Go for subscription model to turn your business profitable
Have you noticed the rise of subscription models around the internet? It is no niche anymore and definitely not something to be afraid of. Ecommerce is turning into subscription-based business for increased profitability. The popularity of such has now “exploded” according to Compass.co and you MUST have signed up for one or another already yourself too.
Subscription-based model is nothing new. Why should I care?
We’ve all been subscribing for a newspaper, magazine or a gym (at least once!), but this is in fact nothing more than a cultural habit combined with a tiny bit of convenience. All of these could just as well be sold as one-time purchases if you think of it. In some countries these are more or less non-subscription based. This observation leads to two conclusions: subscriptions can take over “traditional” marketplaces and that it is the convenience of people we need to be focusing on. What’s so cool about subscription model, is that in fact almost anything can be sold with it and the possible increase in LTV is worth noting.
The range of products and services offered through subscription model is definitely on the rise. Music (Spotify), movies (Netflix), food (Hello Fresh), health products like razors (Dollar Shave Club) and even smoking equipment (BuddaBox) is now offered with the convenience of regular home delivery. After filling your credit card details the first time, you won’t even notice it any more. Soon enough those regular deliveries are part of your life and you have forgotten that you’re even paying for it — although the recurring payment does not forget, but more of that later.
In general when more and more products and services come to available through a convenient subscription model to the customer, it becomes beneficial for the company too as well.
Image: Compass.co
Compass’ research, that was based on its leading ecommerce merchant data network, showed increase in the lifetime value of a customer on a subscription based model in comparison to non-subscription. There are few ways how a business can reach that increase. But one of them might not be a very long-term solution.
- Convenience and saved time for customer
- Lower pricing for the customer
- Retainment of the customer
The possible problem child is the third one. There are multiple examples of ‘forced’ subscription models where the chosen model doesn’t add any convenience, but rather is exact opposite of the customer’s need. This type of a model is usually a huge strain for the company’s customer relations because the retainment is achieved by the very customers who are forgetting that they’re constantly paying for something they only needed once. Lifetime Value keeps growing but at the expense of customer experience.
Avoiding such f* up is simple. Just make sure your customer is really going to benefit from the model. Customer personas help you to make sense of that.
So how does a company benefit from the subscription based model?
1. Higher LTV (customer lifetime value) is now easier to obtain
To get a person to buy is usually the start of a real struggle and only a minor part of the real cost of the LTV. After initial purchase you have to make sure this person buys again. Retargeting the customer online is what we all should be doing. The 20/80-rule is true, but it doesn’t make it cheap but only cheapER.
With subscription based model the customer is already engaged and less work (read: money) is needed to keep it that way. They’ve already made the purchase decision. Now they would need to make another decision to cancel — and decision aren’t what the human mind loves.
It’s also slightly easier to keep track of that LTV as it is constrained by time only and doesn’t need tracking of several different purchases.
2. Predictability
Now that you know how long in average the customer stays with you, it can’t be too hard to predict your monthly revenues.
3. Packaging makes it easy for you (and the customer)
No more need to do massive collections of a variety of goods. Your subscription levels should contain predefined goods to limit the anxiety over decision, and trouble over packaging. This is true for both physical or bitty things.
Sometimes even a surprise box might work. The customer won’t even know what he’s getting — but it works!
4. Predefined buyer persona
Since your product or service is pretty predefined it must have a defined audience. You know what they want so it is easier to deliver. Many of the subscription models are defined for a niche market, especially in the early phase. Keep this in mind as you work your way to define that audience of yours. What do these people value the most?
Compass’ research found out that food & drink and health & beauty categories were especially benefitting from the subscription model. In average the LTV almost doubled (1,78X) with merchants working with an average transaction value of $25 and everything below $75 is worth it.
Image: Compass.co
How do I do it?
Emphasize: Convenience, Quality and Simplicity/Uniqueness.
Going for subscription model is an opportunity, but it does not come without some planning upfront. A great way to start is to define the customer persona. You’re stuck with these customers for a long period — if you play your cards right. This defined audience then needs clear options to choose from. Do you REALLY need 5 different pricing options? Don’t overdo it. Keep it simple. Lastly, you must show these people that you do care. Investing in awesome customer care and support makes your customers your community.
And hey. Community is worth more in the long run.
Now. Do you still think your product or service (whatever it is) can’t be sold with subscription model?
Article was first published @ Finnchat Blog: http://www.finnchat.com/en/go-for-subscription-model-to-turn-your-business-profitable/
Sources:
Compass.co Blog: Increase your ecommerce profitability with subscriptions LINK: http://blog.compass.co/increase-your-ecommerce-profitability-with-subscriptions/
KissMetrics Blog: Excel at subscription economy https://blog.kissmetrics.com/excel-at-subscription-economy/