.
A quick tip is to find out the type of business model that companies you are patterning your business after are operating on. With that, you would have eliminated the time and resources wasted in trial and error approach. You will just settle down for a suitable business model for your business with little or no stress.
One of the business models that an investor who is looking to start a business in the United States of America should consider adopting is the subscription business model. The beauty of the subscription model is that you have a basis for expecting some consistency. Using the number of subscriptions you have in place and the average growth rate for each over the most recent months, you can come up with a fairly accurate forecast of what revenue you are expected to generate monthly, quarterly and annually. You will be able to plan and project with some level of accuracy based on your expected income.
There are some business niches that can only succeed by operating the subscription business model and if you want to know whether your business fits into this description, or you just want to learn more about subscription business model, then you will find this article pretty interesting and resourceful.
Subscription Business Model – Everything You Need to Know
First things first, what is the Subscription Business Model?
The subscription business model as defined by Wikipedia is a business model in which a customer must pay a recurring price at regular intervals for access to a product or service. The model was pioneered by publishers of books and periodicals in the 17th century, and is now used by many businesses and websites.
Subscription business models are built on the idea of retailing a product or service to receive monthly or yearly repeated subscription revenue. They focus on customer retention over customer acquisition. Essentially, subscription business model emphasis on the way revenue is made so that a single customer pays multiple payments for prolonged access to services or products they need.
As a matter of fact, customers may find subscriptions convenient if they believe that they will buy a product or services on a regular basis and that they might save some money from buying the product or services. For repeated delivery of the product or service, the customer also saves time.
The subscription business model brings a customer and a vendor toward common goals, since both parties stand to benefit if the customer receives value from the subscription. The customer that receives value is more likely to renew the subscription and possibly at an increased rate.
The customer that does not receive value will most often than not stop the subscription of products or services from your company. A win – win situation should be the hallmark of a company that is operating the subscription business model.
Benefits of Subscription Business Model
Businesses benefit from the subscription business model because they are assured of a predictable and constant revenue stream from subscribed individuals for the duration of the subscriber’s agreement.
Not only does this greatly reduce uncertainty and the riskiness of the enterprise, but it often provides payment in advance (as with magazines, concert tickets), while allowing customers to become greatly attached to using the service and, therefore, more likely to extend by signing an agreement for the next period close to when the current agreement expires.
Subscription models often require or allow the business to gather substantial amounts of information from the customer (such as magazine mailing lists) and this raises issues of privacy.
Subscription pricing can make it easier to pay for expensive items, since it can often be paid for over a period of time and thus can make the product seem more affordable. On the other hand, most newspaper and magazine-type subscriptions are paid upfront, and this might actually prevent some customers from signing up.
The fact that a subscription business model is a revenue model that charges a recurring fee for access to a product or service means that the repeated nature of this business model is attractive to businesses as a stream of income and as a means for improving customer lifetime value.
Lastly, the subscription business model empowers the organization to scale – up income easily according to demand. For example, if the demand suddenly jumps from 100 units in one week to 1,000 the next, the company will quickly adjust and double inventory to meet the demand.
Some Drawbacks of the Subscription Business Model
In as much as the subscription business model has loads of benefits, there are still some obvious drawbacks.
As a matter of fact, this business model could be a disadvantage to a customer who plans to make use of the service recurrently, but later does not. The commitment to paying for a package may have been more expensive than a single purchase would have been.
In some cases, subscription models increase the possibility of vendor lock-in, which can have fatal business-critical implications for a customer if its business depends on the availability of a software.
For example, without an online connection to a licensing server to verify the licensing status every once in a while, a software under a subscription-model would typically stop functioning or fall back to the functionality of a freemium version, thereby making it impossible (to continue) to use the software in remote places or in particularly secure environments without internet access, after the vendor has stopped supporting the version or software, or even has gone out of business thereby leaving the customer without a chance to renew the subscription and access his own data or designs maintained with the software (in some businesses it is important to have full access even to old files for decades).
We are not ruling out the fact that a costumer may find repeated payments to be burdensome. This is in disparity to many one-time transactions, when customers are forced to make significant commitments through high software prices.
Another drawback is that a customer who is placed in a jail or prison can be billed continuously for subscription services which may render them without funds upon release.
Lastly, with subscription business model, especially when a customer keeps receiving packages that they don’t have need of, the customer may just abandon the items, for example magazines, this can lead to waste and an adverse effect on the environment, depending on the products.
Greater volumes of production, greater energy and natural resource consumption, and subsequently greater disposal costs will be incurred by the customer in terms of paying paper waste collection company or general waste collection company.
