There are many advantages to owning and running a subscription based business. However, there are also pitfalls. Here are 7 lessons from 7 subscription based businesses to keep your business moving in the right direction.
1. Remember Your Customer Acquisition Costs (Hubspot)
A subscription based business is excellent for generating revenue on a consistent basis. However you must consider the customer acquisition cost in comparison to your monthly subscription. For instance, if you charge customers $20 for being a member to your site but it costs $50 to acquire in the first month, you have a $30 deficit.
In the long run, if the customer stays for at least three months you’ll make a profit. However, in the first month you are making a loss of $30. For one customer that is nothing, however say you have 1,000 new customers in your first month then you’ll have a $30,000 loss. If you achieve the same results in the next month you’ll have a $40,000 loss. You would eventually breakeven in the fourth month.
This scenario doesn’t count for any other costs either. Therefore you must ensure that you have the capital saved to acquire customers.
2. Consider Your Customer Successes (SalesForce)
Any subscription business depends on the customers renewing their contracts or subscriptions. Therefore your business needs to support the success of your clients and if they see the value of your business and are satisfied with your services they will continue with their membership.
You can then implement a pattern where you cross or upsell to your customers.
3. Get Your Marketing Right (Andrew and Daryl Grant workshop)
If you want people to subscribe to your membership site you have to get the marketing right. There are several options for you to consider with this. Many people think of social media, pay-per-click (PPC), affiliate programs and blogging.
Each method has distinct advantages and disadvantages. Consider which one will be best to communicate with your audience and concentrate on it, with perhaps one or two other methods in a smaller role.
4. Don’t Put Off Until Tomorrow What You Can Do Today (Writers’ Huddle)
Ali Luke has run many membership sites which take a monthly subscription. At first Ali was reluctant to setup a site until confident in the amount of content she had and when she felt ready. However, she states this was a simple mistake.
Her advice is always to start the subscription as soon as possible because you’ll never be fully ready for what awaits you.
5. Price Yourself Right (Blog Mastermind)
You have to carefully consider your pricing point. Certainly you can have a look at your competitors. However this doesn’t always provide you with the full picture. For example, some membership sites can have similar content but charge drastically different monthly fees.
Therefore try testing out a few price points and see what level of conversion you get. The price point is all about what value our customers place on your service.
6. Not actively developing your product in line with market demands (MySpace)
Even though MySpace is free for users, it is still has the same functions of a subscription based business. Therefore we can learn from one of their biggest mistakes: not developing the product to meet customer expectations.
MySpace was one of the biggest social media networks very early on and was even poised at one moment to buy Facebook. However, that deal fell through and Facebook continued to develop in line with what customers wanted. The end result was that users left MySpace never to return and the value of the business has plummeted.
7. Selling to Strangers (http://gihanperera.com)
One of the reasons why subscription sites work is that users trust the subscription site. Strangers however do not have that trust with your business and therefore selling to them is almost pointless. If they do subscribe they are likely to be short-lived.
Therefore ensure you build a relationship up with your clients before you ask them to subscribe to your business.
Owning a subscription based business can be lucrative. You can generate a steady stream of income, create customer loyalty and sell other products and services to your members. However, running a subscription service isn’t always easy. Only by studying the advice from others, can you avoid common mistakes and have a better, more profitable business.