The Power of the Subscription Model
A Strategic Shift for Sustainable Business Growth
Exploring the advantages of subscription-based revenue models can reveal significant opportunities for businesses. Subscriptions offer predictable revenue streams, foster customer loyalty, and provide the flexibility to adapt to market changes. Notable examples like Adobe, Dollar Shave Club, and Porsche demonstrate the model’s effectiveness across various industries.
By adopting a subscription approach, businesses can benefit from a strong value proposition, flexibility, consistent quality, excellent customer service, and robust subscription management technology. This strategic shift can drive sustainable growth and ensure long-term success.Every business wants to make money. That’s why we look for as many ways to make it as possible.
But sometimes we miss big chances. Like bringing in a subscription model. And we get it – sometimes the subscription thing doesn’t seem to make sense with what a business might sell.
Take pizza. There aren’t a lot of pizza places offering pizza on subscription. But we can’t think of anyone who would say no to a pizza subscription.
It’s just thinking about logistics.
That’s why we thought this article might be helpful to people who are either looking for a new revenue stream or wondering if the subscription model is right for them.
Let’s get a deep dive into why the subscription model is a good idea for your business, what it takes, and how it can potentially unlock new avenues of long-term growth.
What’s great about subscriptions?
Those of us who are subscription customers know how great subscriptions can be.
And it can be great on the other side too.
The subscription model can offer practical, tangible, and proven benefits to businesses. We’ve experienced this firsthand – we’re a subscription company that works with subscription companies.
Here’s what we see, over and over when subscriptions are done right:
1) Predictable Revenue Stream
Who doesn’t want a predictable revenue stream? Though one-off purchases are great, they can be difficult to predict, which makes long-term financial decision-making more challenging.
But with customers paying a regular fee to your business to access your products or services, you get a steady income flow.
This type of stability makes financial forecasting and budgeting much easier. You’ve got a lot less risk with revenue fluctuations too.
2) Broader base of happier customers
Some customers prefer subscriptions. So by giving them what they want, you’re far more likely to get them to stick around. And the subscription model is scalable, so your base can grow with ease.
Subscriptions also give you the opportunity to cultivate long-term relationships with your customers. And it’s not just because you’re making your offering more accessible to customers who might not be able to afford or accommodate a one-off purchase.
Because you’re engaging with your subscribers on a regular basis, you’ll have multiple opportunities to understand your customers’ needs, preferences, and behaviors.
In return, this allows you to continue to deliver personalized experiences, products that continue to solve their problems, and the content they want to stay satisfied and loyal.
The data you get from these longer-term relationships can facilitate everything you need to boost not only your word-of-mouth, but your Customer Lifetime Value.
And that’s where the real growth is. It’s so much easier to drive growth by selling to existing customers rather than acquiring new ones. According to Forbes, in SaaS alone it can cost 4-5 times more to acquire new customers than it is to keep your current ones. And businesses have a 60% to 70% chance of selling to a customer they already have, but for a prospect, it’s only 5 – 20%.
3) Flexibility and agility
Then constant feedback you get from your subscription model (through customers, data, behavior, etc.) enables you adjust your offerings when you see shifts or new opportunities in market demand and competition.
When you are agile enough to quickly capitalize on new opportunities and pivot away from what isn’t working (and the sunk costs that go with what isn’t working) you set yourself up for more success.
And this potential can only grow. Whether you aim to reach new markets, brining in extra tiers of service, or bundle products differently, subscription models let you innovate and experiment as customer needs and expectations change.
These benefits aren’t just theoretical. Businesses that are trying subscription models are reaping the rewards. Let’s have a look at a few.
Real Companies Benefiting from the Subscription Model
The subscription model’s success is not limited to a specific industry or business size. Companies across various sectors, from startups to established enterprises, have successfully adopted the subscription model and experienced transformative growth:
- Adobe: Adobe’s move from software packages to a cloud-based subscription service radically transformed who they were. Now subscriptions make up over 90% of their revenue. In the last three years alone, their subscription revenue has grown from $11 billion in 2020 to $18 billion in 2023.
- Dollar Shave Club: By bravely going up against Gillette by offering a subscription-based razor delivery service, Dollar Shave Club seriously disrupted the grooming industry. It made $4 million in revenue in the first year and in 4 years, grew to $240 million before they sold to Unilever for $1 billion in cash in 2016.
- Porsche: Porche started a subscription model a few years ago and it’s exploded in popularity. They give subscribers the thrill of driving multiple Porsches without the long-term expense or commitment. They’ve exploded their customer base- now 80% of their subscribers were totally new to the brand.
These examples show that subscriptions can be a profitable model, even in industries where subscriptions aren’t normal. And subscriptions can be about service, not just products. In other words, you can offer subscription maintenance and add-ons for your base products.
Of course, bringing in a subscription model can be a big undertaking. And the success of your subscription model depends on your industry and how much you can offer.
How to shape your models
You can boost your chances of success by ensuring that your subscriptions have these factors:
- Value Proposition – Your subscription has to offer clear benefits that should either meet customer expectations or exceed them. This could be anything, from exclusive access, to convenience, cheaper price, personalised products or service, or a bundle offering they can’t get anywhere else. The key is uniqueness, and now that meets your target market’s needs.
- Flexibility – Customers want options, and they want to be able to change their subscription to meet evolving needs without penalty. And that’s not just the offering. It can be terms, products, price, add-ons, usage, etc. You can offer different tiers of service, and the ability to pause subscriptions too.
- Quality and Consistency – To keep customers coming back for more, both your offering and service need to be consistent. Subscribers want reliability and any decline is going to make them look at what other options are offered by your competition.
- Customer Experience and Support – You can’t have a good subscription model without great customer service. They should have easy access to your company, quick resolution of any problems, and proactive and open communication. Some customers like self-service too, so user-friendly websites and apps help.
- Invest in Technology for Subscription Management – This is really important because there’s a lot to subscription management. One of the biggest mistake companies make is frankensteining all their management processes including multiple apps, programs, and manual processes, to try and keep up.
This always backfires because as the business scales, there comes a point where current processes aren’t tenable anymore. But that point always comes after a lot of damage to revenue, compliance, and customer satisfaction has already been done. A subscription model needs a streamlined, integrated, automated platform. A reliable system for managing subscriptions, billing, and customer communication.
That’s why we’ve put together an end-to-end solution that automates the subscription process for you.
The subscription model presents an amazing opportunity for your business to bring in regular revenue, drive growth, and secure a long-term relationship with your customers.
While the transition will need to involve careful planning and the right tools, the potential benefits make it a worthwhile consideration for any long-term forward-thinking business.
Let’s chat further.
"*" indicates required fields
