The future business growth belongs to the subscription model. The subscription business model is mainstream. It’s no longer something for news outlets and magazines but a genuine opportunity for many - especially solopreneurs.
Here, you’ll learn how to start a subscription business and make your income aspirations and idea real.
From eCommerce subscription box service to entertainment streaming, education, coaching, and much more – it seems just about any industry can leverage subscriptions to attract new customers, get repeat buyers by retaining existing customers, and lower cost to acquire new customers all at one time!
The recurring new customer challenge and subscription
The most important focus for many business leaders is customer acquisition, and with good reason. The more potential customers you attract, the faster your business grows. But capturing new leads, converting them into paying customers, and earning repeat business is rarely straightforward and cheap.
The process is complex and grows increasingly expensive every year. For example, one study found that between 2014 and 2019, CAC (customer acquisition cost) rose by 60 percent for B2B and B2C, mainly because market saturation drove marketing budgets up.
Any business that wants to overcome these challenges should carefully consider a subscription-based business model because it can improve CAC and retention.
A subscription business provides products or services for a monthly subscription or another specified timeframe. The customer pays for access instead of a one-time cost upfront, allowing businesses to earn predictable revenue.
Acquired customers continue to provide repeat business until they no longer see the service or product as valuable. As a result, you can improve customer retention (and customer lifetime value) through a subscription model. Many subscription-based businesses switch focus to retention once a customer is acquired.
As for CAC, there’s typically less customer churn with the subscription-based business model, provided the value remains high enough. Also, there will be fewer barriers to new transactions, which can help increase sales.
Subscription services and the membership economy
One of the reasons subscriptions work so well is because of the growing membership economy. That refers to the consumer shift in mentality from ownership to access.
More and more people value affordable access to engaging experiences and products over owning certain items. For example, car subscription services, on-demand vehicles, and ride-sharing are disrupting the traditional ownership model in the automobile industry.
Similarly, CDs and DVDs are almost a thing of the past. Most people don’t buy music CDs and movie DVDs anymore because there's no need. Instead, a monthly subscription to services like Netflix and Spotify provides access to millions of titles and albums.
Further, McKinsey research revealed that 46 percent of consumers have an online streaming media service subscription. Kantar also reports that 85 percent of US residents pay for a video subscription service.
The eCommerce sector is also seeing tremendous success, as the same study by McKinsey indicates that 15 percent of online shoppers subscribed to a subscription service in the past 12 months.
Also, the expected growth for subscriptions is promising. One study by UBS projects the subscription market will reach $1.5 trillion by 2025. Another research expects the global subscription eCommerce market to reach $120.04 billion by 2022 (an increase from $72.91 billion in 2021). Gartner also predicts that 75 percent of DTC (direct-to-consumer) organizations will offer subscriptions by 2023.
So yes. There’s no time like the present to start a subscription business.
Your potential customers want a subscription service
The pace of adoption alone shows consumers want subscription services. And according to Recharge, brands with subscriptions grew their overall customer base by 31 percent in 2021.
But saving money is not the only reason people are subscribing to services. Skim’s Subscription Lifestyle research shows consumers also value other benefits. Their survey of consumers with at least one product subscription revealed the following.
Types of subscription business models
There are two main types of subscription models. These are content-based and service-based. Both have advantages and drawbacks and choosing the right one will depend on the products you sell – including your capacity and business objectives.
Content-based subscription model
This refers to customers paying to access your content, such as exclusive blog posts, statistics, videos, etc. While this is a great model, maintaining and growing the customer base requires much ongoing work. You must continuously offer fresh and valuable content to retain customers.
Service-based subscription model
With this model, customers pay to access business services, including physical goods. For example, you could offer specific goods, online coaching, graphic design, or consulting services to customers that pay a monthly fee.
How a business owner can add the subscription model
You can start a subscription business or add the model as an additional revenue stream to grow revenue significantly faster. Here are the steps you’d need to take, including some vital tips.
1. Pick a niche market or idea
This is the first step. What kind of subscription model will work best for your business? What products will you offer? Think about your customers and what will resonate with them most.
Once you have the idea, outline or document how everything might look in action – and consider what your ideal customer will be willing to pay as a recurring fee and decide whether it’s feasible. Can you provide that service or product consistently?
For example, an educator could build an online course and charge a subscription fee for access. However, they’ll lose subscribers quickly if the educator isn’t engaging with students regularly (e.g., answering their questions). So offering a subscription plan that pairs an online course with, for example, some bi-monthly online Q&A sessions is a great tactic to retain subscribers.
