The Thousand Solutions Blog

The Reasons to Try a Subscription Business Model (+ How to Do it)

May 9, 2023

Many creators are moving away from a one-time pricing structure to a subscription-based pricing structure. This is due to a simple reason that the regular payment structure allows them to generate regular revenue.

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

The average one-time selling conversion rate for all industries is between 2.35 percent to 5.31 percent. If you launch an online course using an upfront price model, fewer than 5percent of the people who view your course will purchase the course. The initial revenue may seem to be a bit high at first but it's impossible to know how much money you'll be able to make in the subsequent month, especially if the traffic to your sales website fluctuates.

If you choose to use the subscription model of business instead it is possible that the first payout will be smaller, but you'll have the ability to forecast how much money you'll make over the next few months. So instead of trying to acquire new clients, you could work on improving your online course for existing students.

This improves your learners' satisfaction, builds their loyalty and stimulates them to promote your courseand, consequently results in a higher number of subscribers.

Read on to find out:

What's a subscription business model?

A subscription business model is one where customers have to pay a monthly, weekly, or annual fee in order to access your product or service. Based on the time they choose the customer can renew their subscription the duration of using your product.

Business models that are based on subscriptions benefit both those who create the courses and also the client. For course creators (and the business owner), you can leverage your current relationships with customers to generate predictable revenue. This allows you to keep spending money on your business, and stops you from over-saturating the audience with your courses often. Students have the choice to cancel your membership at any time you want but without paying more than you would have if you had paid in advance.

If you provide the best product or service in the correct industry, a subscription business model could be a lucrative method of earning revenue.

How does a subscriber business model work?

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

You charge your customers in recurring installments for your product/service and provide the option to cancel or renew at any time. Customers decide when and for how long they wish to purchase your offer. If a client keeps renewing their payments (usually using a debit or credit card) this offer will remain open to the customer. But once they fail to renew, they lose the access instantly.

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

Popular examples of companies that charge their customers on a subscription basis include Netflix, Microsoft, and Spotify, and they have been reaping the benefits of this model for years. The good news is, this business model isn't limited to huge corporations. It's possible to use it to create your own product, too.

Advantages of a recurring business model

The subscription model of business has many benefits. Here are five of them:

    Predictable revenue stream    

One of the best aspects of a subscription business model is the fact that it allows you to forecast how much revenue your company will earn each month (or year). Because your clients pay on a regular basis it is easy to know what they'll have to pay as well as the precise moment they'll need to renew their payments.

If you take into account your churn percentage when you factor in your churn percentage, you'll have the ability to determine your monthly recurring income (MRR) near accurately.

For example: Say you have a 7% churn rate and 2,500 students enrolling in your program at $20/month. Even if you get no new students the following month, you'll earn at least $40,000.

The longer the time your program is in place, the better you'll be able predict how many customers you gain or lose during a particular period of time. It's easier to determine your MRR and annual recurring revenue (ARR).

    More effective Customer Acquisition    

Say, you earn $2000 per month in your job that's part-time in the barista trade and are seeking to improve your skills by enrolling in a project management course. The one you're looking for offers two pricing models which are $1,000/one-time payments and $70/month. Which pricing structure seems more suitable for your needs currently?

My money is on a monthly subscription payment.

Sometimes, the price for a product could seem too costly to a potential buyer. By breaking the cost down into monthly, weekly or annual installments makes it more affordable and allows potential buyers to include it into their budget. This way, more people that can afford to pay monthly will convert and enroll to your class.

    Lower customer retention spends    

As your students continue to pay for your courses so you do not have put aside the same amount of money to target them as it would be when your class was based on a one-time pricing structure. Since they keep renewing their payments, it is safe to say that they're committed to a long-term association with you. It's less likely to lose them which means you don't need to shell out a large amount of money in order to retain the customers.

    Stronger customer relationships    

In a single-payment structure that allows customers to pay one time for your course and that's it. Apart from the select few who may contact you to let you know about their progress, most will likely not interact with your business much.

Subscription business models, however lets customers have access to you (and in turn) for all time. If your customer support team is always there answering your students' inquiries and solving their problems they will begin to believe in your company's reputation. This will greatly influence the decision of whether or cancel their subscription.

    Possibilities for upselling and cross-selling    

In 1968, social psychotherapist Robert Zajonc devised the mere exposure theory. It says that when a person encounters a stimulus, they develop more positive attitudes towards the stimulus.

For business, this implies that the longer your customers are able to access your products it will be more familiar appear to your customers. As a result, your customers will be more likely to buy other items or services you have to offer.

By cross-selling, you're creating additional offerings to existing offers at a greater cost. If, for instance, you only offered your online course at $25/month, you could add your unique membership program and offer both for $35/month.

By upselling, you're entice your existing customers to purchase a higher-priced product. For instance, if you're offering a course at $25/month, you might promote your similar, but higher-priced course for students to $30 per month.

The new customer might not want to take the more expensive choice right away. However, a customer who's been signed up to your course for a period of 6 months may upgrade their plan (or buy the higher-priced course) due to what value you can provide with your program.

