Subscriptions: Why and How

With the explosion of “box of the month” plans like Stitch Fix, BirchBox, and Dollar Shave Club, you might be considering how a subscription plan could work for your business.  Adding a subscription-based line of revenue to your business can be a terrific way to increase profit, decrease risk and better connect with your customers.

The benefits of adding a subscription-based revenue stream to your business include:

1. Predictability.  What business owner wouldn’t want a crystal ball to help predict cash flow for the next 6 months, year, or even longer?  The primary appeal for a subscription program is its predictability of revenue.  Not only does this bring stability to the business, but it adds confidence in long-term planning strategies.  It allows the company to plan for investment and ongoing wealth building, rather than businesses without a recurring revenue model that must start each fiscal year at zero.
2. Flexibility.  Subscriptions allow businesses to change their product offerings and focus to better serve their customers.  If customers request change, it is easy to adjust to meet this demand.  Subscription services give your company the ability to make change easily and quickly because there is no need to have inconsistent service due to having to recalculate costs for each change—they are covered in the subscription fee.  This also provides confidence to the customer, as they know that the company can change to meet their needs.  It gives the customer the option to change their objectives on the spot and adjust their plan month over month.
3. Ability to scale. If your business needs or customer base fluctuates, a subscription line of revenue will give you the ability to scale work up or down quickly and easily. Big project coming up?  Need additional revenue?  Ramp up your subscription services to increase cash flow quickly without taking on additional types of customers.  Since the foundation for the subscription remains the same, you do not have to develop a game plan for every new customer you acquire, the game plan is agreed to at the time of signing up for the subscription.  In addition, subscriber-based revenue streams helpdevelop simple pricing structures, which is beneficial for the business and the customer.  A revenue stream with one or two pricing tiers is easier to manage and grow than one with an array of pricing tiers.
4. Strong customer relationships. The subscription model allows for long-term customer retention and commitment.  It gives the business owner the ability to grow a relationship with the customer and cater to their needs as they change.  This builds a substantial level of trust since the customer knows you have their best interest at heart.  Instead of typical business relationships, where the goal is to finish the project, the goal with subscriptions is to accomplish the objective and continue to provide value over time.  It pushes the business owner to be innovative and explore ways to connect with current customers.

If you’re considering a subscription-based line of revenue in your business, there are a couple of key factors you will want to consider:

• Make sure you have a market/service fit before investing in customers. You need to be sure that once your buyers try your product or service, they will love it and want to continue paying you forever.  Until you have the right fit, invest your time and effort into designing a unique offering that solves a problem for your customer base.
• Identify the right metrics. In a traditional company, the most important guide for success is customer acquisition and sales.  In a subscription-based model, the guides are more likely to be member engagement and churn.  How long your members stay is more critical than how many join.
• Invest in building a community of members. Membership is a mindset, and value in memberships is based on relationships.  This has many implications for success, including trust and long-term planning.  The offering needs to be evolving constantly to meet customers’ needs—a static product offering will not work.  Communication with your customers is vital to the success of your subscription offering.  You probably didn’t sign up to be a member of your gym because they had a certain piece of equipment, you probably liked the overall feel, location, and a variety of things the gym had to offer.  Having a catalog of desirable features will strengthen your customer base and keep them happy.
• Care more about your members than your offerings. Remember Blockbuster?  The video-membership giant eventually tanked because their loyal customer based shifted from renting movies to streaming them at home, and Blockbuster failed to listen, adapt and make necessary changes.  Netflix also started as a movie-rental company but quickly adapted to live-streaming and other customer desires, making it a high profitable subscription service.  Change with your customers’ needs and respond to their desires, even if it means letting go of the initial game plan.

At Diffactory, we believe that every business should have some type of recurring revenue, and we are experts at helping businesses grow.  Is your business ready to take on a subscription-based platform?  Contact us today by clicking HERE or giving us a call at 816-287-2010.