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How to Make a Successful Subscription Business Model

Gartner predicts that by 2020, all new entrants will offer subscription-based models. It’s a known fact that almost all online services include some form of a subscription package. Software, digital goods, eCommerce packages, and newsletter-based subscription boxes are all included.

Subscription models have become a key business model in the information and technology sector. It is enough to create one product that engages the user with consistent functionality and creates a great software product. Businesses can now focus on customer feedback and engagement, instead of trying to manage multiple product lines.

A subscription service is a good option if you are starting your own business online or looking to change your business model. For more information on how to transform a traditional software or eCommerce business into a subscription service, read the following.

Why subscribe to a service?

Subscription business models or services allow access to an online platform at a fixed price and time. This usually means that there are a variety of pricing options available. These include options that offer greater flexibility or lower prices for a longer investment.

Subscription models are increasingly common in software and eCommerce, but there are many ways to approach pricing and service. Some businesses fully embrace the model and build their services around it. Some businesses take a more relaxed approach and offer incremental discounts in return for regular reordering.

Sometimes, subscriptions are based on curation. Stitch Fix and Barkbox are two examples of brands that delight their customers. People subscribe to their expertise and knowledge.

Subscribers can help you predict growth better

Whatever your business model, forecasting sales, expenses, and cash flow is essential. This can be made easier by choosing a subscription service that suits your business model. There are clear tiers and introductory offers to follow, and you can project growth based upon sign-ups and churn rates.

If you sell physical products, your subscribers and anticipated growth can help you predict your stock needs in advance. This will allow you to avoid excess inventory and dumping products at a lower price or not ordering enough to meet demand.

How to create a subscription service

The process of developing a subscription service should be very similar to business planning. This involves conducting research upfront, analyzing your customers, defining their needs, then testing, and finally executing. Here are five steps to help you get started.

1. Conduct market research

What can you do to turn your SaaS product into a sustainable subscription plan?

First, identify your target audience. Even if your customers are already there, it is important to determine who will buy a subscription instead of a traditional product. This requires going back to basics and understanding the issues your users are experiencing.

After you have a good understanding of their problems, it’s possible to tailor your service to meet them. They are not solving a problem once, but you’re actively working with them over many months and years. It is important to ensure that you can deliver a solid solution right away and that you have enough time to improve over time.

You are trying to solve a problem. You need to understand how your product/service, or a new version of it, can solve the problem for them. To plan a new pipeline for your business, you must be able to anticipate how customers’ problems will change over time.

2. Conduct a competitive analysis

A deep dive into competitors is an important part of market analysis. Some may already have some in your mind, but you will need to do a new analysis to see who competes in the subscription service market.

Software development is often highly competitive. Online consultations and websites are the best way for CTOs to choose their preferred vendors and software companies. There are many SaaS companies out there.

To help you define your subscription model, you must look for the possibility to beat the competition. It could be the product and all the features. It could be selling outstanding customer service and a more attractive pricing structure.

Take a look at your competitors to find out what works in your industry and what is not. Next, identify ways you can differentiate yourself.

3. Define your buyer persona

The buyer persona is a research-based strategy that helps to segment the target audience. This gives you a clear idea of the customers’ perceptions of the product’s pricing and value. Subscriptions can be used to serve multiple customers.

Let’s take, for example, a product that is based on customer relationship management. You could offer multiple membership plans or subscription tiers for this product. One tier may be more affordable but not provide access to all the core features. Your high-end tier offers a more robust set of solutions for a slightly higher cost.

Similar to the previous example, you will likely need to identify and sell to multiple personas. You have to get to know these people, their needs, and how you can improve your product to serve them.

Here are some suggestions to get you started:

  • Direct buyer — The owner or the manager of the company
  • Manager/Team leader — Head of a team or department
  • The chief technical officer — Person responsible for technology investment and much more experience in SaaS products

4. Connect with your target audience

Invesco estimates that it costs five times more to acquire a customer than to retain an existing one. You need to be able to bring in and retain your customers. This is often the hardest part of acquiring customers.

It is best to treat onboarding and sales as the beginning of a long-term relationship. It is important to show that you care about your customers beyond their initial sign-up. This could be as simple as training or direct engagement. You can also give them a rough plan of future features and updates.

Any introductory tiers, such as a free trial, should be used to convert to a monthly account or more ideally to an annual account as soon as possible. You should give them access to your product and show them how it can be used. Keep that engagement going until they are on board.

5. Finalize product pricing and offerings

The most important component in developing a subscription model is pricing and offering products. Each SaaS product offers different benefits and features depending on the tier and uses case. It can be hard to determine the right price and what features you should offer when offering a monthly, quarterly, or annual membership.

To attract your market, you can either start with a freemium subscription or subscribe at a discounted price to get started. Customers are attracted to the service by this offer. It improves customer engagement by introducing product benefits and features that are crucial to long-term commitments.

It’s unlikely that you will be able to find the right price and feature combination in one go. To find the right price and feature mix that converts customers, you’ll need to try different features and prices. Even if you find a winner, you will likely need to keep updating it as you add new features, expand your services, or create more subscription tiers.

Closing thoughts

Subscription models can lead to recurring income and long-term customer relationships. You can use the same business planning process that you used to create your business but instead of focusing on the benefits to your business, focus on how to make them more profitable. These three elements should be hit if you are able.

  • Reliability
  • Security
  • Performance

Start bringing your technical resources to the table and build a reliable, secure product that is both performant and reliable. Don’t be afraid of testing and iterating. You’ll need to make adjustments to remain competitive as this is a subscription.

Disclaimer. The opinions and views expressed in this article are the authors Andrew Napolitano.

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