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Subscription business model pros and cons

GoCardless
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Last editedNov 20222 min read

If you are thinking of introducing a subscription product to your customers, consider all of the subscription business model pros and cons first. There are many advantages to such subscription business models, but your idea may be vulnerable to some of the disadvantages.

Here we look at the subscription business model's pros and cons so you can see if it could work for you.

Advantages of subscription business model

There are quite a few pros to list for subscription business models, including:

  • steady and predictable income

  • development of customer relationships

  • mutually beneficial vendor relationships

  • laser focus on customer procurement

  • guaranteed return spenders

  • operating in a consistent market

  • opportunities to innovate

Steady and predictable income

 The standout entry on any list of subscription business model pros and cons is the steady and predictable income. Thisreliable income helps a company plan and budget for the future.

Development of customer relationships

 One-off sales do not afford you much chance to develop a relationship with your customers, so a subscription-based business model has a big advantage here with its repeated sales and potential for insightful feedback.

Mutually beneficial vendor relationships

 There are a good fewsubscription-based business model examples that provide great opportunities to build mutually beneficial relationships with vendors. This could be including samples of your other products, or any other cross-marketing idea you can think of.

Laser focus on customer procurement

 One of the big advantages of a subscription business model is the ability to focus on customer procurement, as you will usually be selling a single or simple idea. This lets you assign more of the budget to product marketing and targeting certain demographics.

Guaranteed return spenders

 Customer retention is also less of a concern in a subscription-based business model, as by their nature each procured customer is a return spender.

Operating in a consistent market

 A subscription-based business model can eliminate the worries caused by fluctuating or seasonal markets. A subscription product is generally a year-round affair which shields it from the volatility other types of business are vulnerable to.

Opportunities to innovate

 Once upon a time, watching films at home meant a trip to the video store to rent a physical copy, until Netflix changed the game by innovating an entirely new way to enjoy such media. The subscription business model has huge potential for innovation if you are creative enough.

Disadvantages of the subscription business model

While there are fewer cons than pros to subscription-based business models, consider how they might affect your business. The cons include:

  • high churn risk

  • keeping the product fresh

  • customers’ contract aversion

  • trend fades

High churn risk

 While a subscription-based business model has a steady and predictable income, it also comes with the risk of high churn in the form of cancellations. There are ways to counter this disadvantage, such as developing good customer relationships and keeping the product fresh.

Keeping the product fresh

 Keeping your offerings interesting to the customer is an important skill, but can be difficult if your original product’s value is its simplicity.

Customers’ contract aversion

 Perhaps one of the biggest disadvantages of a subscription business model is people’s natural aversion to contracts. They tie you in and make you agree to something in the future that you’re not 100% certain you will still want further down the line. To counter this con, put great effort into demonstrating the ongoing value of the product.

Trend fades

 If your subscription business model is taking advantage of a current trend, you need a plan for when that trend starts to fade. It may be possible to move from trend to trend, but you need to be one step ahead at all times.

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