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Why You Should Try a Subscription Business Model (+ Steps to Implement It)

May 9, 2023

Lots of creators have started changing from a one-time pricing model to a subscription-based pricing structure. The reason for this is quite simple that the regular payment structure permits them to earn regular revenue.

Look at a successful designer for Sew it! Academy Mimi Goodwin as an model.

A typical one-time sales conversion rate for all industries is between 2.35 percent and 5.31 percentage. This means that if you start an online course using a pre-determined pricing arrangement, less than 5% of your audience will purchase the course. It may appear as a huge amount at first but it's impossible to know how much money you'll earn in the next month, particularly in the event that traffic to your sales site is intermittent.

If you opt for the subscription model of business instead it is possible that the first payout will be lower, but you'll be able to predict the amount of money you'll earn over the next few months. Instead of trying to acquire new customers, you can work on improving the quality of your course online for current students.

This enhances your students' experience, makes them loyal, and encourages them to advocate for your course -and, consequently results in a higher number of subscribers.

Read on to find out:

What is a business model of subscription?

The subscription model of business is the one in which clients must pay a monthly, weekly or annual charge in order to access the product or service you offer. Depending on the length of duration they decide to choose, customers can periodically renew their subscription the duration of utilising your service.

Business models that are based on subscriptions benefit both the course creator and customers. If you are a course designer (and business owner) it is possible to use the existing relationships with customers to generate predictable revenue. This allows you to keep spending money on your business, as well as preventing you from bombarding your audience with your course often. If you're a student, you'll have the option of cancelling the subscription at any time, without spending the same amount of money you would've if you'd paid up front.

If you are able to provide the ideal product/service in the right market, a subscription-based business is a lucrative way to generate income.

How does a subscription model of business work?

The mechanics of the subscription model for business is easy.

Customers are charged regularly to purchase your service or product and offer customers with the ability to renew or cancel anytime. Customers decide the length of time and frequency they wish to purchase your service. As long as a customer is able to keep renewing their monthly payments (usually using a debit or credit card), the offer is accessible to the customer. If they do not renew their account, they will be denied the privilege immediately.

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

Some of the most popular companies that charge their customers on a subscription basis include Netflix, Microsoft, and Spotify as well as Microsoft and Spotify. They have been reaping the benefits of it for years. There's a good thing about it, this business model isn't limited to huge corporations. You can use it for creating your own product too.

Advantages of a recurring business model

Subscription-based business models have tons of advantages. These are just five:

    Predictable revenue stream    

One of the appealing benefits of a subscription model is the fact that it makes it easier to predict how much money your business can earn every month (or every year). As your customers make payments repeatedly, you'll know how much they'll pay and the exact date they'll have to renew their subscription.

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

For example: Say you've got a 7% percentage of students are enrolled in your class for a fee of $20 per month. Even if there are no new students the following month, you'll still earn at least $40,000.

The more time you have up, the better you'll have the ability to estimate the amount of clients you will gain or lose during a particular amount of time. It's easier to 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 a project management course. 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 be too expensive for a prospect. Breaking down the price into monthly, weekly or annual installments makes the product more affordable, and lets prospects include it in their budget. This way, more people that can afford to pay per month are likely to convert and sign up in your course.

    Lower customer retention spends    

Because your students pay regularly for your courses and you're not required put aside the same amount of funds to reach them like you would had your program operated under an all-in-one pricing system. Since they keep renewing the amount they pay, it's safe to say that they're committed to a long-term association with the course. It's less likely for them to churn, so you don't have to shell out a large amount of money to retain them.

    Stronger customer relationships    

With a one-time payment structure the customer pays once for your course and that's it. Except for a few who might reach out to tell you of their progress, most of them likely won't interact with you or your company in any way.

A subscription business model, in contrast permits customers to gain access to your company (and vice versa) for as long as possible. If your customer support team will be available to answer your students' questions and resolving their issues and issues, they'll begin to trust your brand. This will greatly influence the decision of whether or cancel their membership.

    Potential for upselling as well as cross-selling    

In 1968, the social psychologist Robert Zajonc devised the mere exposure theory. It asserts that when a person encounters the same stimulus, they form more positive attitudes towards the stimulus.

For business, this implies that the more time your clients can access your service, the more familiar you'll be to your customers. As a result it will make your customers more likely to buy other products/services that you offer.

By cross-selling, you're adding complementary offers to an existing offer at a greater cost. If, for instance, you were to offer the online course for $25 per month and you want to add an unique membership program and offer both for $35/month.

With upselling, you're convincing current customers to purchase an item that is priced higher. For instance, if you're offering the course for just $25/month you could market your related however, more expensive course to your students at $30 per month.

The new customer might prefer not to choose the more expensive alternative right away. But a customer who's been signed up to your course for six months is likely to change their plans (or purchase the more expensive course) because they know the value your course offers.

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

If you're thinking of the use of a subscription model to sell your product, these are the actions you must take:

    Determine whether your company is an appropriate match for this price structure.    

