July 9 by Michael Carrell
In the age of Blue Apron and Dollar Shave Club, subscription business models are transforming the way products are bought and sold. And with more businesses looking to incorporate subscription products and services into their business model every year, it’s not surprising that the subscription industry has been growing at a 200 percent annual rate since 2011.
Subscriptions are popular with consumers because they offer incredible benefits like convenience, manageable pricing, and predictability. Business-to-consumer (B2C) companies aren’t the only ones benefiting from subscription models — business-to-business (B2B) enterprises also benefit. Here are four reasons businesses of all sizes are making the move to subscription products and services.
Subscriptions Increase Your Competitive Advantage
In a crowded, increasingly global market, subscription products and services give businesses the opportunity to stand out. While it’s easy for low cost competitors to replicate a widget, it’s much harder for them to replicate delivery of your personalized and unique service packages. Over time, many businesses find that the complementary services they offer are why customers stay loyal, especially as competitors regularly pop up on the scene. For example, people who manage their music on iTunes are much more likely to buy an Apple TV than Amazon Fire TV.
Subscription services also make it easier to cater to the varying needs of diverse audiences in a cost-effective way. By going to market with a mix of physical goods, digital goods, and contractual services such as warranties and professional services, businesses have multiple avenues to deliver value as they build long term relationships with their consumers, making it easier to stay competitive with a broader set of buyers over time.
Subscriptions Drive Margins and Lower Your Total Cost of Acquisition
From a cost perspective, the subscription business model is incredibly attractive. Subscription revenue is repeatable and predictable, which makes forecasting much easier. Additionally, subscriptions lower the total cost of customer acquisition by increasing the longevity and overall lifetime value of every customer relationship.
It’s common knowledge for most businesses that it’s five times more expensive to acquire a new customer than retain an existing customer. However, many are not aware that repeat customers are also bigger spenders. For online companies, 41% of total revenue comes from returning and repeat purchasers, a segment that makes up just 8 percent of the total base! Because repeat customers are so valuable to a business, it’s important to offer solutions that encourage repeat businesses, and subscription offerings do just that.
Subscriptions Help You Understand Changing Buyer Preferences
Because the subscription model locks businesses and their customers into an ongoing relationship with built-in touch-points, it allows businesses to collect much better data on customer buying preferences–even as they change over time. This data is incredibly beneficial to product and marketing teams, who need to deliver right-timed, personalized messages based on customer buying preferences and billing schedules.
When managed effectively, the information gathered from subscription customers allows businesses to tailor offerings based on real-time purchasing data, as well as spot ways to increase business and grow revenue.
Subscriptions Increase Customer Loyalty and Referrals
Finally, subscription services are a valuable tool in the quest for customer loyalty. When selling through a subscription model, businesses get to interact with their customers on a weekly, monthly, or annual basis, which gives them almost unlimited opportunities to offer support, promotions, thank you notes, and other engaging content. This can be a great way to drive loyalty and retention, which is becoming an increasingly important metric for successful businesses.
Not only does the subscription model give businesses an opportunity to increase loyalty with their current customers, but it also makes it easier to attract new customers. When a business achieves high levels of customer satisfaction with your subscription customers, they are more likely to talk about the brand with their colleagues and friends. And this is important, as the lifetime value of a referred customer is 25 percent higher than that of other customers, and customers acquired via referrals spend 200% more than average.
How To Get Started Selling Subscription Services
The benefits of a subscription business are plentiful and it’s no wonder that more companies than ever before are looking to grow faster by selling a mix of renewable products and services through a variety of channels, including direct, channel and ecommerce. But to effectively execute this change, it’s not enough to change the Go-To-Market strategy– businesses must also adapt their business processes and systems.
Businesses looking to better understand how to manage subscription businesses—even if selling a complex mix of products and services—and ensure smooth renewals, should check out The Ultimate Guide to Managing a Subscription Management to learn how to set the business up for success.