Creative daily

What are the reasons to try the Subscription Business Model (+ How to Do It)

May 9, 2023

Lots of creators have started shifting from a one-time payment pricing structure to a subscription-based pricing structure. The reason for this is quite simple: the recurring payment allows them to generate regular revenue.

Take a look at the successful founder from Sew it! Academy: Mimi Goodwin as an illustration.

A typical one-time sales conversion rate in all sectors is between 2.35 percent and 5.31 percentage. That means if you start an online course that has an upfront price structure, less than five percent of your customers will purchase the course. Initial revenue might seem as a huge amount at first, but there's no way to determine how much you'll earn in the next month, particularly in the event that traffic to your sales website fluctuates.

If you use the subscription model of business instead it is possible that the first payout will be smaller, but you'll know the amount of money you'll earn over the next few months. So instead of trying to find new clients, you could concentrate on improving the quality of your existing online courses for learners.

This enhances your students' experiences, which makes them more loyal, and encourages them to advocate for your course -- which, in turn will result in more students.

Read on to find out:

What is a model for a subscription-based business?

The subscription model of business is one where customers have to pay a daily, monthly or annual charge for access to your service or product. Based on the time they choose the customer can renew their subscription for the duration of using your product.

Subscription-based business models benefit both the creator of the course and the customer. If you are a course designer (and business owner) it is possible to use your existing customer relationships to generate predictable revenue. This lets you continue spending money on your business, as well as preventing you from bombarding the audience with your courses often. If you're a student, you'll have the option of cancelling your membership at any time you want and without having to pay as much money as you would have if you had paid in advance.

If you provide the best product/service in the right sector, a subscription model could be a lucrative method of earning revenues.

How does a subscriber business model work?

The underlying principles of the subscription model for business is easy.

You charge your customers in recurring installments to purchase your service or product and offer customers with the ability to pay for or cancel the service at any time. Your customers decide for when and for how long they wish to purchase your offer. So long as the customer continues to renew their payment (usually using a debit or credit card), the offer is available to them. However, if they don't renew, they lose access immediately.

The business model of subscription was introduced in the early 17th century by the publishers of periodicals and newspapers. With the advancement of technology, many websites, businesses, and software-as-a-service (SaaS) platforms use this business model.

Popular examples of businesses that bill their clients for subscriptions include Netflix, Microsoft, and Spotify which are reaping the rewards from it for a long time. There's a good thing about it, this business model isn't limited to huge corporations. It's possible to use it to create creating your own product too.

Benefits of a subscription business model

Subscription-based business models have many benefits. Here are five of them:

    Predictable revenue stream    

One of the most appealing benefits of a subscription model is the fact that it is easier to predict how much money your company will earn each month (or year). As your customers make payments repeatedly it is easy to know what they'll be paying and at what date they'll have to renew their subscription.

When you factor in your churn percentage when you factor in your churn percentage, you'll have the ability to predict your monthly recurring revenue (MRR) almost exact.

Consider this example: Let's say you've got a 7% turnover rate, and you have 2,500 students enrolling in your program for a fee of $20 per month. Even if there are no more students next month, you'll still achieve at a minimum of $40,000.

The longer the time your program is going, the more you'll be able to predict how many customers you gain or lose during a particular period of time. This will help you determine your MRR and your annual recurring revenues (ARR).

    More effective Customer Acquisition    

If you make $2000 per month in your part-time job as a barista, and you're trying to get better at it by attending classes in project management. The most effective one that you can find comes with two pricing options: $1,000/one-time payment and $70/month. Which one of the pricing structures is more feasible for you currently?

My money is on a monthly subscription payment.

Sometimes, the price of a product can appear too high for a prospect. The ability to break down costs into monthly, weekly or annual installments makes it more affordable and helps prospects incorporate it into their budget. This way, more people that can afford to pay each month will be able to enroll in your course.

    Lower customer retention spends    

As your students continue to pay for your courses, you don't have to reserve as much money to target them as you would have if your course operated on an all-in-one pricing system. And because they renew their payments, it is safe to say that they're determined to maintain a long-term relationship with your institution. It's less likely to see them churning and you won't need to invest a significant amount of cash to keep them.

    Stronger customer relationships    

With a one-time payment structure that allows customers to pay one time for the program and then that's all they pay for. Except for a few that might contact you to let you know about their progress, most of them likely won't interact with your company much.

A subscription business model, in contrast lets customers have access to your company (and the reverse) for all time. When your customer service team is available 24/7 to help answer students' questions and resolving their issues, the students will grow to be awed by your brand. This is a major factor in the decision of whether or cancel their membership.

    Possibilities for upselling and cross-selling    

In 1968, social psychotherapist Robert Zajonc devised the mere exposure theory. It asserts that when a person has been exposed repeatedly to a stimulus, they develop an attitude towards that stimulus.

For business, this implies that the more time your clients have access to your product, the more familiar you'll be to the customers. When this happens the customers are more likely to purchase other services or products that you provide.

Cross-selling is the process of adding complementary offers to an already existing deal for a higher price. As an example, if you only offered the online course for $25 per month, you could add your special membership plan to it and then offer it for $35/month.

With upselling, you're convincing your existing customers to purchase a higher-priced product. If you're selling an online course for $25/month, you might promote your similar however, more expensive class to students for $30 per month.

A new prospect may not want to take the more expensive choice right away. However, someone who's subscribed to your course for a period of 6 months may increase their subscription (or take the course at a higher cost) since they're aware of the value of your course.

