The market for online subscription services and products has grown almost sixfold over the past nine years. You can subscribe to everything: grocery delivery, streaming services, online training, email newsletters, cleaning services or medical care. The subscription business is easy. Sell a product once and every month you deduct a subscription fee from the user. This is one of myths that arises among startups upon seeing successful subscription products. But not everything is so simple. You need to convince users to leave their credit card credentials, continuously provide value, monitor the status of subscriptions and payments.
In this article, we will tell you what difficulties you may encounter when implementing subscriptions and how to attract users. But first, let’s figure out what companies need a subscription business model.
Pros an Cons of subscription business model
From the outside, it seems that subscriptions are a one-stop solution for any business. But this monetization model is not suitable for all companies.
For example, online movie theater subscription services work because people watch movies every day. And introducing a subscription service to a long-term rent real estate is probably not worth it. Users will find accommodation and will not return to the product in the coming months.
You sell a mobile application or a SaaS solution
Subscribing to SaaS solutions and mobile applications is common for users.
Applications. Mobile apps help users in their daily life. For example, Flo monitors health, Tinder allows you to find a partner for a relationship, and Spotify collects music selections. Subscription apps earn 2-3 times more per user compared to products that use an advertising monetization model. Subscriptions work for mobile apps thanks to a simple workflow. For example, on iOS, payment goes through automatically via Apple Pay, you do not need to enter the bank card details and the code from the message. On the contrary, it is difficult to unsubscribe – you need to go to the Apple ID, go to the subscriptions section, select an application. Users either forget to do it or don’t want to do it with a lot of action.
SaaS products (Software as a Service). SaaS means Software as a service. It is a software licensing and delivery model in which software is licensed on a subscription basis. This is how Figma, Slack and Dropbox work. Subscribing to SaaS products reduces risks for users. For example, before Microsoft Word had to be bought once and forever. This was an expensive purchase. Now you can use it for a monthly fee. The fewer commitments are, the easier dealings are.
Some companies even charge you pay as you go. For example, Slack does not bill a user who is not logged in to within a month.
Your product provides access to content
Content is accessed by media products like Forbes, Netflix and Amazon Prime.
Video. Subscription model fits such products because consumers have a daily need for content. People won’t stop watching movies, listening to music and reading news. They are willing to pay for quality material. Content comes in many different formats: audio, video, or text. 71% of users are subscribed to paid services with video content, 29% – with audio content, 9% – with text.
Content. Bloggers’ creativity can also be monetized by subscription. Patreon is a platform for receiving monthly payments from fans.
The content can be educational. Online education helps to gain knowledge and skills over the Internet. For example, you can take courses on Coursera Plus, Skillshare Premium and Linkedin Learning. Website subscription services work for educational products aimed at training and self-development.
A subscription helps you more accurately predict the flow of money by making payments more regular.
Knowing the number of paying users and their average lifespan in the product, you can plan expenses for the next period.
You operate in the D2C-ecommerce model
D2C-ecommerce (direct-to-consumer) companies manufacture and ship products directly to users without intermediaries. You can deliver anything: wine like Winc does, cosmetics – like BirchBox, or home cooking kits – like Blue Apron.
Subscribers in this area are on average 217% more profitable than one-time customers.
Sellers forge long-term customer relationships and save money on repeat users.
An example of a successful business is the Grow Food delivery service for cooking.
Your product makes life easier
Users are willing to pay for services that make their lives much easier.
For example, you can keep track of finances manually on paper or in an Excel spreadsheet. Both are inconvenient – you need to record each purchase, categorize, plan the budget.
Or you can use special applications like Coinkeeper. They integrate with banks and automatically manage your finances. It saves user time and simplifies budgeting.
Another example is the dating service Tinder. It helps to find a partner, taking into account your wishes. Users can only swipe and go on dates.
You provide an ecosystem
An online subscription for business, particularly within a business ecosystem, allows you to use products from one or several areas of life.
For example, an Amazon Prime subscription combines fast free shipping, discounts, cashback, access to Prime Video, Amazon Music, Prime Gaming and books in Kindle for $ 12.99 in month. The company also has separate subscriptions for music, movies, books and shipping goods.
Ecosystem subscription increases company sales. Users make a subscription for some services and start using the rest. This makes the user experience more pleasant – the audience can satisfy all their needs with one service.
For an online business, dealing with subscriptions in an ecosystem is much more complicated than when it is a standalone business. It is important to control not only the statuses of subscribers, but also the dependencies among products. For example, you need to make it so that users can use points for purchases in one product to pay for another.
Implementing such solutions requires a lot of effort. The result comes after a while the customer base grows. Not all startups can afford such a long-term investment.
There is a regular demand for the product
All of the above methods work under one condition. To make users want to subscribe, they should use the product regularly. Otherwise she will not justify its value. For example, a subscription to home appliances doesn’t make sense, since the product serves several years.
A subscription business is not as easy to run as it seems from the outside. This model monetization has its own difficulties. They are related to user attraction and retention.
How to attract users
Next, we’ll talk about how to attract users to a subscription product. You can:
- provide discounts and trials, host events, create content, or
- introduce referral and affiliate programs.
Make discounts. For 2/3 of consumers, discounts become a decisive factor for purchases. Time-limited promotion encourages the audience not to procrastinate decisions for later.
Tinder offers 75% off e-wallet subscriptions PayMaya. The banner indicates the expiration date of the promotion.
Arrange joint promotions with brands that are interesting to your target audience. This way you will get additional traffic and increase the number of users.
Talk about free trials. Until a person understands the value of the product, he or she is not ready to pay for it. The trial period allows testing the features before purchasing the product.
Spotify offers a free 60-day premium trial. Wherein the offer is valid for only 13 days.
On average, the trial period lasts 7-30 days. It depends on how long it takes for users to understand the value of the product. Also this metric is influenced by user acquisition cost and lifetime value.
Host events. Events can be used as a lead magnet. Participants of the event receive benefits in a concentrated form and understand that the product will benefit them. The event also serves as a filter – if a person has purchased a paid ticket, it means he or she is interested in the topic.
Netflix hosted a two-day Stream Fest. The company offered to use the service without attaching bank card details. This is how they removed the user friction. In two days, some of the festival participants understood the value of the platform and subscribed.
Product trial periods can be marketed as events. They’re easier to promote due to time constraints and virality.
Exceed audience expectations. Users always have a choice – they compare competitors’ proposals and choose the best. To make them want to subscribe to your product, you need to go beyond customer expectations.
The BetterMe fitness app does not just offer template workout routines. Users enter their data – weight, height, habits, nutritional wishes. The service analyzes data and offers personalized programs for weight loss at home. The app also prepares individual meal plans, calculated daily macros and a shopping list.
Invite clients to fill out a questionnaire to find the most suitable options.
Use referral programs. You can motivate users to invite friends to use your product – give gifts and discounts for each referral. People accustomed to ignoring advertisements, and heeding personal advice more readily. 92% of consumers trust the recommendations of friends.
For example, Birchbox gives a € 10 coupon for each user you invite, and donates 5 euros to the person who subscribes.
Google Workspace offers to earn money from each referral. They pay $ 8 for Business Starter, $ 15 for Business Standard and $ 23 for Business Plus.
Referrals receive discounts for clicking on the link, and users receive money for Bank account.
Use affiliate programs. Amazon Associates offers bloggers, publishers and content creators to share product recommendations with their audiences. They receive up to 10% commission for each transaction.
Closing
While determining your business model, you need to have a reliable partner by your side. We can provide you with customizations that undergo quality assurance and are delivered with 100-day guarantee period.
