By Princess Jones
Netflix. Beauty Box. Bevel. Loot Crate. Subscription model businesses are hot these days. For a recurring fee, businesses provide services or goods on a regular basis, removing barriers for consumers to enjoy them. From beauty to games to food, more and more consumers are buying their goods through membership models. And more and more business owners are wondering if it’s the right move for their bottom line.
With any business, cashflow is a high priority. What makes the subscription model so attractive is that it promises a steady source of revenue. Customers pay you monthly, weekly, or some other interval of time for new product or access to a service. The costs to retain customers are lower because you are expecting a new buy from that customer for every subscription interval. Combine that with a low barrier to start the subscription and you’ve put your business in a good position to rake in some big bucks.
If your business is retail based, you know that inventory is a big deal. You need to factor in what you’ve sold along with what you intend to sell and what you can afford to hold in storage. It can be a delicate balance. Too much inventory can tie your liquid cash up. Not enough inventory and you’ll miss out on sales opportunities.
But if you’re dealing with a subscription model, you already know how much product you’ll need because the subscribers have already signed up. In most cases you’ll also already be paid. Which means less gambling on inventory and a more precise method of stocking goods.
Lots of Natural Churn
Subscription services also have high churn rates. Your product or service has to keep winning over the customer every month for them to continue using it. To do that, you’ll need to be serious about finding out what your customers want and making sure they get it.
Let’s say you run a business that delivers healthy lunch options to office workers for a monthly fee. It’s easy to get new customers because the membership fee is small enough that it seems like a low risk. On the other hand, it’s more difficult to keep them once they’ve tried all of your lunch options because customers get bored easily.
As soon as they’ve tried everything you’ve got a few times, it’s going to seem more attractive to cancel and go with some lunch options they haven’t had in awhile. To keep them, you’ll have to figure out what they want and make sure there are new options that fit that profile every month.
In this example, it seems simple. But sometimes that’s easier said than done. Certain subscriptions just don’t have the ability to reinvent themselves. Consider that when you’re deciding whether it’s time for your business to try the model out.