The Means of Revenue Generation for Subscription Business Model Operators are;
There are two basic means that operators of subscription business models generate income and the ability to fit it into your business will go a long way to determine the amount you will generate monthly, quarterly or yearly.
- Subscription Fees
Instead of retailing products individually, subscription is a means of collecting money from clients on a monthly, yearly, or seasonal basis for use or access to a product or service. Subscription could be pay-as-you-go subscription where you subscribe to purchase a product periodically or a subscription for unlimited use of a service or collection of services. Usage may be personal and non-transferable, for a family, or under certain circumstances, for a group utilizing a service at one time.
- Membership Fees
Membership fee is the fee that is charged members for access to services and products that are strictly for members. Businesses that make use of this model include gyms, mail order book sales clubs and music sales clubs, cable television, satellite television providers with pay television channels, satellite radio, telephone companies, mobile network operators, internet providers, software publishers, websites (e.g., blogging websites), business solutions providers, financial services firms, health clubs, lawn mowing and snowplowing services, and pharmaceuticals, as well as the traditional newspapers, magazines, and academic journals.
7 Subscription Based Business Model Niche Ideas
There quite a number of niche ideas that an aspiring entrepreneur who is looking towards operating a subscription business model should consider and some of them are;
a. Gyms and Park
If you are considering opening a gym or a park, then one of the options that can guarantee you steady income is to adopt the subscription business model; it will enable you run the business with regular cash flow without getting trapped along the line. Just ensure that you encourage members to subscribe annually, quarterly or monthly. In the United States and in most countries, gyms and park offers their members pass sold as a recurring monthly service fee.
If you want to establish a media – based business especially a magazine publication business, then you should consider operating the business in a subscription business model. This is one of the businesses ideas that perfectly suits this niche of business. Customers are expected to subscribe periodically to your magazine whether it is a hard copy or online version.
It is the norm for telecom companies to charge their customers based on subscription whether for data services or airtime services. In the United States of America, UK and in most countries, telecommunications service providers charge customer a monthly fee for broadband access with unmetered bandwidth.
The fastest and one of the easiest means of generating revenue for your business if you want to go into Software development is to adopt the subscription business model. A cloud services company charges a monthly fee per user for access to a sales automation platform.
e. Gift Box
Although it is optional, if you run a gift shop, you may decide to adopt the subscription business model. For example, in the United States of America, a notable cosmetics brand offers a monthly gift box service that sends customers a variety of product samples each month for a fee.
f. Members Club or Book Club
If you have plans to start a membership club or a book club, you have restrictions on how you can generate money for the club and one of the most popular means of generating income is to adopt the subscription business model. With your members paying subscription fees on a regular basis, they can have access to premium services.
g. Service Plan
One obvious means of generating revenue if you run a maintenance company is to operate the business on subscription business model. A maintenance company offers home owners a service plan on equipment such as air conditioning units. Customers pay a monthly fee and get free repairs when something breaks.
h. Charity Organization/Non – Profit
If you run a charity/non – profit organization you can leverage on the subscription business model to continue to generate revenue for the organization. For example, a charity organization or non – profit asks for donations as a subscription that may include benefits such as a monthly magazine that outlines the group’s work.
Example of 50 Companies Operating The Subscription Business Model
Please find below examples of companies that spread across different industries that currently make use of the subscription business model in the United States and all across the globe.
- Hello Fresh, Green Chef
- Amazon Prime
- Sweat by Kayla
- Car Wash
- Kindle Direct
- $1 Shave Club
- AT&T and Electricity
- Blue Apron – Use a clear Call-to-Action (CTA)
- Copyblogger – Create a lead generation funnel around content
- International Living – Use your blog to showcase your membership
- Study Gateway – Start your free trial
- Lynda.com – Add apps to your subscription business
- FabFitFun – Highlight savings right away
- Youpreneur – Understand and call on your target market
- Freelance Writers Den – Build your trust and authority
- Birchbox – Explain how your membership site works
- eHarmony – Everyone loves a “guarantee”
- Dollar Shave Club – Use the power of gifting
- Pencil Kings – Use quizzes as a conversion tool
- Verizon Fios
- Comcast Corporation.
- Time Warner Cable
- Charter Spectrum
- Charter Communications
- T-Mobile USA.
- Sprint Corporation.
- Time Magazine
- Ladies’ Home Journal.
- Marie Claire.
- Shave Club
- Adobe and Autodesk
- Microsoft Inc.
- Google Office Tools