The subscription-based business model started in the 17th century, pioneered by publishers of books and periodicals. It is now used by many businesses and websites who wish their customers to pay a recurring price at regular intervals to get access to a product, rather than gaining customers once with a one-time or irregular purchases and income.
Subscription based business definition
Subscription based business models are based on the idea of selling a product or service to receive monthly or yearly recurring subscription revenue. Thus, the goal of this business is to retain a customer for a longer period of time, making a profit out of the long-term revenue. Some examples are the subscription service of Hello Fresh, which delivers fresh ready to cook food to your door, and Netflix, which provides users with a variety of movies and series. One of the key elements of subscription-based businesses include monthly memberships that can be cancelled fairly simply if users wish to stop paying to use the service.
Why set up a subscription for your business?
If you want to get started with a subscription-based business, it makes sense to know the difference between them and a non-subscription business. Essentially, subscription businesses do all the purchase and delivery work for you after clicking the subscription button, unlike a non-subscription business which requires the customer to re-purchase a product many times, online or in store, so it demands a bit more effort to acquire something.
A subscription-based business might be more convenient for some people whose mobility is restricted, or whose everyday schedule is too busy, giving you access to greater numbers of customers. If you’re adding a subscription service to an existing business, the increased revenue that comes with a subscription service will most likely increase the cash flow of the business, contrary to a business with no subscription.
Tips on how to run a subscription business
Running a successful subscription-based business will require you to think smartly about how to reach more customers. Ensure you’re offering lots of different payment methods to suit all of your customers’ payment preferences. This allows people outside of the United States to pay with a particular payment method, whether it’s a credit card or a check, that they’re comfortable with. Without this feature, you risk losing customers and revenue, as some countries prefer slightly different payment methods to the US. A restricted payment method could make you lose customers who want to make a purchase. Americans are more likely to pay with a credit card, whereas European countries may prefer a bank debit card, so determining a B2B payment preference is essential when starting a subscription-based business.
Subscription business ideas
If you already know your niche market for your business, whether it’s Fitness, Tech or Food, the first step is to find a great subscription box idea. In other words, you’ve got to analyse your competitors and customer profile. Knowing who your customer is will tell you what pricing model to use, what aesthetic to choose, and which social media platforms to invest your time in to promote your services.
Brainstorming is highly recommended to really tackle the main points of your desired subscription business idea. The one common mistake you can make is mispricing your box; too low or too high pricing might threaten the viability of your business.
Another important thing to keep in mind is the communication skills with clients and potential customers. Effective communication will help build affinity with clients, facilitate the smooth operation of your business and, ultimately, make it more profitable. In a nutshell, a subscription business should be able to offer online shoppers a low-cost way to buy what they want on a recurring basis without the hassle of having to regularly hunt for the best price of the same product online.
A successful subscription business should be able to obtain a predictable monthly recurring revenue (MRR), just like companies do. Knowing exactly how much money is coming in each month will be beneficial to the growth of your business. In the end, there are a lot more benefits than disadvantages to creating a subscription-based business.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.