Latest posts by PJ Taei
- 4 Powerful Reasons Why You Should Offer a Subscription Service - September 4, 2019
Building and running a successful business is tough. You’ve got to have a solid strategy, an amazing offering and a strong team to help you hit the market hard. And while advancements in tech and marketing tools have been made, they’ve also created a more competitive landscape in almost every industry. The same advancements have also lowered the barriers to market entry for smaller players.
This all makes for more competition. And in order for your business to achieve and maintain a strong competitive advantage, you have to constantly innovate.
Savvy businesses have evolved. They’ve caught on to the need to produce the kinds of products and services that offer more customized fits to their customers, but are also lucrative.
These smart brands are turning to subscription services.
Subscriptions services are what today’s customers want, from software-as-as-service (SaaS) solutions to favorite monthly cosmetic boxes delivered to your doorstep.
In fact, research by McKinsey shows that subscription services are in demand. More people are opting for these various services than ever before.
What is a subscription service?
Subscription business models are centered around selling a product or service to customers at a fixed price and a regular frequency. Subscriptions can be monthly, quarterly or annual. The model allows customers access to products or services for as long as they pay the subscription fee. In some cases, customers also enjoy extra discounts for being subscribers.
Today, businesses have hacked their way into niche markets creating opportunities to service almost every kind of customer segment you can imagine through subscription services. Subscription services offer businesses the chance to grow. Benefits range from more predictable revenue streams to stronger customer-product fit.
If you’re looking for a way to strengthen your startup’s bottom line, here are six reasons why you should consider launching a subscription service.
Why customers love subscription services
Demand is growing
Basic research shows that the demand for subscription services is growing.
A look at Google Trends shows that consumer searches for terms “subscription box,” “subscription clothing,” and “subscription meals” have increased dramatically over the last few years.
But that’s not all.
Subscription businesses are being launched to address demand from consumers. According to Hitwise, the UK has seen strong and steady growth among subscription businesses, proving that it is possible for aspiring entrepreneurs to service this growing market.
No long-term commitment
Increasing competition always makes for challenging markets. And in the subscription service market, competition has led to the introduction of smart onboarding tactics by smart marketers.
Innovative marketers have growth hacked their customer acquisition models. They know that they have great products that have a long customer lifetime value (LTV) and therefore can afford to make their services more appealing by limiting the barriers to commitment for consumers.
One tactic that’s used regularly is the “no contract” option.
This kind of financial freedom is perfect for millennial consumers who want flexibility, variety and the option to cancel if they find a better offer, or decide to stop using the service, all without creating financial strain.
Easy, one-time engagement and convenience
Subscription services are typically set-and-forget purchases. When customers sign up, they create accounts and receive their subscription like clockwork.
One engagement (account sign-up) saves consumers from the typical buying process, which must be repeated.
For example, as a consumer, you could choose to have your meal subscription delivered to your home every few days. This level of convenience saves you from driving to your closest grocery store, searching for what you need, standing in line to pay, then making your way home again to cook.
You’re creating convenience for your customer, and that’s a no brainer for both sides.
Why your business should offer a subscription service
Subscription services allow you to scale your business and grow revenue steadily. Due to the low barrier of entry for customers, brands are able to acquire a growing segment of customers who are comfortable with paying a monthly fee.
A great example of a highly successful subscription site is FitFabFun. At $49.99 per month, customers receive a box of full-sized products, and the value customers experience has seen the brand grow as much as 300 percent a year.
Longer lifetime value
As brands become more competitive and the costs of advertising rise, both factors inevitably influence the rate at which any brand is able to grow.
The fact is, the business that can spend the most money to acquire a customer wins the race. And while there is more to the intricacies of ad spend, marketing and sales funnels, one of the most important metrics businesses must pay attention to is customer lifetime value (LTV).
As the total value of money you will make off a customer, LTV becomes increasingly crucial for subscription services. The longer a customer subscribes, the more money you make. This means that the cost of acquiring a customer for a high premium could easily be offset in the revenue they provide every month thereafter, with the right margins and product or service offering.
Deeper customer insight and better products
By collecting customer preferences, you can design, develop and test new products that your customers really want, and you can do so faster.
Using marketing, analytics and surveys, among other tools and tactics, brands are able to gather the kind of information they need to perfect their offerings.
Stronger customer relationships and loyalty
Subscription services also create the opportunity to develop stronger relationships with customers. By nature, subscriptions have built-in regular interactions between your brand and your customers. Multiple touch points are an opportunity for you to create the perfect brand experience that reinforces your value proposition, another factor that contributes to increasing LTV.
Startups looking for new ways to strengthen their bottom line should consider creating a subscription service. They are attractive to consumers who want to experience new products and services at a great deal.
To your own benefit, businesses looking for a strong and steady revenue stream, subscriptions allow for regular billing and extended customer LTV. Subscription services also offer businesses the chance to build more attractive and valuable products and services due to the insights gained from regular customer contact, making brands more competitive.