The subscription economy is booming, having grown by 200% annually since 2011. Customer shopping habits are changing, and with the evolution of technology, it’s far more convenient for consumers to pay a subscription for a product or service they use regularly.
A subscription product is delivered directly to a consumer’s home, for example a box packed full of samples of the latest beauty products to test out before committing to the full-size package. Receiving the beauty samples through the post is much more convenient than physically collecting them from various beauty counters at department stores or traipsing around the shops.
Alternatively, a subscription business model could be a service that is streamed via the internet directly to a customer’s TV, laptop or smartphone. For example, the hugely successful movie and boxset streaming company Netflix eliminates the hassle of physically going to a DVD rental shop to hire a limited number of movies for a restricted number of days.
And not only are subscriptions convenient for consumers, this kind of model is also excellent for business success. Subscriptions enable a business to know how many customers it will have every month, so revenue can be predicted and cash flow forecasted. This also allows a company to precisely anticipate product volumes required, keeping the supply chain lean and efficient and avoiding wastage, and over- or under-stocking.
Whether you’re brimming with subscription business ideas or if you have one vision that you’re ready to realise, read on to find out more about building your successful subscription business model.
- Tip 1: Perfect Your Product
- Tip 2: Make Sure You Do Your Market Research
- Tip 3: Pricing for Business Success
- Tip 4: Tried and Tested Promotional Tactics
- Tip 5: Offer Suitable Payment Options
- Tip 6: Focus on Exceptional Customer Service
- Tip 7: Be Flexible
- Tip 8: Keep Enhancing Subscriber Experience
The subscription business model is not new: the morning paper delivery is a subscription service and the milkman dropping off milk to your doorstep operates on this type of model. Your gym membership also works on a subscription basis.
However, with the advent of technology, combined with more sophisticated marketing and customer service, subscription-based businesses are starting up across a huge range of industries.
Thriving companies have often tapped into a niche or novelty audience that is hugely passionate about the product on offer. The product must be valuable, exciting and relevant. This could be goods that the customer looks forward to receiving every month, quarter or year, or a digital item that they want to access immediately, for example, the ability to binge-watch an entire boxset in one sitting.
If you’re considering subscription business ideas, below are some examples to help inspire you:
Food and drink
Graze – sends healthy and nutritious snacks in a box either twice weekly, weekly or fortnightly.
TeaChest – regular delivery of interesting teas from around the world for lovers of the hot beverage.
Gousto – everything you need to cook a delicious meal, including perfectly measured fresh ingredients and a recipe card delivered in insulated packaging that keeps everything cool.
Pasta Evangelists – Big pasta lover? This company home delivers artisan pasta kits of pasta, garnishes and sauces that use Italian produce.
Vinyl Me, Please – sends unusual, limited edition or unique music records to vinyl aficionados.
Spotify – access millions of songs with this digital music service. The premium monthly subscription removes adverts and gives users additional features.
Bark Box – a monthly box full of treats and toys for your dog.
Makerly – a craft kit every month for artsy people who love to create.
Naty – eco nappies in the size you require delivered to your home at the frequency you select.
Harry’s Razors – regular delivery of razor blades and shaving foam, depending on shave frequency.
Clothes and accessories
Watch Gang – a monthly watch delivery, for those who adore their timepieces.
Sock Geeks – enjoy a fresh pair of hand-selected and personalised socks each month.
Undie Tribe – men’s underwear arrives regularly through the letterbox.
Make up and beauty
Glossybox – beautifully packaged boxes full of five beauty products sent every month.
Sniph – obsessed with perfume? This subscription sends new scents to try out every 30 days.
As you can see, there are numerous ways for a keen entrepreneur to tap into the subscription business model. Other ideas include products that cater to the ageing population, that simplify events that occur frequently, such as haircuts, or tap into niche hobbies including woodwork.
Once you have an idea of the kind of product you want to offer it’s then critical to focus on marketing to ensure you have an avid audience.
Research at the early stages will enable you to create the most compelling product or service offer, price it correctly and promote it effectively. It will also allow you to not only win customers but keep hold of them for the long term, rather than suffer a high ‘churn’ rate.
Analysis should include:
1. Research into the ‘problem’ that your product and subscription business will solve. Talk to potential customers, search through relevant online forums and communities to see what kind of questions or issues your target audience is having or talking about. You can also look at what search terms are being typed into Google for your category.
2. Scrutinise the competition. You might think that there’s no competition in the area you’re planning to enter, however customers are getting their product or service from somewhere, even if it’s not a subscription-based business. Identify your competition and then deep dive into their branding, offering, pricing and customer service.
3. Pinpoint your unique selling points. Once you’ve identified your competition, explore how your subscription business will be noticeable against them. What will you offer that will lure customers away or stand out from the crowd.
4. Know your customer inside out. In order to provide a compelling offer for your target audience, you need to understand as much as possible about them. Evaluate their habits, challenges, pain points, goals and leisure pursuits. Have a full awareness of how, when and where they might consume your product.
