Businesses of all sizes can benefit from a subscription-based business model. Subscriptions provide ongoing, reliable revenue that can help keep businesses stable and give some idea of future growth.
These benefits make subscriptions especially beneficial for small businesses. Smaller operations can utilise subscriptions to improve customer retention and help keep a business on a firm footing. But what are the best small business subscription models, and how do you get started? Below, we’ll go over some of the benefits of the subscription model and some things to watch out for.
What is a Subscription Model?
The hallmarks of a subscription model are:
- Recurring payments
- Ongoing service
- Flexible subscription lengths
In a nutshell, the subscription model is based on receiving an ongoing service for a recurring payment. Most people will be familiar with the subscription business model through the likes of Netflix, Amazon Prime, HelloFresh, Spotify, Apple Care, and more.
- Amazon, for example, offers speedy deliveries as well as a music and video-on-demand service.
- Tesla offers the most cutting-edge features in its cars, including the self-driving “Autopilot.”
- HelloFresh delivers home meal kits, and Spotify a wealth of music.
Subscriptions tend to renew at weekly, monthly, or yearly intervals. Longer-term renewals tend to offer more significant discounts while retaining customers for more extended periods without the need to re-engage customers. Such subscription services offer anything from access to a software platform or goods delivered directly to a customer’s front door.
Not just for Corporations
Subscriptions are not just for huge companies, though. Small businesses can take advantage of this business model, too, thanks to modern payment solutions. In the past, setting up a repeat payment with a customer used to be a hassle. Customers may not have been familiar with the arrangement, and trust was an issue.
Nowadays, integrating a payment gateway and payment processing for small business websites is easy with platforms like exactly. Customers are familiar with subscriptions from their digital services, gaming, and deliverables. Most people are now subscribers to at least one service and understand the concepts involved.
This makes it easy for small businesses to get started. All a business really needs is a website and a product suitable for the subscription model. While almost any product can utilise subscribing, the most popular subscription models include:
- Product boxes
- Replenishment boxes
- Software/Platform Access
- Media delivery/downloading
In fact, some of the most successful subscription-based businesses started out small. Companies such as HelloFresh and Dollar Shave Club started out small and scaled up to billion-dollar companies relatively quickly.
Benefits to the Subscription Business Model (for SMEs)
Recurring payments
More and more businesses are shifting towards a subscription-based model because it helps generate consistent, reliable revenue. Subscription revenue is now preferred by most businesses over single, one-off purchases as it tends to generate more income over a longer period. This steady, ongoing revenue allows businesses to predict future income with accuracy meaning better budgeting and forecasting.
A good example of this is Adobe which switched to a subscription model in 2013. Rather than buying software licenses outright for software like Photoshop, Illustrator, and Premiere, Adobe launched Creative Cloud. This software-as-a-service model saw Adobe go from a $200 million dollar per year company to one now worth $17 billion.
Convenience
Customers also enjoy the convenience of subscriptions. Using recurring payment services means customers don’t need to remember to repurchase goods. Customers can rest easy knowing their product or service will always be available thanks to automatic payments, delivery, and access.
For physical goods, customers enjoy receiving their products in a timely manner. This can be a luxury item to brighten their month or a necessity that removes a headache from their life.
Software, too, is more convenient with the subscription model. Updates and fixes are delivered in a convenient and prompt fashion when using a SaaS model, with users appreciating ongoing support.
Customer retention
Subscriptions have the power to turn one-time buyers into returning customers.
Research shows that most companies retain between 40-45% of subscribers over a year. Switching to a subscription model, then, can turn almost half of your customers into regulars. And the longer a subscriber uses a service, the more likely they are to remain using it. Customers remain engaged with a product and become accustomed to services making them less willing to cancel subscriptions.
Summary
The subscription business model is something that even small businesses should consider. Subscriptions provide reliable, recurring revenue, a better customer experience, and allow you to budget and plan for the future, knowing income is more secure.
