A subscription-based business model is a type of business model that is based on the idea of charging a customer a monthly or annual fee for the use of your product or service. This is a model that benefits both the customer and the business in most cases.
If you’re trying to figure out what business model you should choose. Or if you are currently looking for another way to create predictable income for yourself, a subscription-based business should be a serious consideration.
Today, we will provide you with essential elements to ensure the success of your subscription business and three popular business models that you can base your brand on. But first, let’s look at some benefits of the subscription-based business model for both the customer and yourself.
5 Benefits of a Subscription-Based Business Model
1. Predictable Revenue
By having your customers pay a monthly or annual subscription, you allow your business to predict your quarterly earnings more accurately.
2. Convenience for the customer
For many of your customers who will want to use your product or service more than once, the subscription option allows them the convenience to have payment made automatically without needing to do anything extra.
3. Attract more customers
Some customers may not want to pay annually for your product or service. A subscription option gives customers a choice to break down the cost of your product over time. This will attract more clients who want the choice to cancel their subscription in the future.
4. More opportunities to cross sell
Because the monthly subscription allows you to touch your customer on a monthly basis, this allows you to open the lines of communication. Communicating with your customer allows you to understand more of what they need and also allows you the option to cross-sell solutions.
5. Higher Customer Retention
By having a customer subscribe, you can expect higher customer retention. The subscription-based business model is one that focuses more on customer retention while many other business models primarily focus on customer acquisition.
How to build a successful subscription-based business?
Zuora is a leading SaaS business that provides a platform for brands to run their subscription-based business on. They have been around since 2007 and have helped multiple brands find success through their business model.
After analyzing the success of the brands on their platforms, they have managed to find nine key elements that your subscription-based business plan should have to ensure long-term success and profitability.
The 9 Key Elements of a Subscription-Based Business Model
Your business success in this model is directly tied to your pricing. Do proper research to see if you can get away with one price for everyone or if you need different levels or customizable pricing to cater to diverse customers.
2. Acquiring customers
Since most subscription-based businesses operate primarily on the internet, it is important to increase your online presence and focus on improving your brand’s online experience. This business model is not the same as a one-time product sale model. Instead, a customer must be able to trust you and your business to make a long-term commitment. Therefore, ensuring their user experience with your product is as seamless and pleasant as possible will remove any lingering doubts in their minds.
Billing and invoicing are vital aspects of your business. Clear invoices to customers and manufacturers, along with due dates, need to be a priority with this business model.
4. Collect fast cash
A subscription-based business has recurring monthly costs to serve current customers before reaching new subscribers. Therefore, it is critical to make as many payment gateways as possible available on your website to ensure consumers can easily make payments fast and upfront.
5. Nurture customer relationships
While traditional businesses primarily focus on acquiring new customers, a subscription-based company must pay considerably more attention to making sure their current customer base is happy, as that ensures the business’s longevity. In addition, their word of mouth will act as marketing for your business, so build a deep connection with your subscribers.
6. Account for revenue
Not keeping track of your financials is the fastest way to run your business to the ground. As dull as it may be, you need to be aware of the revenue your business generates, how much is profit, and what needs to be kept aside for overhead costs.
7. Measure right consumer metrics
Traditional metrics may not suffice for a subscription-based business. Therefore, set a dashboard to analyze specific metrics that will help you understand your customers’ needs. In addition, it will ensure that you can adapt to evolving demands before they become a problem.
8. Iterate and deploy new pricing
We live in a very dynamic world. Therefore, the pricing model that you started your business with may not be what your customers need a year or two down the track. For example, instead of one standard price, you might need to split it across three prices for basic, traditional, and luxury items. Be prepared to make this change for the betterment of your brand.
If you’ve built your business with the right foundations, chances are it will grow. Therefore, instead of changing your infrastructure to react to growth, have an infrastructure that aligns with your mission and will accommodate scaling when the time comes.
Now that you have the nine key elements let’s look at three subscription-based business models and brands that have successfully implemented each one.
The “Netflix” Model
This is a very effective business model for video content creators. It gives your audience the ability to stream your exclusive content anytime and anywhere. If you do this right, you get to be the Netflix of your niche. Ensure that your content is of high quality and value and contains information that customers cannot find for free elsewhere.
A company that has done a fantastic job with this model is GAIA. This premium streaming platform caters to those interested in health, well-being, and history topics such as yoga, psychedelics, and pseudoscience.
The Mastermind Model
A mastermind business model refers to people paying a premium to access an individual who provides personal assistance on applying the mastermind’s knowledge to their exact situation. You can offer 1-on-1 coaching, group calls, and daily or weekly check-ins as part of this model.
The “Subscribers Only” Model
You see, many YouTubers use this business model to increase and secure their monthly and yearly revenue. To run your business using this model, you offer the majority of your content for free at the top of the funnel, such as YouTube videos.
After gaining a large enough subscriber base to your free content, you can start offering content on platforms such as Patreon, where paid members get access to exclusive content that will not be available anywhere else.
It is the perfect model for someone in the fitness niche. Several fitness YouTubers have apps that their subscribers can join by paying a membership fee every month. They get access to the YouTuber to create specific workout and nutrition plans to achieve their individual goals.
If you are afraid of losing a steady paycheck, try starting a brand around a subscription-based business model. There are several pros and cons to a subscription model, however. So, be sure to understand the advantages and disadvantages of this model.
Finally, there are three different subscription models that you can leverage depending on your niche and goals: the Netflix model, the Mastermind model, and the “Subscriber Only” model.
Remember, the best time to start was yesterday. So the next best time is NOW.
For more on the different types of business models to choose from, check out our article 21 Types of Business Models with Examples.