2. Validate your idea
Idea validation is an essential part of adding the subscription business model. Your idea should solve a problem. It’s the process of determining whether there’s a market for your idea. Without validation, you risk spending time and energy creating something people don't want.
For instance, you may be entering an over-saturated market. The process of validating your idea can help you plan accordingly. In addition, consider viability. Is the business potential of your offering good?
Here's a quick way to validate your idea:
Start with a niche audience. Don't try to cater to everyone. Offer a service or product that solves a problem for that niche audience. For example, a fitness instructor focuses on post-birth fat loss.
Conduct field research. Think of folks in the niche group and ask them the following after mentioning the problem(s):
- How are you currently solving the problem?
- Are you facing challenges when trying to solve the problem?
- Is the problem significant?
- Is the problem important and how much will it improve your life?
Along with asking folks in your everyday life or circles, starting an email list via some free content is a great way to aggregate enough people to start surveying.
3. Set clear objectives
Where do you see your business in 1, 2, or 3 years?
Your goals will help keep you on the right path, so keep them top-of-mind. A good business objective should follow SMART (specific, measurable, achievable, relevant, and timely).
- Specific: Your goal conveys the desired outcome, who's responsible, and the steps required to achieve it.
- Measurable: The objective is one you can track to review performance. This is important for ensuring you reach the finish line.
- Achievable: Your goals are reasonable or realistic in the sense that you can reach the desired outcome.
- Relevant: Each goal fits in with the big picture. One good question is, does it make sense to pursue the outcome?
- Timely: Your objectives are time-bound, meaning you have a timeframe for achieving the goal.
A great example is, "the news team aims to acquire 1000 subscribers in 3 months by consistently publishing four videos per day".
That goal follows the SMART principle. It’s specific because we know the what, how, and the team responsible. Additionally, you can measure the objective. It's also reasonable, relevant, and time-bound.
Knowing what you're working towards provides clarity that helps improve focus and communication.
4. Decide on pricing
Consider the pricing strategy that best suits your business.
Typically, businesses grab pricing information during market research or idea validation. So you should know what others in your space are charging and their strategies.
However, here are some pricing strategies to consider.
- Freemium: This is when you offer a free baseline of your product or service and give users the option to upgrade their experience. But this isn’t a free trial. Instead, it's free lifetime access with the opportunity to upgrade. So, for example, anyone can use Google Drive for free, but paid users get more space and tools.
- Tiered pricing: Offering tiers can expand your ideal customer base because people value things differently. It can help you win over prospects that might not need all the features of your product.
- Pay-as-you-go: With this, customers only pay for what they use or access. For example, many cell phone companies allow people to top up their phones or add minutes.
5. Choose a platform or build your website
For this next step, there are two available routes. First, you can use a software-as-a-service (SaaS) solution, such as Shopify (eCommerce platform) and Subkit (specific for subscription brands). Second, you could hire professional web developers to build the ideal platform. And if using a SaaS solution, it’s crucial to pick the right one.
More on platforms ahead, but there are three primary factors to consider.
- Connectivity or how easy it is to integrate with your business
- How well it helps you attract customers or support your business
- How well it fosters collaboration or co-creation of value
6. Plan out your customer service
The subscription business is a customer service one. That means you must be able to build strong customer relationships. Without that, sustainable recurring revenue is nearly impossible. So, develop a plan for handling customer interactions (your customer service strategy).
This will help you provide a consistent customer experience throughout the customer journey.
- Think about the channels you want to use to communicate and select the ones your customers will likely enjoy.
- Consider how every channel fits in with your overall subscription business strategy.
- Ensure each channel is feasible, or you can monitor them efficiently to timely respond to inquiries, complaints, etc.
7. Market your subscription business
The idea that if you build it, they will come is a fallacy. Businesses must bring their products in front of the target audience to get signups.
Here are some tips in that regard ranked. In general, you want to leverage marketing channels that you don't have to pay for out-of-pocket and that acquires customers most likely to stay with you the longest
- Collaborate with complimentary businesses – bundle their services into your subscription plans and revenue share.
- Word of Mouth. Leverage a referral program that incentivizes existing customers to bring in new customers and give those new customers a discount as well.
- Get indexed into Google for keywords that have low competition. This will require you to use a tool that has high domain authority like Subkit.
