Starting a subscription business: should your customers be subscribers?

More and more products and services are being sold via subscriptions (think Blue Apron, BarkBox, Dollar Shave Club, Stitch Fix). It’s a booming trend. Subscription-based companies are growing at a rate of 18.2 percent—about five times faster than S&P 500 revenues or U.S. retail sales.¹

There are various types of subscription services. Replenishment subscriptions keep you stocked up on things you buy regularly. Inspirational/discovery subscriptions surprise you each month with products you might not otherwise try.

Products sold as a service, like software-as-a-service, offer a way to pay monthly for products that traditionally require an upfront capital outlay.

Of course, the subscription service business model has been around for a long time in the form of club memberships (remember those record clubs like Columbia House?) and subscriptions to newspapers and magazines. Even professional services that are paid for on retainer can be thought of as a sort of subscription.

But user-friendly ecommerce selling platforms make starting a subscription business it easier than ever. And there are lots of reasons for a business — especially a small business — to sell this way.

Predictability
Perhaps the most obvious advantage of becoming a subscription company is predictability. When you know how many subscribers you have, you benefit from predictable monthly revenue and a predictable workload. Your inventory needs are predictable, too.

Customer value
It’s not easy to acquire new customers. You work pretty hard for them. Every new customer represents an investment of time, money and effort. There’s more opportunity for return on that investment with repeat customers — and subscription customers are, by definition, repeat customers. In other words, you’re likely to see higher customer value for subscription shoppers.

Upsell
Subscriptions don’t have to be a one-size-fits-all product. You can offer multiple tiers for varying budgets. Get a shopper hooked on a modest tier, and there’s opportunity to upsell them to a higher tier down the road.

Automation
You can automate processes like recurring payments and email communications to make your subscription company run like a well-oiled machine.

Loyalty
Subscriptions require repeat contact with your customers, which gives you the opportunity to build relationships with them and nurture customer loyalty.

The groove
You can refine your processes and get into a groove of selling and fulfilling subscriptions. It can become almost a turn-key operation.

Intel
With your customers’ permission, you can collect a lot of useful data, especially if you customize your offerings. For a personalized experience, people may be willing to share more data about themselves than they would otherwise, so you can get information way beyond demographics.

You’ll want to spend some time designing your subscription offering. We mentioned selling different tiers for various budgets. What would that look like for your product? What would the customer get with each tier, and for what price?

Personalization isn’t absolutely necessary, but it can be an important benefit to offer your customers. What aspects of your subscription can you personalize? And how will you collect the data you’ll need to do a good job of matching the product with the customer? Just bear in mind that with personalization, it’s a good idea to start simple.

Consider offering free trials. If you can hook a customer with a one-month free trail of your subscription service, make sure you wow them so they’ll sign up for a paid subscription.

Once you’ve developed your subscription offering, choose your ecommerce platform. There are several that are designed for selling subscriptions. Make sure the one you choose offers these three things:

1. Automatic billing for recurring payments
2. Advanced forms that allow your customers to state preferences
3. A mechanism for you to easily offer free trials

Transitioning to a subscription service business model is not without challenges. One thing to be prepared for is the demand for customer service. The more touchpoints you have with a customer, the greater the incidence of needing customer service. So make sure you’re ready for that.

We mentioned getting into a groove as a benefit of selling as a subscription. But it can also be a hazard if it makes you complacent. Never lose your focus on acquiring new customers.

If you’re selling a discovery type of subscription where you surprise your customers each month, you should know that customer curiosity is cyclical. It will wax and wane, so you should have non-subscription products to offer, too.

And what if someone absolutely loves one of the products you surprise them with? Consider making some of your subscription items available to purchase outside of the subscription model.

How could you start a subscription business? Seriously consider it. You just might find success with it.

¹https://multichannelmerchant.com/blog/2020-year-subscription-service-growth-iteration/#:~:text=In%20the%20latest%20SEI%2C%20we,companies%20are%20turning%20to%20subscriptions.