Before setting up the subscription-based pricing system for your business, work out if it's the right pricing structure for your company. In the case of example, if your service is one that clients require continuous access to -- such as an online fitness course or online boot camp -- then a subscription business is the best option for your business. But if it's a one-off training course, it isn't a good choice.

Once you're sure the subscription model would make sense for your business, you can take the next step.

    Set realistic goals for your subscription-based business    

The goals you intend to accomplish through your company will influence the price point and tiers you set. Before you decide on prices consider: What do I hope to accomplish with A subscription-based business model?

Is it faster growth or higher income? or is it more effective retention and acquisition of customers?

In addition, your goals guide you in determining prices that'll help you attract your ideal clients However, they'll influence the messaging of your website/sales page content.

    Choose a subscription pricing method    

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

If you're just experimenting with an underlying subscription-based pricing system for the first time then you should keep it easy by establishing at least two or three packages. If you track your results and get feedback from your customers, you can create more pricing packages that are tailored to your customers' preferences.

To do that take note of these aspects:

  • How you convey the benefits of your product to your subscribers
  • The industry standards
  • The pricing incentives on your package

To know where to start consider the options your competitors are offering. It is important to tailor your offerings more attractive to the people you want to target.

In the case of giving Pilates to parents with new children You could look up the pricing packages of other Pilates classes on the web. If you see that prices range from $20/month to $65/month, then you may take this as your base.

A beautiful packaging design isn't always a requirement for pricing your products lower than rivals. You could still charge in that same price range but provide slightly higher incentives or other perks. The price could be slightly more than the competition in case you're providing perks aren't.

The main point is that your customers should look at your pricing tiers and believe that when they deal with you, they'd get a bang for their buck.

    Let it be easy for prospects to sign up    

Signing up for a subscription should be simple and straightforward. Your customer shouldn't to be at a loss as to what to do after they visit your website. It is also not ideal for them to spend an exasperating 30 to 60 minutes trying to navigate your sign-up form.

Also, include a link to your pricing page within your website's navigation menu so customers can locate it quickly. The pricing page on your website, the subscription plans and pricing should be listed clearly in a language that your target audience will recognize.

Also, provide ways for subscribers to update their billing information, and change or cancel plan of subscription.

    Expand your business using the appropriate technology    

As the goal is to collect recurring payment from your customers, it is important to ensure that your billing software works by the appropriate tools to receive and process these payment.

If you typically deliver a variety of goods to clients at the same time, a bulk shipping service can help streamline the shipping process and reduce costs.

    Deliver exceptional customer care    

On your website, include numerous ways for prospective customers or customers to contact your customer service department if they have questions or have issues. Some contact options include chatbot or live chat, emails, and telephone calls.

The ease at which people have access to your customer support and the level of service that they get could determine whether they'll keep their subscription or not. Therefore, you must ensure that you're offering the top possible customer support to your base and forging relationships with the people they interact with.

A few examples of services that utilize a subscription model

The subscription business model is employed in various ways by companies across a variety of sectors. Below are five organizations which have succeeded in using a subscription-based pricing structure.

    Online courses - Copy School    

Copy School is an extensive online course that teaches students how to write various kinds of copy that is strategic -- including copy for social media, websites, advertising, and email -which is for businesses. The class is intense and has created amazing copywriters who work with billion-dollar companies and earn top dollar.

Because of this, the price for Copy School is expensive -- $3,997 one-time payment for unlimited access (or $1,998 one-time payment for the ad-supported course). But, Copy School has two subscription options that make it easier for clients to pay for it: $348/month (ad-supported) or $697/month over six months.

    Streaming platforms Netflix    

When it was first introduced to markets, Netflix was a DVD rental service. But with the emergence of smartphones, broadband internet as well as smart TVs, Netflix was rebranded as the video-on demand (VOD) platform. Now, it's a subscription-based streaming platform that allows users to watch movies and TV shows on internet-connected devices.

Netflix's pricing tiers vary from $6.99 to $19.99. The plan you choose depends on the quality of your video and the number of devices the subscriber wants connected to the same account.

    Software-as-a-service platforms -    

    Memberships ClassPass ClassPass    

ClassPass is a membership program designed for fitness and beauty enthusiasts. By acquiring an ClassPass membership, customers can schedule appointments or classes at the top studios, gyms, salons, and spas across the globe. ClassPass' subscription packages range from $19/month (for eight credits) up to $159/month (for 80 credits ).

    Physical items - BirchBox    

Birchbox sends its customers boxes which contain between two and six beauty products every month. The beauty boxes are customized based on a quiz that customers take at beginning. This allows customers to try out different beauty items, since the same product is never sent twice.

When a customer is able to find a good product, they can buy it through the BirchBox website. The monthly subscription starts at $13/month, and you can get discounts on 3-month, 6-month and 12-month subscriptions.

Increase your revenue by implementing a subscription model for your business

In subscription-based companies, you can't just make up prices randomly and then expect customers to join. You have to put in the work. Your customers will only keep their subscriptions if they are satisfied that they're getting sufficient value for the money they pay.

To provide value to your customers To provide this value, you must connect with your people, discuss with them about their concerns, and give them tried-and-true solutions. This is the only way to assign prices to your product that your audience will happily pay for.