The subscription business model is one of the best business models for startups.
It is a business model that very few people know about. And most of those that know are yet to put it in place as a business strategy.
Most Saas businesses today monetize their platform using the advertising model.
They allow users to use the platform for free and then filled the site with ads.
So, the website or app looks clumsy and distracted. News websites are guilty of this.
An example of businesses that use this subscription business model is WhatsApp
Founders of WhatsApp, Jan Koum and Brian Acton, built WhatsApp with a user charge of $1 per year.
$1 per year may mean nothing to you, as it seems like small money.
But the compound effect from over 500 million users will marvel at you.
In this article, you will learn:
- What is the subscription business model?
- Why you need this model to generate better revenue,
- How to apply this model, no matter your business industry?
What Is A Subscription Business Model?
The subscription business model is a model where a consumer pay monthly or yearly fee to access a product or service.
This model started far back in the 1500s when there were many undiscovered lands.
Then, the Europeans would ask people to pay for the future editions of their maps.
Soon, the newspaper publishing industry adopted this method in the early 1700s.
They also would ask readers to subscribe to monthly editions of their magazines.
A well-known pioneer in subscription-based news is Wall Street. T hey asked users to pay for their best content.
Within 18 months, they had records of 200,000 paying customers.
The Financial Times followed by introducing a “metered model” paywall.
Ever since, lots of companies have embraced the subscription business model.
Advantages Of The Subscription Business Model
1. Recurring Revenue and More Profit
The subscription business model allows you to build recurring revenue.
This way, you generate sales without having to sell to customers every month.
For example, in my web design service, I charge a onetime fee to design a client’s website.
Also, I collect a monthly subscription fee for the website’s ongoing maintenance.
This is the most obvious benefits of the subscription business model.
2. Saves Time and Energy
At the time Facebook gained WhatsApp, it (WhatsApp) only had 55 employees.
Operating on the membership business model saves you the headache of managing employees.
Also, saves your time in drafting out new contract deals always. You only need to renew the existing one.
For the subscribers, it takes away the repetitive task of buying the same products over and over.
3. Sustainability and Easy to Sell
Investors appreciate businesses with future promising profits, not depending on the owner.
With this model, you can run your eCommerce business without your presence.
You are the owner, yet it doesn’t depend on you – making it easy to sell whenever you choose to.
In this century, we grade companies by their recurring revenues.
4. Remove Guesswork By Charging Upfront
If you sell physical products, one major issue you will have is regulating demands.
If you stock low, you lose out of sales because of high customer demand.
And if you stock high, you end up with products all over with no one to buy.
So, the subscription business model is the best way to avoid this.
Because you can tell the demands ahead based on the number of your existing subscribers.
Also, charging for a subscription means you have more cash upfront to work with.
5. Withstand Competition
Most small businesses today are closing because of fierce competition from big companies.
One reason is that they operate on the capital gain (onetime sale) and not cash flow (recurrent sales).
The subscription business model can make you the David over Goliath.
When customers pay for your subscription, they want to use their money worth to the last dime.
You see this when you pay for Netflix monthly; you want to watch all movies and even invite your friends.
So, they engage more with your business, which brings you more customers.
Types Of Business That Can Use The Subscription Model
Charge a onetime fee for installations and monthly monitoring revenue.
Doctors can offer patients the subscription model for a regular checkup.
Also, pharmacists can send drugs and supplements to their patients at time intervals.
Homes and Gardens:
You can help subscribers clean their homes a certain number of times per month for a fee.
Business owners can pay for yearly for the maintenance of their eCommerce website.
Sell subscription to hotels and offices, offering them the delivery of fresh-cut flowers.
A therapist charging a monthly fee for a four times therapeutic meeting with client.
Subscription Business Model Examples
Amazon started out selling books, but today sells almost everything.
As of the time of writing this, Amazon subscribers pay $99 for Amazon Prime.
So, they enjoy the full year of streaming movies and also free shipping on some products.
And recent report shows that Amazon makes more from Prime in a year than any other.
The world’s most successful technology company found a new way to get customers for its business.
This happened when they shift their business model to focus on subscription.
It was in 2011 when Apple launched a project called Joint Ventures.
With Joint Ventures, Apple will help a business owner get up and start running for an annual fee.
They will set up your computer and train your team to use the new products.
Also, the Apple One to One is another subscription business model.
With this, they help customers repair and service Apple’s products for $99 per year.
Microsoft also has gotten its share of the subscription economy.
They launched today the most successful software program in history, Microsoft 365.
They want you to engage more with their products while you pay once.
What Are Factors Affecting The Subscription Business Model?
While there are many factors influencing this model, I will mention these three as top influences.
The Buyers’ Markets
Today’s buyers prefer to rent. They prefer access over control. They believe in eCommerce than their ancestors. These gave room to welcome these business models.
Access to Data.
It is easy for you to get customers’ data based on a repeated purchase than a one-time sale.
A user who keeps subscribing to a particular service shows deep interest in that category. So, business owners prefer this.
Most small businesses can only afford to pay for a small space. This forces them to display only certain products they feel customers will buy.
With your eCommerce website, you can display as many products as you have without restriction.
As you know, eCommerce works perfectly with the subscription model.
FAQs On Subscription Business Model
How does a subscription business model work?
Subscription business model work on the idea of selling to receive recurring revenue.
It allows a single customer to pay monthly or yearly.
Are subscription models profitable?
The subscription model attracts you with a bigger revenue.
Also, the continual use of your products or services earns your customers’ loyalty.
What are the pros of this model?
- Saves Time and Energy
- Recurring Revenue and More Profit
- Sustainability and Easy to Sell
How do I start a subscription model business?
- Begin with an idea
- Hire an eCommerce specialist
- Apply the subscription model strategy
- Decide on your price
- Launch your website
- Promote your business
- Start receiving orders.
As Amazon, Apple, Microsoft, and many others have embraced this model.
The subscription business model is worth applying in your business. It boost your monthly revenue.