Your market might be competitive, however if your offer is unique, valuable, more affordable or offers more agile delivery or account options then you can entice dissatisfied customers away from competitors.
The trick with a subscription business model is to offer pricing options. The days of one-price-fits-all are over. Customers want different levels of service depending on their personal needs and usage requirements.
Many subscription businesses offer two or three tiers of pricing. This helps to attract new customers at the lowest tier (which could be free) and encourages them to ‘level up’ rather than repelling customers in the first instance with an unaffordable fee.
Options can also include the frequency of payments. Most subscription businesses offer a monthly payment, and then offer discounts for those who want to pay quarterly or a one-off annual fee.
Pricing strategy can also be tiered according to features of a service, customised by usage levels, cheaper for different times of day or even discounted to reward loyal users.
Getting your pricing strategy right initially will help attract loyal customers and avoid a high churn rate. Prices can be adjusted later on if they’re too low or too high. However, ensure you’re charging enough to cover all your overheads and supply chain costs. A cheap, basic tier might entice customers but is ineffective if it isn’t covering your operating costs.
Many subscription businesses offer a free trial to hook in customers. This is a tried and tested method that shouldn’t be ignored. A free box delivered to a customer’s door is exciting and novel and can drive long-lasting customers and enthusiastic fans of your product.
Another promotional approach is to offer a limited edition or money-can’t-buy gift when people first sign up. This prompt encourages those who are undecided to give the subscription a chance because they want the free gift.
In addition to the free trial and sign-up gift, promoting your business to the right target audience should include a mix of tactics, such as advertising, social media, public relations, direct mail, mobile apps or celebrity ambassadors.
With your detailed audience research (see Tip 2) you should know what media your audience consumes or where they like to ‘hang out’. Testing different promotional options will identify the most successful approach.
Many customers using subscriptions do so for the convenience of receiving goods directly to their door or streamed instantly to their devices. Many are looking for convenient payment options that can be automated, set up once and then forgotten about.
This is why the majority of subscription businesses operate Direct Debit as a payment method. Customers can set up a Direct Debit when they first apply and every month a set amount is taken from their bank account to cover the fee.
For those customers who don’t want to use Direct Debit, there are other payment options you can offer. These include taking credit card payments online or over the phone, or even sending out invoices with payment terms agreed, such as 30 days.
Direct Debit is convenient for your customers and straightforward for you to manage. Taking monthly credit card payments or chasing up invoices can generate time-consuming financial admin.
The difference with many subscription-based models is that they’re very in-tune with their customers. They want to serve their customers well, offer a valuable, quality product and provide a customised and friendly service.
Customer service should be impeccable from the start. Subscription businesses often feel more human than the huge corporate entities that customers have previously been buying their products from. There’s a more personal feeling when a customer unwraps a box at home full of their favourite items, and this open and enjoyable dialogue should continue when customers need to contact customer service.
It often costs more to acquire new customers than it does to retain existing customers, so an efficient, personable and positive customer service is a must. This will help reduce churn, extend the retention rate of customers, and turn customers into advocates who recommend your brand to others.
Your aim is to please your customers. Being flexible will extend the lifetime of your client relationships. You can offer various options for pricing, payment methods, contractual agreements and account preferences.
If your customer is going on holiday for a month and wants to ‘pause’ their subscription then this should be an option. Or if a customer hasn’t used all of the products from the last few boxes and wants to put their subscription on hold for a few months, then this can be an option.
Perhaps you offer beauty samples and one customer is allergic to a specific ingredient, then you can swap samples to ensure they don’t receive any that might cause a reaction. Or if you’re sending socks each month and a customer isn’t keen on red, then you can personalise their product to avoid that colour.
As noted above, acquiring new customers takes more effort and expense than keeping existing customers. If you can inspire loyalty by being flexible with your service then you’re more likely to keep hold of valuable customers.
Customers are flocking to subscription-based businesses because they enjoy the experience of unboxing new products on a regular basis, or because they can access digital content immediately and at a time that suits them.
The subscriber experience should be a priority to keep customers happy, excited, and feeling valued. Send out a surprise free gift every now and then, offer a discount to upgrade to the next pricing tier, partner with a complementary brand, set up physical meet ups or send a music playlist to listen to whilst using the products.
Continually seeking out ways to offer more value or entertainment to your customers will ensure their experience with your business never goes stale.
The subscriber experience also includes pricing tiers, payment options, customer service etc. The entire ecosystem of your brand should be an enjoyable, hospitable and friendly experience for your customer.
Build A Successful Subscription Model Today
Whether you’re bursting with subscription business ideas or are at the early planning stages, remember these eight tips for success:
- Perfect Your Product
- Make Sure You Do Your Market Research
- Pricing for Business Success
- Tried and Tested Promotional Tactics
- Offer Suitable Payment Options
- Focus on Exceptional Customer Service
- Be Flexible
- Keep Enhancing Subscriber Experience
The subscriber economy is here to stay, so take advantage today.