- Build awareness via social media platforms to promote your offerings
- Start building your email list from day one and send regular newsletters or content to keep subscribers engaged.
- Run paid ads to build awareness and acquire customers
- Contact influencers you can partner with to cross-promote products or pay them to advertise your business.
- Find online communities that you can network in to increase awareness further.
- Use promotions, such as contests or giveaways, to elicit interest in your offerings.
The best ways to add a subscription model to your business
As noted earlier, you can include a subscription model by adopting third-party solutions. Here are some of the best options to consider.
Subkit for subscription businesses
You can turn your products or expertise into recurring revenue with Subkit. Businesses get a hosted SEO-optimized profile page to maximize conversion and an out-of-the-box membership hub for subscribers. Subkit also allows collaboration with other business owners or creators and rev share.
With Subkit, you can:
- Host your physical or digital products and charge recurring revenue.
- Bundle products or services.
- Set up various subscription plans and create tiered pricing.
- Pay when your business is generating revenue only. $0 upfront costs or monthly fees.
- Access amazing tools you can use to increase awareness for your subscription business, connect with customers, and grow. Get access.
YouTube Channel Memberships for creators
You can add a subscription option to your YouTube channel through Channel Memberships, a feature that lets fans support creators directly.
Once subscribed, channel members can enjoy exclusive perks, such as public badges, custom emojis, member-only live streams, and anything your channel offers. The solution is also quite flexible. You can customize it to fit your brand and target audience. It’s a good option for YouTubers that want to build stronger connections with subscribers and increase revenue.
You’ll need the following to qualify for this monetization feature.
- At least 1,000 subscribers.
- Be part of the YouTube Partner Program.
- Must be over 18 years old.
- Reside in an eligible location.
- Your content must meet all YouTube policies and guidelines.
Note: YouTube will take a 30% share of your profits.
Facebook subscriptions for creators
Facebook’s subscription feature lets you add the subscription model to your page. After setting it up, your audience can pay a monthly fee for exclusive content, such as badges and live streams.
It’s a convenient way for people to support your work on Facebook. Plus, like YouTube, the platform handles payment collection each month.
You’ll need the following to qualify for the feature.
- At least 10,000 followers.
- If you don’t have 10k followers, you can have 250+ return viewers and either 50,000 engagements or 180,000 watch minutes. Both must occur in the last 60 days to qualify.
- Your content must meet Facebook’s policies and guidelines
Note: For transactions made on a mobile device through Apple (iOS) or Google (Android), you’ll receive 70% of the price subscribers pay because the mobile provider will take 30% of the revenue for in-app purchases, after applicable taxes and fees.
In 2024, Facebook will take an additional cut. The percentage will be announced in the future.
If you already run a website using Wordpress, you can add the subscription model to your business via a plugin. You can find various options by searching through the Wordpress plugin directory. You can do that through the plugin landing page or your WordPress dashboard.
You shouldn't require programming knowledge to implement the plugin of choice. Payment processing (or payment gateway) and other vital functions usually come built-in or as a paid add-on. However, the setup process can take some time and needs maintenance. How long it takes will depend on various factors.
Some of the best membership plugins to consider are as follows.
- WP-Members Membership Plugin
- Paid Memberships Pro
- Ultimate Member
- Simple Membership
- Ultimate Membership Pro
- Restrict Content Pro
- SUMO Memberships
You may want to create a custom solution for your business. However, keep in mind that this approach is challenging and time-consuming. It also requires a complete understanding of all the moving parts. So most companies will need one or more professional web developers.
Further, your investment will likely be significant, and completing the project can take months or even years since you'll start from scratch. But the benefit is you get a solution that functions the exact way you want at the end.
The eCommerce subscription box, replenishment, and access models
As evident, the eCommerce industry is benefiting immensely from the rise of subscriptions. People appreciate the ability to subscribe and receive their goods on a regular and predictable schedule. It’s affordable access to what people want and when they want it.
Here are the eCommerce-specific subscription models online stores use today.
Ecommerce subscription box business model
The goal here is to surprise and delight your customers by sending or providing them with new items on a recurring basis. One good example is BarkBox, a subscription box company that packages and sends dog treats and toys to pet owners monthly.
The subscription box model works well across various product types and promotes the discovery of new brand items. Here are some subscription box ideas to get you inspired.
- Book subscription boxes featuring a variety of genres.
- Delivering a food box to subscribers, including snacks, frozen meat, etc.
