subscription business model

The Subscription Business Model

There has been a lot of talk about digital disruption the last couple of years. The digital revolution has transformed various industries. Giving birth to many new companies, but has also closed down many businesses born in the “pre digital” world.

The transformation

One thing worth noting is that the digital revolution, which is transforming not only industries and the way that we deliver products and services to consumers, is also the changing the business models as well.

Reepay’s very existence is based on the gigantic shift we are seeing in business models. Accommodating consumers turning from buying products to subscribing to services. This change in purchasing behaviour have been brought about by consumers need and wishes for flexibility – as wells as companies wishes for a predictable revenue stream. The more predictable a company’s revenue stream becomes, the less exposure it will be to risk and volatility. Something which owners and investors like very much. The subscription business model is by nature a perfect vehicle for a company to build a predictable revenue stream.

The Subscription business model

The creativity when it comes to what kind of goods and services can be sold as subscriptions knows no limits. We all know the usual stories of Netflix, HBO and Spotify who turned around the media habits of millions of consumers by introducing a subscription based model for media consumption. From owning a physical media product, consumers now subscribe to a media service.

However, the last couple of years has also seen the rise of subscriptions for a wide range of products such as Stationery, Socks, Chocolate, T shirts, Diapers, Contact Lenses, Printer Ink, Lipstick, Food, Beauty and Makeup products just to name a few – all delivered directly to you door, providing value and convenience.

We are also starting to see new “radical” subscription ideas and concepts evolving from the “predefined” package, to subscription business models where the business gives consumers discounts in online stores. Take http://www.chanti.com/ which has an attractive paid loyality club, where a small subscription fee keeps Chanti’s customers motivated to use the discounts and revisit the shop, instead of googling before the next purchase. Or take http://www.luxplus.com where a subscription gives consumers access to purchase products at wholesale prices.

We see many of these new types of subscription concepts starting up, and evolving right now. This is indeed an exciting time to be in the subscription business!

Managing the subscription business model

As mentioned in the beginning, the reason subscription revenue is so valuable, is that you can spend more of your energy growing your business rather than trying to acquire enough new or repeat business, just to reach the same revenue level as the year before.

Even though you can focus more of your time hunting for new business. It is of great importance that you devote, as much focus as you possibly can on a subscription based company’s worst enemy -churn.

Churn is the amount of customers canceling their subscription for any reason. The good and stable subscription business is centred around combating churn. In essence, how to keep the customer from cancelling their subscription.

Many businesses has used vast sums in improving churn prevention processes. Most companies have good knowledge and experience in retaining customers who actively decides to cancel their subscription. An example could be a customer who calls to cancel their mobile phone subscription. What department would that customer get connected to? Not the department for cancelling subscriptions, as you might think, but the department for retention, which will most likely offer a discount to stay.

But then there is involuntary churn, where the customer does no active action to cancel the subscription. For example because of missing funds or expired/blocked credit cards. Most companies have little or no process to handle these cases and for many companies there is a lot to gain. Optimizing this churn will be well worth it for business in search for a competitive edge.

 

At Reepay we have invested a lot of time and effort within retention. And we consider our tools and methods leading edge within the subscription industry. So if you want to take on a subscription business model, don’t hesitate to reach out.

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