A SUBSCRIPTION-BASED REVENUE MODEL IS YOUR TICKET TO INCREASED REVENUES
So many businesses today—especially within the digital goods space—are fueled by subscription-based revenue models. And for good reason: it’s a proven strategy for extracting the greatest amount of value out of your customer relationship (i.e. customer lifetime value).
While it may seem like subscriptions, more generally speaking, have been a growing trend over the years, the entire concept of subscriptions isn’t really new. From newspapers and magazines to gym memberships to health insurance—and practically everything in between—much of how consumers have traditionally transacted has followed a tried-and-true subscription method.
The only difference today is that all of this is now happening online, driven by ecommerce-like experiences. Netflix, Spotify, Amazon Prime, food delivery services, personalized vitamins, cloud-based software, beauty and grooming products, shaving supplies, and the list goes on. There are even a number of instances where subscription-based business models have saved businesses from financial demise.
The truth is, consumers are already used to subscription-based models. So, if you don’t already offer a subscription option, making the decision to offer one shouldn’t be too jarring. In fact, many of your customers will actually appreciate it because, in the long run, it’ll most likely make their lives easier, while giving you the added perk of dependable recurring revenue.
Therefore, if you’re looking to give your bottom line a much needed boost, there’s no better time than now to think about how you can transform your business into a subscription business.
The benefits of running
a subscription business
We’ve hinted at some of the basic benefits of subscription-based revenue models above, but here’s a quick overview to help you understand that true upside of it all, from both the perspective of your business and your customers.
Why subscriptions are good for your business
Generating a steady stream of recurring revenue is, hands down, the biggest and conceivably the most important benefit of building a successful subscription model for your business. But there are two important offshots of this:
- Customer loyalty and
- Driving new customer leads.
This also creates a cyclical effect, especially when you factor in positive word-of-mouth further amplified via social media channels, that encourages other potential customers to take advantage of what your business offers. To that end, eliminating the barriers between your (potential) customers and your products and services, all while creating a seamless end-to-end customer experience, becomes the fuel that drives your subscription business forward.
Why subscriptions are good for your customers
Today’s consumers have high expectations. They want everything on their own terms and, whenever possible, they want complete control over their entire purchase journey. Fortunately, this is one of the biggest advantages of subscription-based business models.
Not only do they provide your customers with a greater level of convenience as well as a better way to manage their own expenses, but they also give them the tools to tailor their purchase journey with your business based on their wants, needs, and expectations. Simple tasks like upgrading, downgrading, pausing, or canceling a subscription—all without any fees or penalties—no longer require the intervention of customer support staff. It can be managed entirely by your customers themselves, all in real-time. This is a huge win for the customer experience and a really easy way to boost long-term customer loyalty.
Again, it’s all about giving your customers the control to manage their journey with your business. Anything you can do to make it simpler and easier for them will give them fewer reasons to look elsewhere—much less to your nearest competitor.
Potential challenges associated with a subscription business
For all the benefits that a subscription-based revenue model can drive for your business, there are a few potential downsides that need to be kept in mind before you get too far along in building your subscription business.
- Invest now, grow revenue later. Changing your business model requires an investment to do so, which typically means you’ll have to temporarily drive up costs to get your subscription business humming before you start to drive exponential revenue growth. In other words, you can’t go into it thinking that your revenue situation will dramatically transform overnight.
There are a lot of factors, both internal (i.e. creating new platforms, investing in new technologies, building new capabilities) and external (i.e. marketing and communications, lead generation, enhanced customer service), that go into overhauling your revenue model. However, the benefit of a subscription-based revenue model is that as it becomes more and more automated over time, a shift towards rapid revenue growth can (and will likely) make good on all upfront implementation costs.
- Churn is an ugly word
No one likes to talk about churn, but it’s nonetheless a reality of any business. When you offer a subscription option, however, there’s no guarantee that customers will stick around for life. Some get on board simply to take advantage of a sign-up discount—and then cancel their subscription before the next payment in the cycle needs to be made—while others will let it cycle on repeat in the background until something causes them to push the breaks. Whatever the case may be, you must expect that customers will come and go. Your priority, then, is to give your customers every reason not to.
As mentioned above, creating a better end-to-end customer experience is a good place to start. Ensuring the consistent quality of your products and services is the cherry on top, so that, should you ever have to raise prices, even if ever so slightly, the benefits of what you offer outweigh the marginal increase in price. But managing churn is often a fine balance. Some customers will stay, while others will go; it’s up to you to build a constant pipeline of new customers to keep your subscription business growing.
- A quick note on privacy
There are more and more regulations being created every day—in the vein of GDPR in Europe—to protect consumers from their data being misused. When you create a subscription business, as with virtually any other online transaction, you ask customers to provide information so that you can, in turn, provide them with a more relevant and personalized service and experience.
But what happens when a customer cancels their subscription? What do you do with their data? There are a number of things you need to be prepared to deal with before you get too far along. Customer privacy is a serious matter. You need to have a plan in place for how you use and eventually eliminate that data, all while ensuring that your strategy adheres to strict local regulations.
Is your business ready to be a subscription business?
The easy answer is yes!
If you run an ecommerce business or operate, in any capacity, in the world of digital goods sales, you’ve got virtually nothing to lose by implementing a subscription-revenue model.
However, talking about the benefits of a subscription business and actually transforming your business into a subscription business are two separate things. Fortunately, we’re here to help make that as smooth and seamless of a transition as possible.
With Nexway Monetize, we will not only help you build a successful subscription program that drives long-term business value, but we’ll also work with you hands-on to ensure that your subscription business creates deeper, more loyal relationships with your customers over time.
There is no better time than now to give your revenues the boost they deserve. Contact us today to learn more.