- Monthly deliveries of coffee at reasonable rates.
- Deliver fitness consumables like protein powders and creatine to consumers.
- Subscription toy boxes for kids, so parents don't have to shop all the time.
- Deliver men's and women's hygiene products every month.
- Wine or beer delivery by mail.
- Beauty box subscription featuring new and requested products.
One great way to promote your subscription box business is to create a prototype box. That refers to putting a set of products together to draw in subscribers before the business launch.
The box’s contents should reflect the value of your subscription box accurately. However, you are not giving the box away for free. Rather, take high-quality photos once complete and use them to promote your subscription products.
Ecommerce replenishment subscription model
The replenishment model is when brands let people automate the purchase of essentials, typically at a discount. For example, Dollar Shave Club provides customers with all their favorite shaving and grooming products monthly.
Products that regularly need replenishing work best, so consider the items you carry. Convenience products like protein shake, razors, and diapers usually do well.
Ecommerce access subscription model
The access model refers to subscribers paying a recurring fee to buy products at lower price points or receiving member-only perks. For example, JustFab offers a VIP membership that allows customers to shop for new arrivals at discount rates. In addition, customers who choose not to shop at any given month will receive member credits towards their subsequent purchases.
The primary value of the eCommerce access model is exclusivity.
Bonus tips for a successful launch
Here are some additional tips to help you run a subscription business with healthy profit margins.
Understand your target audience
Who will buy your product or service?
Knowing your target audience is key. These are the consumer groups most likely to subscribe. For example, "computer gamers ages 16 to 45 years old with an average income of $20,000 per year".
At the very least, you should know the most important demographic information. These are typically age, gender, employment, and income, but go as deep as possible in your research. The clearer defined your target audiences, the more effective your marketing.
Consider creating buyer personas, which are fictional representations of your ideal customer. It can help you intricately understand your audience, providing valuable insights and marketing information.
Introduce new products regularly
In general, people like exploring new things. So regularly introducing new digital or physical products can help keep your subscribers engaged and looking forward to those new releases. But it doesn't have to be completely new all the time.
For example, educators can repackage existing products, adding extra value. That can boost sales, attract new customers, and foster a loyal customer base.
From day one, you should prioritize retention while also seeking new customers. In other words, focus on acquisition and retention equally. However, it’s ok to switch your focus to retention more after acquiring many customers. Essentially, letting go of the gas pedal for acquisition a little, but not completely.
That’s because getting a new customer is five times more costly than retaining one. The more customers you retain, the lower your overall marketing expense. It’s always good to have more regular customers.
Make use of personalization
People expect tailored subscription services. They want a personalized experience, and brands that can deliver will grow faster. For example, coaches offer personalized experiences via a 1:1 session subscription plan.
So, identify the best way to add personalization to your customer journey. Personalization is typically built-in or automatic if you use an external platform like YouTube. And if, for any reason, you can’t add personalization to your platform, apply it to your communications instead.
You must use different marketing channels to engage and attract new subscribers. It’s a good idea to draft your plan, listing all the channels suitable for promoting your subscription business. For example, your strategy could include influencer outreach, email, SMS, etc.
Your subscription business model will help determine the most appropriate matches or suitable marketing campaigns.
Stay on top of customer churn
Every subscription business should monitor customer churn. This is the percentage of customers that stop using your product or service within a specific timeframe. For example, if you gained 100 subscribers and lost 5 of them in 3 months, your churn rate is 5%.
Additionally, churn isn’t always voluntary. For instance, some customers stop using a service because of an expired credit card. So actively monitoring common churn causes can reduce your rate each cycle. Also, you can calculate customer churn using any timeframe, depending on what works best for the business.
As you can see, there are many opportunities in the subscription space. Done right, you can provide your customers with more value and convenience and accelerate your revenues.
Determine if a subscription model fits your business by considering the product or services you sell. Can you create a subscription service around those offerings?
Then decide how much you’ll charge for this new service. Once that’s taken care of, think about how your subscription service will work and what customers can expect. Are you providing enough value?
Plan out your fulfillment. You'll need a content calendar and delivery frequency if you provide content. For physical products, ensure you can deliver consistent quantity and reliability.
Lastly, choose a platform option that checks all the boxes. For most brands, a custom solution will be too budget intensive. So consider using a third-party solution like Subkit. You can get your subscription business off in minutes, access mission-critical tools for earning predictable and recurring revenue, and much more. Get special access to Subkit.