How do you spend your free time? Do you read the Times? Perhaps you watch a new episode of Rings of Power on Amazon Prime or listen to Spotify? Whatever your answer, I bet most of you would have trouble getting through the week without using one of the many subscription services on offer today. Newspapers, TV and music are pretty mainstream examples of subscriptions. However, you can now get a huge range of things with the help of a small monthly payment. These run from clothes (Stitch Fix) to massage therapy (Make Movements).
Those novel brands are just two examples of the wide range of subscription services that have popped up to fulfil your every need and desire over the last few years.
There are two simple reasons for this rise in subscription services. They’re reliable and effective business models, and the internet makes them incredibly easy to set up and run. Smaller businesses can also target and serve incredibly niche groups (hello, doomsday preppers) easily online to limit competition and still generate reliable income. Take a look at my niching blog for a strategy that works incredibly well with this one.
Why are subscription businesses so reliable and effective? There are several reasons laid out below.
Benefit from a reliable revenue stream
Probably the biggest benefit of offering a subscription service is that you are pretty much guaranteed to get a set, forecastable amount of revenue every month. Yes, there may be some drop-outs, but some simple tracking and maths can even help you predict those, too.
Any financier will tell you that, while huge one-off sales and big projects are nice, reliable revenue is the foundation of a good business, and subscriptions offer just that.
Take Rings of Power as an example. This TV series has smashed spending records, costing Amazon a whopping $89.4 million per episode. Such an amount could never have been mustered in the olden days of ad-funded channels. This is because back then commissioning TV programmes was a matter of wagering money on something that looked good in the hopes of making a solid return from the advertisers.
Now, thanks to the coming of subscription TV on demand, the likes of Amazon have a sizeable, reliable income that they can invest in programmes. Moreover, they know the kinds of things their subscribers like, so they can spend a lot on programmes they know are going to go down well, instead of betting on things that might bring in good ad revenue.
These investments are possible because Amazon Prime is not living on luck off the back of its successes, only to tighten the belt when things get tougher. This might be compared to ending the flood and famine cycle that many non-subscription businesses experience.
Better Financial Forecasting
As well as being reliable, subscription revenue is easy to forecast. This allows subscription businesses to make sizeable investments with confidence and to respond to financial threats more dynamically
Build natural loyalty and relationships
Customers are naturally more loyal to subscription services and more prone to building relationships with their providers.
This is because of a simple but powerful difference between standard service sales and subscription services:
With a normal sale, the customer needs to act to buy a service or item, so it’s easier not to.
With a subscription sale, the customer needs to act to not buy the service or item (once they’re signed up), so it’s easier to just buy it.
This simple difference underpins much of why subscription models are so good for businesses. Having customers stay with you by default is good for revenue and relationship building. It also means you can concentrate on serving those committed customers as well as possible
Subscriptions can be a positive thing for the customer too, whether it means becoming part of a club and making friends easily or being exposed to new things you might otherwise try. It also becomes easier for the subscriber to budget for subscriptions, as well as the service provider.
Tips for nurturing the subscription relationship
This kind of mutual benefit, with service and subscriber relying on each other for multiple advantages, is a great basis for a relationship. A little communication, personalisation and community building can turn a simple subscription into a budding relationship, building subscriber loyalty and creating promoters for your brand. There are several ways to encourage this:
- Stay in regular contact through blogs, emails, updates and letters.
- Learn about subscribers and tailor your provision for them through feedback and analytics.
- Personalise their communication. Special birthday emails are a great way to do this, made easy by email marketing services like Moosend.
- Promote community interaction through message boards, social media and live or digital events.
- Offer loyalty benefits and reductions.
Easier Customer Retention
Because it’s easier to keep a subscription than to cancel it, customer retention is naturally higher for these services than for regularly sold ones. Build loyalty, relationships and a sense of community with and between your subscribers, and you can reinforce that further. Eventually, your subscription will become an aspect of the subscriber’s life that they don’t want to do without. We all know people who couldn’t give up their Netflix, gym membership or Steam subscription, don’t we?
Simpler inventory and HR management
Selling services by subscription means fewer sudden rises and falls in demand for your service. This in turn means the businesses in question don’t experience so many sudden staff shortages or periods of overstaffing with many employees being paid to twiddle their thumbs. Equally, if you’re selling products, a subscription business model makes for easy inventory management.
It’s a great basis for getting referrals
A good subscription business builds loyalty. A great subscription business builds referrals.
Encourage referrals through bonuses and extra relationship-building efforts and you could be on to a winner. Harry’s shaving equipment subscription brand went from being a small-time niche operation to a leading player through just such a programme. Their referral programme generated 100,000 referrals in the first week, due to several strengths, which we recommend imitating:
- A strong levelled rewards structure where big referrers feel valued.
- Harry’s stood out by giving tangible, valuable rewards, rather than reductions.
- Connection to customer relationship-building efforts to create special referrer relationships.
- Personalisation to make referrers feel cared for.
- A solid link to strong brand values that people empathise with (simplicity, economy and eco-friendliness).
- A highly competitive pricing structure.
Realise the true value of what you’re putting out there
Many companies put out a huge amount of extra valuable information, content and freebies with their product or service. A well-managed subscription service is a way to realise this extra value for your company, both in financial terms and through customer relationships. People don’t simply pay £66 for a massage or £10 for a box of clothes they have to send back. They pay it to be part of something they value, with all the extra bits adding up to create that value.
A lot of SMEs are already creating enough peripheral value to satisfy a subscription membership. With the tools available on the modern web, including emails, membership sites and customer relationship management systems, it is relatively easy to turn all this into an effective membership package.
For example, I know a lot of business consultants with tons of valuable advice on their sites and computer hard drives. With a relatively small amount of work, they could launch an online membership and make their sheets of advice pay with exclusive advice pages, a regular community newsletter and a whole range of other things. This will give their customers a useful, accessible and regular source of advice from day to day. Meanwhile, it would provide the consultant with all the things discussed above, a solid return on a relatively minor time investment.
With a good subscription system in place, businesses can expect to earn a reliable income, as well as customer loyalty. Meanwhile, they can smooth out the rough edges of their business model.