Subscription-based businesses are on the rise – and for good reason. The subscription-based business model has proven to be a hit in the digital age thanks to the convenience it provides to consumers and the certainty that it gives sellers. By removing the hassles of repeated checkouts and guaranteeing multiple transactions over periods of time, the subscription model makes doing business easier and more profitable.

Startup companies find the model more exciting than others thanks to the high valuation that investors place on companies that attract subscribed customers. The Dollar Shave Club, Menguin and Salesforce are all great examples of subscription-based businesses that really took off. However, having a subscription business doesn’t necessarily mean you’ll succeed outright. Implementing the right principles is a necessary part of winning in this game.

subscription-based business

Subscription-Based Business

If you’re planning on starting a subscription-based business, here are six keys that you have to constantly keep in mind:

1. Compatibility with the Niche

Not all businesses are going to work great with the subscription model. Products or services that have short lifespans or are consumable in nature will be a great fit. This includes vitamins, razors, massages, tuxedos, software as a service (SaaS), gourmet meals, feminine pads and other commodities that need to be supplied steadily over time.

Products with longer turnaround times such as tires, IT equipment, upholstery, etc. may not be the best fit because they take years to replace. This makes tracking customer lifetime values (CLVs) difficult and almost irrelevant.

2. Check Its Viability

In his book Good to Great, business author Jim Collins pointed out that an enterprise needs three things to have a shot at greatness: passion, financial viability and the potential to be the best in the world at what it does. This notion applies to startups who want to use the subscription model, too.

Unless the people in your organization are passionate believers of your own product, they will not have the drive that it takes to see your business through to the finish line. At the same time, these people can’t just be driven by passion – they also have to be paid enough by the business to keep them motivated. If the business makes some money but not enough to compensate for the time, talent and energy that its employees pour in, it can’t work out. By the same token, a business can have passionate and well-paid people, but if those people don’t have the talent to become the best in the world at what they do, the business can only become good but not quite great.

3. Test the Concept with Funding Sites

Back in the day, a business needed to be fully launched before its management can get a feel of whether the target market responded well or if the product or service flopped. While that can still happen today, technology allows us to test the waters before we go all in.

A good way to gauge market response for your offering is by putting it up for crowd funding on sites like Kickstarter. The communities on those sites can critique your pricing model and offering so you can see whether or not people find good value in it. This feedback allows you to make adjustments even before you launch your offering to the general public.

4. Be Unique or Be Better

Most veteran venture capitalists agree that you have to be one of the top two – at worst, three – players in your vertical or you need to exit the market. It’s because long term growth and profitability can only happen when you’re the leader or the top alternative to it.

When conceiving your subscription-based business / startup, make sure that you have the potential to be one of the top two or three players in your industry and location. Be as unique as possible. If you can’t, be better than the competition.

In ecommerce, for example, your online store has to be the best in at least one of three things. You either have to have the widest selection of products, the best customer service or the cheapest prices.

Subscriber-based businesses have the potential to dominate the second and third categories. After all, great customer service is essential keeping customer churn rates down. Subscription businesses also tend to have more flexibility with pricing since their customers tend to commit for more transactions.

5. Focus on Retention

The ability to retain customers for long periods of time is the backbone of every successful subscription business. The more robust the relationship, the better the customer lifetime value gets.

Never assume that you’ll retain customers just because you have good customer support channels and you provide convenient experiences at relatively low prices. If you want to keep people in your fold, you need to treat them in a way that makes them feel special.

A discount here, a freebie there or a treat for a birthday or Thanksgiving are great starts. Keep in mind that people don’t usually count the monetary value of these fun extras but they tend to remember your generosity and they often repay it with loyalty.

6. Get Both Verbal and Statistical Feedback

Sometimes, seemingly mundane business decisions have the biggest impact on the destiny of your enterprise. That’s why listening to customer feedback is essential. You need to identify your market’s pain points so you can be on top of whatever’s blocking their path to satisfaction with your product.

While having a subscription-based business then sending out an email a few days after you shipped their order or rendered your service is a great gesture. This allows you to check for any questions or concerns they might have. Having active social media channels, a support forum, email or chat support will also be useful for gathering client feedback.

You’ll also want to get quantitative feedback from prospects and current customers using web analytics. If you have a website or an app where users  view, order or use your product, it’s a good idea to have a platform, like Google Analytics in place to gather stats and monitor behavior. This yields some of the purest data which will be useful in guiding crucial decisions.

Verdict

Starting a new business is always tricky even for veteran businessmen. Fortunately, the pioneers of the subscription model have laid out plenty of examples of what to do and what to avoid. Follow these six principles for any subscription-based business and you should be in good shape.