Most businesses should consider a subscription model.
That’s John Warrillow’s thesis. According to the author of The Automatic Customer, it’s possible to create a subscription business in any industry, and there are a number of compelling benefits to do so.
For starters, it gives you recurring revenue. Not only does that make your cash flows more stable, it also makes growth more predictable, and thus more manageable. In addition, subscriptions allow you to nurture deeper, long-term relationships with your best customers, allowing you to build greater customer loyalty and learn how to address their needs better over time. It’s simply a much more sustainable way to run a business.
As a bonus, should you eventually decide to sell your company at some point, a business with a recurring revenue model will look a lot more attractive to potential acquirers, increasing the chances of it fetching a higher price.
If that sounds like something you can get on board with, it might be time to seriously think about how you can add a subscription element to your business. The good news is that you don’t have to completely transform your business model overnight. Instead, it might be more realistic to take a part of your existing product or service, and start offering it on a subscription basis. That will allow you to test your assumptions and see if the subscription model is right for you.
Here are six common subscription models to consider:
The all-you-can-eat library model is best for a business that can offer a very large amount of content to members – much more than they will ever realistically consume. This model offers customers great value for money, as they get access to a wide variety of content for a modest fee. It’s also attractive from a business standpoint, because you can build up an increasingly valuable library over time, which gives you an edge over newer competitors and allows you to raise subscription rates.
In the consumer space, this model is most frequently used for premium media libraries, such as iTunes, Spotify and Netflix. Among B2B companies, this is mostly seen with training or research-based content libraries, such as Lynda.com.
The private club model is based on exclusive, gated access to a rare product, service or opportunity. If your business has customers that are willing to pay a premium for access to a finite, valuable resource, this model might just be tailor-made for you.
A good example of this model is BootUP Ventures, a “startup ecosystem” in Silicon Valley’s Menlo Park. BootUP specializes in helping entrepreneurs network with each other, and with prospective angel and VC investors. As a result of this value-added offering, BootUP is able to charge premium rates for its co-working space, startup bootcamps and network membership programs.
Membership websites combine elements of the library and private club models, to offer a unique mix of information and community. This model is ideal for businesses that cater to a well-defined niche of customers, who are hungry for education about a particular subject. Members subscribe to get your unique, leading edge insights on the field, and to benefit from a supportive community of like-minded peers.
For instance, FounderCafe is a membership website founded by software entrepreneurs Rob Walling & Mike Taber. The community focuses on “micropreneurship” – creating independent software products that generate sustainable, recurring cash flow for its developers over time. Walling & Taber have both created many such products and are active participants in the community. They also regularly produce educational content for the site, such as case studies of other successful micropreneurs.
In the consumables model, customers pay a subscription fee to get convenient access to a product that needs to be replenished regularly. Ideally, the product would be low-cost and easy to deliver to customers. Often, customers are happy to pay a small premium to remove the effort of regularly replenishing their supply. In exchange, your business gets increased profits and better revenue stability.
The most prominent B2C example of this model is DollarShaveClub, which ships quality razor blades and men’s grooming products to your doorstep on a monthly basis. Among B2B companies, the model is commonly used for digital goods that are frequently purchased. Shutterstock, for instance, offers a high-end premier membership that offers a wide range of stock photos and a streamlined licensing process.
Much like the consumables model, the simplifier model aims to make the customer’s life easier in some way. However, simplifier businesses do this by taking mundane or difficult tasks off the customer’s plate, and doing it for them.
The typical example of a simplifier business is a personal service provider, such as a window cleaning or pet grooming service. But this model becomes truly powerful when there is some way to automate the process. In fact, that’s one of the most common value propositions for SaaS companies.
By providing a convenient, all-in-one platform for international ecommerce operations, the PayMotion platform makes it easy for non-technical digital business owners to establish a global online presence. We take care of payments, software, customer support, and analytics, allowing ecommerce entrepreneurs to focus on growing their business instead of dealing with payments.
The peace of mind model is a twist on the simplifier business. Instead of eliminating customer responsibilities by handling routine tasks, this model seeks to eliminate customer anxieties by protecting against downside risk.
This model is commonly employed by antivirus software providers, reputation protection agencies and good old-fashioned insurance underwriters. A particularly interesting example is CrashPlan, which provides customers with automatic, continuous cloud backup for your entire hard drive. The value proposition here is compelling: everyone knows how important data backups are, but hardly anyone remembers to perform manual backups on a regular basis. CrashPlan ensures that your data is always safe – and the more you use the service, the more data you have stored with CrashPlan, so the service naturally becomes more valuable to users over time.
Most online businesses can benefit from incorporating some type of subscription model. Take a close look at your own business and see if any of these models are a good fit. Then test it out with a new product, or part of your existing offering. We bet there’s a good chance you’ll like the results.