How to move into a model of business that is subscription-based

If you're considering using a subscription business structure for your product there are six actions you must take:

    Figure out whether your company is a suitable match for this price structure.    

Before setting up an underlying subscription-based pricing model for your company, you need to figure out if it's the right pricing model for your business. If, for instance, your service is one that clients require continuous access to -- such as a fitness program or an online boot camp the subscription structure will be ideal for your business. But if it's a one-off course, then it likely won't be a great choice.

Once you're sure the subscription model would be a great fit for your product, take your next steps.

    Make realistic objectives to your subscription-based enterprise    

Your goals that you want to attain through your venture will determine the price points and the tiers you choose. When you are deciding on pricing consider what I would like to achieve with the subscription model of my business?

Are you looking for faster growth or more revenue? or is it more effective retention of clients and customers?

In addition, your objectives help you determine rates that help you draw the ideal customers They'll also affect the tone of your site/sales page copy.

    Pick a subscription price strategy    

Then, you can get to the most enjoyable part of creating your subscription bundles.

If you're only trying an underlying subscription-based pricing system initially it's possible to keep things simple by creating at least two or three packages. When you've measured your conversions and gather the feedback of your customers you'll have the opportunity to design more levels that meet their needs.

To do that take note of these aspects:

  • The way you communicate the value of your product to your customers
  • The industry standards
  • The price incentives for your packages

If you aren't sure where to begin consider the options the competition offers. It is important to tailor your packages more appealing to the people you want to target.

In the case of giving Pilates to new parents then you can look at the price packages of different Pilates programs on the internet. If you discover that price ranges from $20 per month to $65/month, then you may apply this as a base.

A beautiful packaging design doesn't necessarily mean pricing your item lower than competitors. You could still charge in the same range, but offer slightly more incentives or benefits. It's possible to charge an extra amount than your competitors when you're offering benefits that they're not.

The main point is that your clients should look at your pricing tiers and think that you are a good choice. If they did business with you, they'll get an excellent value.

    It makes it simple for prospects to sign up    

The process of signing up for a subscription plan should be straightforward and straightforward. Your customer shouldn't to be confused as to the best way to sign-up after they visit your site. You also don't want your prospects to waste 30--60 minutes navigating your sign-up form.

Also, include a link for your price page within the menu navigation on your website so visitors can easily find it. The pricing page on your website, the subscription plans and prices should be clearly listed in a language that your target visitors can be able to comprehend.

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

    Expand your business using the appropriate technology    

Because the intention is to receive recurring payments from your customers, it is important to ensure that your billing software works with the proper tools that can receive and process these transactions.

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

    Provide exceptional customer service    

In your site, you should provide numerous ways for prospective customers or customers to contact your customer service department if they need help or run into problems. Some contact options include chatbot and live chat as well as email or phone calls.

It's the ease that people are able to contact your support staff and the quality of support they receive may very well decide if they'll continue their subscription or not. You must make sure that you're offering the top quality support possible to your customer base, and establishing relationships with your customers.

A few examples of services that utilize a subscription model

Subscription business models are used in different ways by various businesses in different niches. Here are five companies who have found success using a subscription-based pricing structure.

    Online courses - Copy School    

Copy School is a robust online program that shows people how to write all kinds of copy that is strategic -that includes copy for social media sites, website advertisements, as well as emails- for companies. This course is intensive and has resulted in extraordinary copywriters who have worked with multi-million dollar companies, and make top dollar.

Because of this, Copy School's price Copy School is expensive -it costs $3,997 as a one-time payment to get life-long access (or 1.998 once-off payment for an ad-supported program). However, Copy School has two subscription packages that make it easier for the customers to afford it -- $348/month (ad-supported) or 697/month for 6 months.

    Streaming platforms - Netflix    

At the time it launched on the market, Netflix initially was an online rental platform for DVD's. However, with the advent of broadband internet, smartphones and smart TVs, Netflix changed its name to the video-on demand (VOD) streaming platform. It's now a streaming platform with subscriptions that allows users to watch movies and TV shows on internet-connected devices.

The pricing levels of Netflix vary between $6.99 up to $19.99. The plan you choose depends on video quality and the amount of devices that the user wants connected to the same account.

    Software-as-a-service platforms -    

    Memberships ClassPass ClassPass    

ClassPass is a membership program for beauty and fitness enthusiasts. Through a ClassPass membership, customers can book classes and appointments in top gyms, studios, salons, and spas around the world. ClassPass's subscription plans range from $19/month (for eight credits) up to $159/month (for 80 credits). ).

    Physical products BirchBox    

Birchbox delivers its customers box with two to six products for beauty each month. The beauty boxes are customized according to a questionnaire that the client takes at beginning. This allows customers to try out different beauty products, as the same product is never sent two times.

When a customer finds a product they love and want to purchase it, they can do so directly on BirchBox's website. A monthly subscription costs $13/month, and you can get discounts for 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 set random prices and just wait for customers to sign up. You have to put in your effort. Your clients will only be able to renew their plans if they feel like they're getting the most value from their dollars.

In order to provide this benefit, you'll need to connect with your customers, talk to them about their concerns as well as offer them tried and tested solutions. Only then can you ascribe costs to your products that people will be happy to subscribe to.