If you don’t pay for a business with a subscription model you more than likely have heard of one. There are so many successful businesses using this model for both goods and services: Netflix, Birchbox, Barkbox, Amazon Prime, Spotify, Dollar Shave Club, Stitchfix, etc. It takes a certain kind of business to be successful with subscribers, but what are the positive and negatives of having a subscription model business?
Predictable income: While month to month numbers may not be exactly the same, it’s still very predictable what you will be bringing in every month – give or take some digits. This makes budgeting slightly easier for a subscription model business.
Communication with customers: Since the subscribers receive their products at the same time each month in the same way, communication reaches everyone faster. If something is about to change or there is an issue, an e-mail will be sent immediately at the same time. It can be easier to get to know what the typical customer likes or values.
Vendors: Since the same vendors are used each time with the same products, subscription model businesses have better communication and relationships with vendors. They are more likely to know who their point of contact is by name. Having good and regular communication with vendors can prevent or recognize errors more quickly; business and vendor realize when something is not right about upcoming orders.
Up and coming markets: Subscription models can tap into a better way of providing a good or service that has never been done before. Netflix is a great example of this which completely changed the way movies or videos are rented: streaming is a more common way of renting movie and TV as opposed to renting actual DVDs or videos from a store. Netflix made that transition happen more rapidly.
Lower budget for retention: While retention is still a priority, it’s not as high of a concern like it would be for a business not reliant on subscribers. Contracts may keep customers locked in for a certain time frame so the business may not have to focus so much on retention during certain quarters of the fiscal year.
Risk of turnover: While contracts and loyal customers are a great thing to have, they are not always a guarantee the customer will return. An issue with a product or an order could result in massive cancellation causing the revenue to drop significantly.
Finding ways to stay relevant: Sometimes subscription businesses may become stagnant to the customers and they begin to debate if there’s a benefit to continuing their membership. Businesses need to consistently come up with ways to seem fresh and make the subscribers feel what they are paying for is worth it.
Singular or various products: Just having one product a month can get boring making the customer move on. Introducing seasonal or various items each month adds variety and excitement for each order. Services like Amazon Prime changes or adds new videos or shows each month so customers aren’t bored with the same things.
More prone to across the board issues: A malfunction or delay with a vendor could result in all your customers being affected causing overall dissatisfaction and possible mass cancellations.
Consistently change/ avoid being a fad: In relation to staying relevant, if a business dependent on subscribers is built around a trend or fad, it could fizzle out in time if the right attention isn’t given to changing with the times.
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