3 Game-Changing Reasons To Offer A Subscription
by Cheryl Powers
There are as many reasons to offer a subscription service to your customers as there are subscription models. And if we've learned anything from companies like Amazon, Netflix, Dropbox, Salesforce, and others it's that customers value having what they want when they want it.
The days of renting a movie at your local Blockbuster store were replaced by the ATM-like Redbox movie rental, which has now been replaced by choosing any movie of your choice at any time of the day or night from one of your favorite streaming services.
You can now buy a subscription for everything from pet food to grooming supplies. Music subscription services are booming as our old desire to own an album or CD is replaced by our willingness to rent access to the songs we want to hear right now.
Even Starbucks offers coffee on subscription.
The subscription business model is good business because recurring revenue boosts your company’s value.
But there are some game-changing hidden benefits to boosting your business with a subscription offering.
Subscriptions provide a Wealth of Free Market Research
Traditional ways of finding out what your customers want are expensive. By the time you pay attendees, rent a room with a one-way mirror, and buy the little sandwiches with the crusts cut off, a focus group can cost you upwards of $6,000. A statistically significant piece of quantitative research, done by a reputable polling company, might approach six figures.
But by offering a subscription service, you get instant market research for free.
Netflix knows exactly which shows to produce based on the viewing behavior of its subscribers. There is no need to ask viewers what they like because Netflix can see exactly what they watch and rate. And they've made it easy to segment each viewer in the household with custom avatars.
A subscription offering can allow you to test new ideas and gives you a direct ongoing relationship with your customers so you can see what they like first hand.
Cash Is King In Every Economy
Subscription companies are often criticized for being starved for cash. Many companies charge by the month and then have to wait months—sometimes years—to recover the costs of winning a subscriber.
That assumes, however, that you’re charging for your subscription by the month. If you’re selling your subscription to businesses, you may be able to offer your customers an incentive for purchasing a year’s worth of your subscription upfront. That’s what the analyst firm Gartner does, and it means they get an entire year’s worth of cash from their subscriber on day one. Costco charges its annual membership upfront, which means it has billions of dollars of subscription revenue to float its retail operations.
Building Loyal Customers Ensures A Healthy Stream of Future Profits
Customers can be capricious. You may have a perfectly satisfied customer but if they see an offer from one of your competitors, they might jump ship to save a few bucks. However, if you lock your customers into a subscription, they may be less tempted to try a competitor since they have already made an investment with you.
One of the reasons Amazon Prime is so profitable is that Prime subscribers buy more and are stickier than non-Prime subscribers. Prime subscribers want to get their money’s worth, so they buy more products more often from Amazon and are less tempted by competitive offers.
The obvious reason to launch a subscription offering of your own is that the predictable recurring revenue will boost the value of your company. And while that’s certainly true, the hidden benefits may even be more important force multipliers for building shareholder value.
If you're interested in learning more about creating subscription revenue for your business, get in touch with us here.
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