A company lives only by its customers. Among the many battles that businesses face daily, is the battle for customer loyalty. How can companies take occasional consumers of a service or product and migrate them to an everyday consumer?
In today’s post, we talk about an increasingly adopted economic model, the Subscription-Based Business Model.
Netflix, Spotify, and HBO are just some of the companies that have chosen subscription software management, and they are revolutionizing their sectors.
Why Use The Subscription Model?
A company that invests in a subscription-based business model has better planning on recurring revenue. Thus, it knows which structure needs to be maintained to meet its current client base. Also, by having information about its customers and market, it is easier to expand the business to other segments and demographics.
Subscription-based businesses have multiple advantages: The ability to secure revenue, simplify sales processes and customer retention and management.
How Does it Work?
Subscription is not something new, it is a business model that has always existed, and an excellent example of this is the newspaper business. However, lately, it is having significant growth in the digital world and also in B2B.
The subscription model consists of repeatedly selling products, services, or content to a portfolio of consumers in exchange for the payment of periodic fees. It allows you to generate regular income by automatically building customer loyalty.
The company can focus on the product or service and on canvassing to increase its loyal subscribers.
From the consumers’ point of view, they pay to receive an offer on a regular or periodic basis and don’t have to worry about it every month. They get to enjoy the service without the action of making a payment since its automatic.
If you’re considering new product lines or revenue streams, we recommend that you consider using this business model when designing your project, as it may be interesting and extremely valuable for your company.
Below we tell you the top five reasons why you need to adopt a Subscription-Based Business Model.
Generate Consistent Revenue
One of the difficulties in running the business of a company is to successfully anticipate demand, produce, and dispose of resources accordingly. In traditional models, when the forecasts are too high, storage costs and sometimes depreciation reduce the results.
Conversely, if the forecasts are too low, there is a risk of loss of sales and sometimes even loss of disappointed customers. The subscription business model allows you to forecast needs and plan your activity with precision. The company can say, “next month, I will have 2,000 people to pay a $10 subscription,” which gives them financial security and planning to fulfill.
Another critical aspect of the recurring model is the cost of acquiring consumers. If you do not manage it correctly, a substantial increase in the price of acquiring clients can lead to bankruptcy.
Create Long-Term Relationships
The most critical point of any subscription-based business is consumer retention, which is why it is essential to work on a competitive and sustainable advantage over time. This is only obtained by analyzing and understanding your customers’ behavior, needs, and purchasing habits. This should be driven by a service culture that is wholly focused on meeting the needs of your customers along with a needed product. Today’s consumer needs convenience with their product or service. That is why subscription based businesses have taken off.
The monthly recurring billing in a subscription business model creates a barrier to the exit of consumers. All subscribers are loyal customers gathered in the same “subscription” aspect. This unites many people around the same offer, which develops the feeling of belonging to a group, facilitates and encourages loyalty.
Opportunities for Upselling and Cross-Selling
The subscription model allows you to get more value from your clients since you can use upselling and cross-selling techniques to offer improvements in the service. You can also sell them additional products that are related to those of their subscription. This translates into a lower cancellation rate, maintaining the principal axes of generating recurring income.
To make you understand it better, imagine that you offer a monthly subscription of perfumes. If you suddenly take out a limited edition of perfume, you can offer it to your customers to buy. Or if at any given time you release a new fragrance, you can also let them know.
The good thing is that there are many opportunities for you to get extra value from your customers throughout their lifetime value.
Simplicity in the Sales Process
In subscription businesses, customers do not have to make repeated purchases every month, quarter, or year. This considerably favors business productivity, as it reduces the time and effort to generate new transactions. Of course, you also have to improve the techniques and aims to increase the value that you deliver to the client throughout its life span.
Subscription payments also limit the risk of non-payment. Historically, and in a local context, subscribers pay in advance, at the start of the period and for a relatively long period, a product or service that they will consume over time. They, therefore, provide the company with a useful and sometimes indispensable “cash facility.” While the business model is simple, you do want to make sure the consumer process to purchase the subscription and manage their account is simple. Make sure you look at recurring billing companies and their ability to create a great mobile and web purchase experience.
Forecast on Your Inventory
This is another great advantage that the subscription model offers. It allows you to calculate the amount of inventory that your business should have every month.
Having a fixed monthly customer portfolio, you have a forecast of the inventory you need be it physical or digital. This reduces your business’ economic risk since you will not have to invest more than the account.
Think about it: if you know how many customers you have each month, this will help you avoid having a lack or excess of stock.
Finally, when opting into a subscription-based business model, ensure that your potential customers see value in the product or service that you are going to offer. If you provide a valueless product, nobody will subscribe, and without subscribes, your company will not generate any income. Are you ready to embrace the subscription model? Then Rebar Technology is the place to go to. They will sort all your subscription Software Services, set you up, and manage any integrations so your business continues to run without any hiccups.
What did you think of the article? You can tell us in the comments and help us know your thoughts on this economic model.
Interesting related article: “What is the Bottom Line?“