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Pros and Cons of Setting Up An Online Subscription Business

subscription model

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 it is and how it works and look at some successful examples of websites that use the subscription model.

The Online Subscription Model

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

Businesses no longer need to try and 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.

You’ll know from your purchasing activity with the likes of movie and TV content streaming subscription services, e.g., Netflix, Disney, HBO, etc., 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. It’s now harder to find commercial services which are not offered via a subscription model.

Everywhere within your company, from accounting to marketing and security, there will be services provided on a recurring fee model.

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 businesses 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 the D2C (direct to consumer) to cut out the middlemen DSC was a winner with consumers, and it wasn’t long before the business snowballed. An amateur video went viral three days later the Dollar Shave Club had 12,000 subscribers. A few years later and 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:

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  • 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 where your revenue is coming from 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 extremely well. There is no need to diversify if what you’re providing is 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 is an easier sell than asking for $900 in a one-off payment. Yet you only need 30 customers to get $900 a month.

The subscription model is low price and high volume. You will need to reach a large audience to continue customer acquisition marketing using strategies that can pull in large numbers of viewers.

For example, Micheal Dubin created the Dollar Share Club and starred in its first commercial advert – a Youtube video that went viral, and 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 an easy sell – i.e., the customer doesn’t need to think too long and hard before signing up.

Invest a lot 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.

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