Nowadays, nearly every industry utilizes the subscription website business model, but why is the subscription model a good business model?
What do ambitious entrepreneurs and business owners find appealing about adopting this business model?
Why Is Subscription A Good Business Model?
The subscription model is a good business model because it can generate predictable and recurring revenue, creates loyal customers, lowers customer acquisition costs, and is a flexible business model.
While we’ve skimmed past why a subscription business model is a good idea, you can get all the details below! We start with one of the most essential elements of a subscription business model, tapping into a recurring revenue.
No entrepreneur would turn down the option of tapping into a recurring revenue stream. One of the most significant advantages of running a subscription-based business is capturing clients who eventually turn into customers for life.
Building A Strong Customer Base
Building a strong connection with a client who returns regularly is more manageable than creating new ones. With subscription businesses, these regular customers have bought into your company’s offering.
Subscription businesses excel at customer retention through continuous engagement and personalized messaging.
Regular contact also means you can create flexible offerings and utilize subscription management software to enhance their customer experiences, fostering long-term loyalty.
Increased Customer Lifetime Value (LTV)
In e-commerce, LTV is a critical metric. Most businesses utilizing the subscription model see an increase in LTV, achieved by fostering lasting customer relationships and customers making regular purchases.
According to Recharge Payments, offering subscriptions and one-time purchase options can increase your LTV by 230%.
Lower Customer Acquisition Costs (CAC)
Marketing and educating new potential customers can be expensive and take time. Even with the best-targeting marketing strategy, retaining clients will always be cheaper.
According to the Harvard Business Review, finding new customers can be 5 to 25 times more expensive than retaining captured ones who are subscribed to your services.
Flexible Business Model
The subscription business model often allows for flexibility in pricing and packaging. Business owners can tailor their offerings to different customer segments and adjust pricing.
Now that we’ve elaborated on “Why is subscription a good business model?” let’s dive into how they make revenue.
How Do Subscription Services Make Money?
Subscription services make money by charging customers a recurring fee to access exclusive products or services withheld from the general public. These products and services can be time-sensitive, being released at a specific time.
As mentioned, subscriptions can be delivered as a product or service and differ widely. These include:
Subscriptions To Content
Companies that provide content via a subscription are now household names. Video streaming services like Netflix, Hulu, and HBO are great examples. But subscriptions to content can also include accessing a library of music or books (audiobooks included).
Subscriptions To Services
Service businesses are increasingly adopting subscription models.
Software companies, for instance, offer Software as a Service (SaaS), which now helps with streamlining updates and enhances the user experience.
Then, leasing services for housing and cars are on the rise. Even insurance companies, like Geico and Progressive, are examples of subscriptions for services, as they now charge periodic premiums, which allows customers more flexibility.
Subscriptions To Products Such As Personal Care, Food, And More
Subscription products often fall into two categories: convenience and curation.
Convenience subscriptions are ideal for regularly replenished items, like shaving (Dollar Shave Club), groceries (Blue Apron), pet food (Chewy), and coffee (Trade).
On the other hand, curated subscription boxes focus on themes or specific markets, offering hand-picked items monthly or quarterly, such as Stitch Fix for fashion or Art Crate for home decor.
With so much to offer, it may now seem obvious why subscription is a good business model.
Read next: What Is A Subscription Model In Marketing?