More and more businesses are switching to a subscription business model. While subscription services aren’t new, they are experiencing a resurgence. This article looks closely at the pros and cons of subscription-based businesses.
Subscription businesses have a foreseeable revenue based on the number of subscribers. This offers you predictable cash flow, which is the lifeblood of any business. Subscription businesses are also more appealing to investors because of this predictability of cash flow and revenue they provide.
Pro: Can Spend More on Customer Acquisition
You can spend more on customer acquisition with a subscription model. Since customers are with you longer, they are worth more than they would be in a more traditional e-commerce model. Customer’s longer shelf life means you can spend more to acquire them and remain profitable. Being able to “buy” customers means you can grow your business faster and possibly replace customers you lose more quickly, offsetting some of your churn concerns.
Pro: Build Customer Relationships
Since your customers will ideally be around for a long time, you can build relationships with them and get to know them in more detail. It also allows you to get feedback from your customers quickly so you have a better idea of what they want, what they like about your service, and how a subscription service can best serve their needs.
Con: High Churn
The novelty can wear off pretty quickly if the service isn’t something the customer needs. You may not need a new workout outfit every month, but having the latest version of Photoshop is a necessity if you’re a graphic designer, photographer or someone else who needs photography software for their business. Outside of excellent customer service, the best way to prevent high churn is to ensure your service or product is a necessity, not just a convenience.
Con: Difficult to Keep Up Value
Part of the appeal of subscription boxes is the idea that you’re getting great value for your dollar. Spending $35 a month to get $150 worth of value can make signing up for a subscription box more than worth it. Over time, however, the value proposition of a box can be difficult to keep up.
You don’t want to keep repeating similar products to maintain value but risk boring your customers, increasing the likelihood they will unsubscribe. To combat the lack of value and boredom, be sure you are continually sourcing vendors for your box, and reach out to new and small companies outside of the mainstream.