What is the best way to transition to a subscription business model

If you're contemplating the use of a subscription model for your product, here are 6 actions you must take:

    Determine whether your company is a good choice for this structure of pricing.    

When you are deciding on an underlying subscription-based pricing model for your company, you need to figure out whether it's a suitable price structure for your business. In the case of example, if your service is one that clients require continuous access to for example, an online fitness course or online boot camp then a subscription business is the best option for your business. However, if the product is a single course, then it likely isn't a good match.

If you're certain that a subscription business model will be a great fit for your product, take another step.

    Create realistic targets for your subscription-based business    

The goals you intend to achieve through your business will decide the prices and levels you decide to set. So before you pick prices consider what I would like to accomplish with the subscription model of my business?

Do you want faster growth, or higher income? Is it better customer acquisition and retention?

In addition, your goals guide you in determining costs that will help you reach your ideal clients They'll also affect the messaging of your website/sales page copy.

    Choose a subscription pricing method    

It's now time to get the exciting part: designing your subscription packages.

If you're just experimenting with the subscription-based pricing model to the first time, you can keep things easy by establishing either one or two plans. If you track your results and gather the feedback of your customers you'll be able to create additional pricing tiers that cater to their preferences.

For that be aware of these aspects:

  • How you convey the value of your product to your customers
  • The industry standards
  • The pricing incentives on your packages

For a good idea of where to begin take a look at what that your competition is offering. Your goal is to create your products more appealing to the people you want to target.

In the case of teaching Pilates for parents who are new to the sport You could look up the pricing packages of other Pilates programs on the internet. If you see that price ranges from $20 per month to $65/month, then you may take this as your base.

A beautiful packaging design does not necessarily mean you should price your product lower than your rivals. You could still charge in the same price bracket, however you provide slightly higher incentives or perks. You could even charge slightly more than the competition if you're offering perks that aren't.

The bottom line is that customers must take a look at the pricing levels and think that you are a good choice. If they did business with you, that they'll receive a bang for their buck.

    Make it easy for potential customers to sign-up    

The process of signing up for a subscription should be simple and easy. Your customer shouldn't to be lost on what to do once they get to your website. It is also not ideal for them to spend an exasperating 30--60 minutes navigating the sign-up page.

Include a hyperlink to your pricing page within your website's navigation menu so visitors can easily find it. On your pricing page, the subscription plans and prices should be clearly listed in a language that your target customers will be able to recognize.

In addition, you should provide options for customers to change their billing information and upgrade or cancel their subscription plans.

    Expand your business using the appropriate technology    

As the goal is to get recurring payments from customers, you want to be sure your billing software is backed by the appropriate tools to receive and process these payment.

If you typically ship a lot of products to your customers in one go using a bulk delivery service, it will help you streamline your shipping process and reduce costs.

    Deliver exceptional customer care    

In your site, you should provide numerous ways for prospective customers and clients to connect with the customer support team if they have questions or encounter issues. Contact options may include chatbots and live chat as well as email, and telephone calls.

The ease with which customers can reach your support team as well as the quality of assistance that they get could decide if they'll continue their subscription or not. You must make sure that you're providing the highest possible customer support to your base, and establishing relationships with the people they interact with.

Examples of products that utilize a subscription model

Subscription business models are used in different ways by various businesses in different niches. Below are five businesses that successfully use a subscription-based pricing structure.

    Online courses - Copy School    

Copy School is an extensive online course that teaches students how to write various types of strategically written copywhich includes content for websites, social media advertisements, as well as emails- for companies. The course is rigorous and has created extraordinary copywriters who have worked with multi-million dollar companies, and make the highest amount of money.

Because of this, the price for Copy School is expensive -the one-time fee of $3,997 for life-long access (or 1.998 once-off payment for the ad-supported course). But, Copy School has two subscription plans that allow the customers to afford it -- $348/month (ad-supported) or 697/month for six months.

    Streaming platforms - Netflix    

At the time it launched on markets, Netflix initially was an online rental platform for DVD's. But with the emergence of broadband internet, smartphones, and smart TVs, Netflix was rebranded as an online video-on-demand (VOD) platform. It's now a subscription-based streaming platform which allows viewers to stream films and TV shows using connected devices via the internet.

Netflix's pricing plans are available from $6.99 up to $19.99. The plans you select depend on video quality and the amount of devices that the user wants to connect to one account.

    Software-as-a-service platforms -    

    Memberships - ClassPass    

ClassPass is a program for membership for beauty and fitness enthusiasts. Through an ClassPass membership, users are able to book appointments and classes at the top studios, gyms Salons, spas, and gyms all over the world. ClassPass' subscription packages range between $19/month (for 8 credits) up to $159/month (for 80 credits ).

    Physical items - BirchBox    

Birchbox provides its customers with boxes with two to six items of beauty every month. Each beauty box is customized by a test customers take at beginning. This allows customers to try out different beauty items, since the same item is not sent two times.

If a client finds a product they love and want to purchase it, they can do so from the website of BirchBox. Monthly subscriptions start at $13 per month and discounts are available for 3-month, 6-month, and 12-month subscriptions.

Make more money by implementing a subscription model for your business

In subscription-based companies it isn't enough to create random pricing and just wait for customers to sign up. You must put in your effort. Your customers will only upgrade their plans when they feel like they're getting sufficient value for the money they pay.

In order to provide this benefit You'll have to connect with your customers, talk to the people they're targeting about their issues as well as offer them tried and tested solutions. Then, you can assign prices to your product that your audience will happily pay for.