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Pros and Cons of Setting Up An Online Subscription Business

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What is the online subscription model, and how can it work for your business? Let’s find out.

In this business blog, you’ll discover what a subscription model is and how it works and look at some successful examples of websites that use it.

The Online Subscription Model

HubSpot is a trustworthy source of information, and in this blog post, they say the subscription model is successful because it meets the needs of customers and businesses.

Businesses no longer need to try to sell their service for a one-time fee, which is a more challenging and longer sell, as customers can pay for it on a subscription, which incurs a recurring fee that is either weekly, monthly or yearly.

From your purchasing activity with movie and TV content streaming subscription services, such as Netflix, Disney, HBO, etc., you’ll know that as a consumer, paying a small fee every month is manageable. Plus, doing so allows you to sign up for any subscription services.

The recurring revenue model is a win-win for the provider and the user. Businesses also prefer to use the subscription model for the services, spreading the payments to better manage their cash flow.

For example, SaaS (software as a service) is usually provided by subscription. Finding commercial services not offered via a subscription model is now more challenging.

Services will be provided on a recurring fee model everywhere within your company, from accounting to marketing and security.

Did you know the earliest sign of a subscription model was in the 1600s? Magazines and newsletters still use it today, and many other industries besides technology and TV streaming, including:

  • Subscription boxes – meal delivery kits, food, clothes, pet products, makeup, and more
  • Memberships – Gyms, sports, clubs, associations, websites
  • Home – lawn and home maintenance, cleaning services, storage
  • Vehicles – use, servicing, insurance

Examples

Who is doing well in the subscription business? In the USA, the top companies have the most subscribers. The top operators in the USA include:

  • 1. Amazon Prime – more than 50% of the population are users
  • 2. Chewy – 7% of the population
  • 3. Walmart – 4%
  • 4. Dollar Shave Club – 3%

Dollar Share Club was sold to Unilever in 2016 for $1 billion. Using D2C (direct-to-consumer) to cut out the middlemen, DSC was a consumer winner, and it wasn’t long before the business snowballed. Three days after an amateur video went viral, Dollar Shave Club had 12,000 subscribers. A few years later, millions of subscribers became loyal customers of the business.

Websites also do well with subscription revenue. Blogger Neil Patel set up UberSuggest as a handsome recurring revenue stream, and there are opportunities for websites to do it, too. There are a few things you need to do and emphasize in your marketing to attract an audience and subscribers, including:

  • Be flexible on pricing
  • Know your USPs (unique selling points)
  • KISS (Keep it simple, stupid)
  • Create a loyal customer base

Communicate with your customers using videos, social media, emails, blog posts, and podcasts. Retaining customers is your top priority, and by doing so, the value of the LCB (loyal customer base) far exceeds the cost of customer acquisition.

Pros and Cons

So, what are the benefits of a subscription service?

Recurring revenue

The predictability of revenue sources has to be the top benefit and attraction of operating a subscription service.

Single focus

You can sell just one service or product and do it exceptionally well. There is no need to diversify if you provide what customers want and need.

Reward loyalty

Spending more time on how you can look after loyal customers with discounts, rewards, and lower prices is a win-win and satisfying. Your business can enjoy customer communication and get valuable feedback on improving the service.

Easier to acquire customers

When the price is $30 a month, selling is more manageable than asking for $900 in a one-off payment. Yet you only need 30 customers to get $900 a month.

The subscription model has a low price and high volume. To continue customer acquisition marketing, you will need to reach a large audience using strategies that can attract many viewers.

For example, Micheal Dubin created the Dollar Share Club and starred in its first commercial advert – a viral YouTube video; the rest is history.

DollarShaveClub

Michael Dubin – YouTube

Cons

There are always challenges to running a business, and the subscription model has a few worth planning to overcome, including:

  • Loss of interest in product or service
  • High customer churn rate
  • One product or service vulnerability

Summing Up

The subscription model works well when you have a product or service that is easy to sell—i.e., the customer doesn’t need to think too long and hard before signing up.

Invest extensively in marketing strategies, including sales videos and platforms, to reach your target audience.

Creating and retaining a loyal customer base is vital for this business model due to the low price and high churn rate.

HubSpot