Is a Subscription Revenue Model Right for Your Business?
A subscription revenue model can be a great tool to maximize your company's profitability. However, choosing this approach to billing might not be appropriate for every business venture.
Choosing the best possible revenue model for your company is of the utmost importance for ensuring its long-term success. A subscription model carries significant benefits for those companies that manage to implement it correctly, but it can also prove unsustainable if the details are poorly planned and rarely revised. To decide on whether or not the approach will work for your own company, you’ll first need to know exactly what this revenue model is. Read on to find out.
What is subscription revenue?
Subscription revenue centers on a cyclical billing cycle where customers pay on a regular basis for access to your product or service.
This approach offers two unique benefits to businesses that correctly adopt it:
Consistency. Unlike other revenue models, subscription revenue remains a given for businesses each billing period so long as customer churn is kept low. This consistency can be vital for fledgling startups to get on their feet.
Loyalty. To make this revenue model work, companies generally engage with their customers more regularly. This engagement leads them to hold onto their customers longer for a variety of reasons. Customer loyalty obtained in this way is a powerful benefit on its own, and the way customers are encouraged to regularly make payments ties into this factor.
Types of subscription revenue models
Subscription revenue models are not all made the same. Two major types exist and many successful variations of these can be found on the market today.
The two primary types of subscription models are those intended for products and those that center on services.
Product subscriptions can be as simple as a recurring delivery of office supplies or access to a range of consumables/content that is renewed on a regular basis. A good example of this type of subscription model in action would be Blue Apron's approach. As a food company, Blue Apron offers subscribers regular deliveries of meal ingredients along with step-by-step preparation instructions.
A service subscription provides customers with access to anything from software to electricity in exchange for a regular payment. Examples of this subscription model being used successfully include the billing strategies used by companies such as Netflix and Spotify.
How to make a subscription revenue model work
Successfully adopting a subscription revenue model for your business starts with research. You should have a good idea of what it is you intend to do long before you set about doing it.
With a subscription revenue strategy loosely worked out, your team should try to test it out before investing too much time or energy. A great way to do this is to go the crowdfunding route. Leveraging a platform such as Kickstarter to gauge real-world interest in what you intend to offer can go a very long way in preparing you to launch the real thing. This can prove especially powerful for startups in need of initial exposure.
With your concept thoroughly tested, you can move on to setting your prices. Think about pricing before you commit to anything. There are many ways to approach pricing out your offerings for subscribers, but only some are good for your business's unique needs. The following pricing models are fairly common among companies with their own subscription revenue models:
- Tiered pricing: Multiple price tiers make it possible for your product or service to be adapted for customers at different income and usage levels.
- Usage-based pricing: With this strategy, your customers are billed based on how much they’ve used your service.
- User-based pricing: This pricing strategy bases overall recurring price on the number of users a client is paying for.
- Flat rate pricing: This is the simplest approach to pricing. A single rate or price is specified for all users, regardless of differences in usage, etc.
- Freemium pricing: Customers are encouraged to try out your product or service free of charge. To unlock certain benefits or enjoy special features, customers must commit to a regular subscription.
Simplify the invoicing process
Once your subscription revenue model is up and running, the hassle of managing a regular barrage of invoices could suck up all of your time. You can make your invoicing process much simpler by adopting the right tools for the job. That's where Goolash comes in. Our platform provides your billing software with all of the right numbers for each of your clients. Bundle services, leave out specific licenses, and more. Goolash is the perfect solution for IT service providers looking to streamline their billing processes.
To learn more about Goolash, reach out to our team or start your free trial today!