What are subscriptions?
Subscriptions are a business model where you pay a certain amount for a specific access period to a given service or product. Think about what subscription are you paying? Netflix? Dropbox? Or maybe Spotify? Subscriptions are everywhere, and that is certain. Currently, it is one of the best models that companies often use as their primary source of revenue. The customer pays as long as he sees the value of the product or service. Introduced correctly, it can be an excellent tool for the growth of the company and its revenues. Unfortunately, many companies completely ignore this model, giving up the opportunities it brings.
You might think subscriptions are the primary business model for tech companies. Nothing could be more wrong. Boxed meals that you pay for regularly, or perhaps a subscription to the gym or hairdresser? It is also a type of subscription that builds a bond with the customer. By using a subscription, instead of paying once for your product, the customer pays for it regularly. The longer he does so, the more he becomes convinced of the value he receives from you. Obviously, when a customer pays for your service regularly, more money ends up going to you than if you just offered them a one-time product or service.
The subscription model is not something that suddenly popped up and is about to disappear. On the contrary, the McKinsey & Company study clearly shows that 46% of respondents already pay for some online subscription, and 15% have started using them in the last year.
Advantages of the subscription model
- You can show your customers the value that you provide them regularly.
- You receive regular remuneration from customers who take advantage of this value.
- The customer knows what they are paying for because they regularly use your service.
- You can predict how much revenue your company will have in a month, two months or even a year.
- Thanks to accurate statistics, you can make more accurate decisions about the growth of your business.
- You build stabilization in your company.
- You can completely automate the entire process, resigning from manual work (keeping an eye on payments, issuing invoices, etc.).
It does not matter if you are a technology company, run a law firm, or are a nutritionist or a psychologist. So, if you have a service or product for which the customer can regularly pay you for, it is worth considering this model in your company. For example, in Calendesk our customers have implemented a subscription model, combining it with the option of online consultation. You can purchase their services once (e.g., 60 minutes online consultation) or buy the entire package or various access packages for selected specialists, which are available over time.
A great example of introducing subscriptions in the traditional market is the Mentzen law firm. Mentzen+ is a new service that the law firm has chosen. Mentzen+ is continuous tax care of a company. Instead of paying a one-time fee for a consultation, the customer receives a full legal assistance package for their company. The advantages of such a solution are many for both parties. The customer receives help when needed, and the law firm has a steady income. We have a win-win situation. After purchasing a subscription, the customer gets an individual account and access to the specialists’ calendar to arrange a consultation of his choice. Meetings are held online, which in today’s conditions is an excellent solution for everyone.
I did a little research to find similar solutions in Poland. The result? Mostly old and ugly websites in a dilapidated condition that offer a similar solution. Subscriptions for this type of service are listed on the websites of various law firms, but hardly anyone does it in an intuitive and modern way, like Mentzen. Right after activating the subscription, the customer gets access to the account to see its validity and current payments. He can cancel it at any time or remove his card. VAT invoices are sent immediately to the e-mail address. The customer can access the specialists’ calendar at any time and choose a specific topic that he would like to discuss with an expert. Here is a classic example of building a long-term relationship with the customer.
Subscriptions allow you to measure your business accurately. MRR, ARR, and churn rates are indicators that will tell you where your business is going. It will be easier for you to hire another person if you know your regular monthly or annual income. In a one-off payment, it can be challenging to calculate the exact income in the upcoming months. This model also builds a certain sense of security for your company. You know that you have, for example, 100 customers who regularly pay you EUR 200. It already gives EUR 20,000 of fixed income per month. The chances that all of your customers will suddenly drop out of your service are minimal. Thanks to this, you can make more accurate decisions and develop/scale accordingly.
A customer who pays you regularly is more likely to buy something new from you than a new customer. By creating subscriptions for your customers, you can configure them in various ways and continue to do your job. Are you or your team great at something you don’t typically sell? Maybe you should include it in the subscription?
Disadvantages of the subscription model
Of course, like any business model, subscriptions are not the golden rule to running a business. There are also several disadvantages to this model.
The subscription model is becoming so popular that many new companies are trying to implement it at home or building the company’s foundations based on such a model. However, it can work against you when your customers see a similar service from your competition, which will do it much cheaper and better in a more modern way. Objections such as “nobody does it”, “do customers want that?” can pop up in your head. Being innovative on this issue can take your business above the competition.
High churn rate.
A good service will defend itself. If you make it more difficult for customers to cancel their subscription, this may be a disadvantage. Imagine that a customer is signing up for an online subscription but has to send a handwritten termination letter to cancel it. Who wouldn’t get upset and write a few words on Facebook about such a company? The unsubscribe process should be transparent and straightforward for the customer. You should have a plan of what you will do if the customer unsubscribes. First, of course, research your reason for opting out and take the appropriate steps.
Uncertain income in the start-up phase of the company
One thing about subscriptions is that they usually consist of small amounts. It can be a severe problem for new companies trying to survive somehow and need financing as soon as possible. Nothing prevents your company from having two models – one-off, which costs more and provides you with funds for running the business, and subscription, which builds your position in the long term.
Avoiding being bound by a subscription when registering for the first time
The customer will probably be more willing to pay for something just once than decide on a fixed monthly expense. If the customer doesn’t know you, he has to decide at the start. It may discourage him from registering and subscribing to your service. Customers are concerned that they will pay for something and will not need it. Therefore, it is crucial to make it clear to the customer about the opt-out options.
Constant proving of value to customers
Customers often get bored, so if they don’t feel that your service benefits them, they will give it up. Let’s take the example of Netflix, which systematically introduces new series and movies. What if Netflix stopped doing this? If you can deliver value to your customers regularly, you shouldn’t have to worry here.
Before you enter a subscription
However, before you decide on such a model, consider whether it is a solution for your current customers, or maybe it is worth changing the direction a bit and offering such a solution to new customers? Think carefully about how you would see such a model in your company and whether it will bring you real benefits.
What is your goal?
Think about what you want to achieve by integrating a subscription into your business model. More income, faster company growth, or maybe some impact every month? Setting your goal ahead of time will help you build the correct price list for your customers.
How will you allow customers to subscribe?
The subscription itself should be incredibly simple. You will probably want to enable subscriptions to all of your channels (website, social media). If the whole process has to be done manually, you can unnecessarily waste a lot of time and only scare customers away. Some tools can help you completely automate the subscription process, but choosing the wrong one can do more harm than good. Good software should easily allow signing up for a subscription, automatically downloading the payment, issuing a VAT invoice, delivering it to an e-mail and keeping track of the subscription payment deadlines. At Calendesk, together with our customers, we have worked out this process very meticulously.
Build a strong bond with your customer
Offering a poor-quality product or service will not attract new customers. Therefore, you must ensure that the quality of your service is as high as possible. If your customer is not satisfied with the service, he will cancel it.
Test different models
Nobody said that the first subscription model you create is the ultimate one. Before you do this, you should probably do some research on the competition. Do they even have subscriptions? How much does this type of service cost them? Of course, this is a good start, but you may find that your customers will be able to pay much more for the service/product you provide them. Don’t be afraid to experiment with new customers. The right subscription management tool should allow you to define various configurations.
Subscriptions are a great model for running a business or supporting it. There is a clear trend among modern companies that follow it. A constant and long-term relationship with the customer is an ideal scenario for the subscription model. Therefore, if you are interested in the predictability of your company’s income as well as constant and stable development, this model may turn out to be a bull’s eye for your company. As no model is without any flaws, the resignation of customers or the need to constantly deliver value may be an obstacle for many companies. Here, the right choice of a tool that will support the entire process is crucial.