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From monthly gym memberships and streaming services to wellness boxes and software as a service (SaaS), it seems there’s a subscription for almost anything these days. Perhaps that’s sparked an interest in moving to—or adding—a subscription-based model to your business.

We’ll cover the basics of subscription-based businesses, along with key factors to keep in mind when considering your own subscription model for your business.

What is a subscription-based business?

In its basic form, a subscription-based business model is where customers pay a recurring fee at regular intervals (i.e., monthly, quarterly or annually) for a product or service. It’s a great way to increase recurring revenue while providing customers with the convenience of auto-renewals.

What are the benefits?

Benefits of a subscription-based business include:

1. Recurring revenue

   Subscriptions generate predictable recurring revenue. This can help with cash flow and financial planning.

2. Customer relationships

   Subscriptions offer regular touchpoints with customers, which leads to strong relationships and more opportunities for feedback and improvement.

3. Upsell and cross-sell opportunities

   Regular interactions with customers provide several opportunities for upselling and cross-selling products or services based on customer preferences and behaviors. This can increase the revenue per subscriber.

4. Lower acquisition costs over time

   While adding new subscribers can be costly upfront, the subscription model can lead to lower costs over time. The longer a customer remains subscribed, the more their lifetime value increases, offsetting the initial high cost of gaining new customers.

5. Data collection and personalization

   Valuable data is gathered through customer interactions, which can personalize a customer’s experience and improve product or service offerings based on feedback.

Should I consider a subscription-based model?

If you’re wondering whether a subscription service is a good fit for your business, here are several factors to consider.

1. Do you (or can you) offer a product or service that provides ongoing value?

   To keep customers engaged for a long time, you need to offer a product or service they need or want on a regular basis.

2. Is there a demand for what you offer?

   If you have customers returning regularly for the same products or services, a subscription-based model may be the way to go. If you’re unsure if customers would prefer a subscription, ask them! Send out surveys or do market research to assess the interest in subscriptions.

3. Does it make financial sense?

   Think about the costs of what would go into your subscriptions: cost of goods, customer acquisition, support and fulfillment. Is it something a recurring stream of revenue could cover with profit?

4. Can your business handle recurring transactions?

   Do you have a system, or can you implement one, to handle recurring billing, payment processing and customer management?

5. Is it scalable?

   If your subscriptions were to take off, would the model be scalable? Can you keep up with demand without a proportional increase in complexity or costs?

6. Can your business adapt?

   Moving to a subscription-based service may mean adjusting your current offerings, such as creating new, subscription-friendly offerings in a way that makes sense for your business.

7. Can you maintain consistent quality?

   Subscribers expect a reliable experience. It’s important to consider whether your offerings can maintain the same high quality in a subscription setting.

Making the transition

Transitioning to a subscription model should be approached with thorough planning and analysis. If you said “yes” to all the questions above, a subscription-based business may be a good move for you. Before you fully commit, consider trying a pilot program to test the waters to ensure it’s a good fit for your business.