A subscription based business model has many advantages over a one-time fee model. It offers a stable income allowing you to pre-plan what resources you need on a monthly basis. A subscription based business can also offer your business a larger customer lifetime value while at the same time giving a perception of a lower cost for the product by your customers.
Subscription based businesses can afford to bring in fewer new customers per month and afford to dedicate more time to customer retention activities.
Changing your business from a one-time fee model to that of a subscription based model can seem difficult. However, Adobe has recently done this with their creative suite and while it has had some criticism, many pundits are seeing it as necessary for the company and consumer.
The main issue with this is how your business designs and implements the change. Here is our quick guide how you can switch.
1. Design Your Subscription Product
The first step you need to take is to design your product. If you run a software business this would be an easy decision. Other industries may have to be inventive but usually the subscriptions could allow customers access to resources, tools, guides, advice from your team, etc.
With your decision you should consider how much access to the product the consumer has. You might want to offer different access for different subscription levels. For example, if you have a digital art creator your lowest subscription model could offer 300 stock images to use, while a higher priced option offers 1,000.
If you want to start with one level of subscriber, remember to include some room for improvement later on. You may find customers want more features/access and would be willing to pay extra for it.
2. Choose Your Pricing Level and Billing Method
The price of your subscriptions is very important. You want to create a price point which gives you good revenue while being perceived by the consumer as a bargain. The monthly price should never be the same as a one-off fee, but instead that fee should be collected over the expected life-time of the customer.
For instance, if you sell a product now for $120 and you believe that the lifespan of the customer is 6 months you will want to charge at least $20 per month. You will also want to add a small margin, so the customers who are with your business less than you expected are still paying a significant amount towards that one-time fee valuation.
The next step is to decide how you will collect payments. The best option is to use a product, service or company which allows you to automatically collect membership fees. Many products available will automatically adjust your subscribers’ access should they upgrade, cancel or default on a payment. Ensure you check with your provider whether they offer this.
You’ll need to decide what to do with previous customers. Are you going to leave them with full access, offer them a discount or a subscription for free for a period of time? If they don’t take up your offer on the subscription will you remove access?
You could increase the uptake of the subscription with these clients by offering extra benefits in the subscription model than they currently have with the one-time fee product.
3. Communications And Testing
Create the website and all the online and offline systems to help run your subscription business. This can take minutes or days to implement depending on the software you are using. Bring in all the technical people you can to help ensure the system works flawlessly.
Then you need to create the marketing materials to announce the changes. Remember to sell the benefits of the change rather than the features. There are some generic benefits all subscription based customers can experience:
- Lower initial and short term costs to gain access to product.
- Better customer service and support.
- Instant access to updates and fixes.
At the same time you want to identify a launch date and create a very specific marketing plan to create anticipation to your target audience through email, social media and other advertising channels.
On the launch day remove your one-time product and switch to the subscription based business. Don’t offer your clients any access to your old product to limit confusion.
Although it seems like a difficult proposition, changing from a one-time fee into a subscription based business is a simple and straight forward exercise. The benefits you gain from moving from one model to another can support the sustained growth of your business and offer your customers a great customer experience for a fraction of the cost per month.