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Unless you’ve been living under a rock you will already have subscriptions hitting your bank account at regular intervals so perhaps you have been wondering what are the benefits of a subscription model?

According to Statista, an astounding 10m households in the UK have a Prime account with Amazon having more than a 30% market share.

And if you don’t need to look very hard to find subscription services for almost anything you may want, from razors to software to your weekly veg shop.

So is a subscription model right for your business?

In this post, we wanted to look at the model from the business's perspective, the good and the bad to help you understand whether it is a good fit for your business.

We are looking at;

  • What do we mean by the subscription model?
  • Advantages of subscription business model 
  • Considerations when implementing a subscription business model

What is a subscription model?

First, let’s identify what we actually mean by the subscription model.

The subscription method of buying has actually been around for many years, with newspapers and magazines selling on this basis as early as the 1700s.

But the internet age has seen a dramatic explosion in the number of companies adopting this approach and it almost seems to be the default way of working for many startups.

A subscription means a regular, standard payment whether that be a monthly, quarterly or annual payment. And this can be for goods or services.

For example, it is common for software companies to sell on a subscription basis, often dependent upon the number of users a customer has. So they will usually quote prices in “per user, per month” terms. But goods are also suitable for a subscription service.

There are plenty of suppliers out there that offer regular deliveries of physical goods to customers. Naked wines, Harry’s razors, and Hotel Chocolat all work this way.

In short, anything that you use regularly or that you need access to can be sold on a subscription basis.

Advantages of subscription business model

With a business model that has become so ubiquitous, you would be right to think that there would be a lot of upsides.

  1. It’s transformational

Moving to the subscription model is transformational for your business, in terms of both ensuring regular cashflow as well as driving significant internal efficiencies.

  1. It can be disruptive

If nobody is using subscriptions in your industry then you could benefit from a first-mover advantage and be a true disrupter.

  1. It helps customers to spread the cost

If someone is subscribing to a service that costs a lot to set up then they may value the fact that they can pay as they go and spread the cost.

  1. Customers understand it

As we have already noted, almost everyone has or has had a subscription of some sort or another and so this means that customers already get how these work.

  1. It can be very cost-effective to administer

Instead of sending monthly invoices, waiting for the money, putting the payments into your accounting system, and then reconciling your bank, a subscription service is simple itself and with an automated service like Access PaySuite to help, administering it would take a fraction of the time.

  1. It delivers a regular cashflow

The great thing about subscription models is that you have the same money coming in each month, every month. This makes cash flow and business planning much easier.

  1. It helps you to plan your inventory

If you know what you have got to supply and you know when you have to supply it then it is easy to plan your stockholding or move to a Just In Time stocking method.

  1. A subscriptions model helps with retention

One of the good things is that a subscription customer is much more likely to stick around. The power of inertia really is strong.

  1. It gives you great reasons to stay in touch

If you like to communicate with your customer and you want to sell more, then a monthly subscription helps to give you reasons to contact them. Naturally, you’ll need to comply with GDPR but as long as you do, then you can introduce new offers as often as you like within reason.

Considerations when implementing a subscription business model 

It is worth thinking through what the impact will be before you make any radical changes to the way your company operates.

It’s a crowded market

Make sure your subscription model stands above your competitors. Are you clearly spelling out the benefits to your end customer? Could you offer incentives to the initial sign-up? Making sure you are offering something a little different can be enough to sway more to sign up.

Impact on operations

You will have to consider what pivoting to a subscription model would mean for your internal systems. There could be an initial period of setup, but once that’s completed, your payments will be regular and can be automated via API.

Research your pricing

Pricing can be tricky to ensure you hit the right level that’s doesn’t turn prospects off, but equally isn’t too low which you then have to increase costs too quickly.

One off set up costs

If your business charges your current customers for set-up costs then you will have to absorb them and parcel them out over the early months of the subscription.

Review your marketing approach

You will need to review how you market your business as pricing is inextricably linked, and selling a subscription model will need to consider long-term benefits for customers. Re-evaluating your approach is always a good thing, to see what you start, stop and continue.

Monitor your cancellation rates

It’s key to measure what your monthly churn rate is, and how this differs from those who may have paid yearly upfront for a service. You might see a rise in early cancellation but you will find that this is balanced by the customer who prefers this subscription to pay for one large outlay.

Keep it fresh

Ensuring your messages are reviewed and updated regularly. Consumers have a short attention span, so make sure to refresh your offer or your benefits, as there is always a possibility that they can leave for something new.

How to tell if the subscription model is right for you

There are several areas to consider around the impact on operations if you’re considering a move to subscriptions, however, the key point is planning carefully so that the possible gains in cashflow will ensure the move is worthwhile.

If you are looking to explore subscriptions as an initial possible revenue stream, our online Direct Debit page can be set up in minutes and process your regular payments without any need for human intervention.

PaySuite has been designed to help organizations of all sizes manage their payment processing and with the integrations that are available, it can make your life so much easier.

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