Everything starts with the question ‘why?’ especially when we encounter a new concept in business. It makes us wonder and start to do research regarding the value or relevance of something.
It also helps us determine whether it is worth considering. Today we will explore why you should start a subscription business along with the benefits that it offer.
To give a brief summary, this type of business gives online shoppers a convenient, personalized, and lower-cost way to buy what they want and need on a recurring basis. This is while offering companies a predictable monthly recurring revenue or MRR.
Here’s a more detailed explanation on the benefits of a subscription business:
Acquiring customers cost less
Since your business is subscription-based, you do not have to spend a lot to draw in new customers because your customers will pay you regularly. That is what will keep you going.
Removing the need to increasing customer acquisition costs helps avoid the chance of failing. Take note that when acquiring a new customer; you are likely to spend 5–10 times compared to retaining an existing customer.
Unlike brands with pay-pre-product pricing models, you do not have to invest much in marketing and sales just to increase your revenue.
Predictability of revenue
When you are in the subscription business, you already know the amount of cash that will come in monthly. This helps a lot in terms of planning your inventory and creating sales forecasts. This also makes it easier to determine how much you can reinvest into developing your business.
More Money on hand
Customers of subscription businesses often pay in full and upfront when given a discounted price. This gives the business a great cash flow and provide startups with security that they will have revenue.
Inspires Loyal and Repeat Customers
The recurring purchase setup on subscription businesses gives owners a deeper understanding and insights into their customers’ behavior.
This paves the way for the continuous growth and improvement of the business when it comes to giving personalized experience, which in turn encourages customers to return.
Subscription businesses that create extremely loyal, repeat customers benefit a lot because repeat customers spend up to 70% more than new customers do.
There are three common types of subscription models to choose from; the curation, replenishment, and access business models. They all have advantages and disadvantages, so understanding them will know what fits the types of products you are selling, your capacity, and your specific business goals.
Curation business model (subscription boxes)
Subscription box businesses often give surprise and delight to customers through fresh set of items, and highly personalized customer experiences. These businesses are often found in the apparel, beauty, and food categories, though the model is also effective on other types of products and is expanding beyond different industries yearly.
Access business model
The Access Business model offer either lower prices or exclusive perks to subscribers who pay their monthly fee.
Replenishment business model
If you are all about convenience and cutting costs, then this model can be for you. Replenishment subscriptions offer consumers the opportunity to automate the purchase of essential items at a discounted price. Commodity items such as diapers, vitamins, and pet food are good examples for the replenishment model.
Add-on subscription business model
Since you’ve reached this far, we’re giving this one to you as a bonus. This is a hybrid approach that allows adding subscription services to your existing business. More and more companies are shifting toward this revenue model because of its flexibility when exploring the subscription environment without being locked to one revenue model.