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The Reasons to Try the Subscription Business Model (and How to Go About it)

May 9, 2023

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

Just look at successful creator for Sew it! Academy: Mimi Goodwin as an example.

The average one-time selling conversion rate across industries stands between 2.35 percent to 5.31 percent. That means if you create an online course that has an upfront price model, fewer than 5% of your audience would purchase it. Initial revenue might seem to be a bit high at first however, there's no way to know how much money you'll make the following month, particularly if the traffic to your sales site is sporadic.

If you choose to use an alternative business model that relies on subscriptions it is possible that the first payout will be less, however you'll have the ability to forecast the amount of money you'll earn in the following months. So instead of looking to attract new customers, you can work on improving your existing online courses for learners.

This improves your learners' experiences, which makes them more loyal and stimulates them to recommend your course to others -- which, in turn results in a higher number of subscribers.

Read on to find out:

What exactly is a model for a subscription-based business?

Subscription business models are the one in which clients must pay a daily, monthly, or annual fee in order to access your service or product. Depending on the length of duration they decide to choose they can opt to renew their subscription for as long as they're utilising your service.

Business models that are based on subscriptions benefit both the creator of the course and the customer. As a course creator (and business owner) you are able to leverage the existing relationships with customers to generate predictable revenue. This allows you to continue investing in your business and stops you from over-saturating your audience with your course all the time. If you're a student, you'll have the option of cancelling the subscription at any time and without having to pay more than you would have if you had paid upfront.

If you provide the best product/service in the right market, a subscription-based business is a profitable way of generating income.

What is a subscription 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 customers with the ability to cancel or renew at any point. Your customers choose how long and how often they wish to purchase your service. So long as the customer continues to renew their payment (usually by using a credit or debit card) this offer will remain open to customers. If they do not renew, they lose the privilege immediately.

The subscription business model was first introduced in the 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.

Some of the most popular firms that are charging their customers on a subscription basis include Netflix, Microsoft, and Spotify which have been reaping the benefits from it for a long time. There's a good thing about it, the business model doesn't have to be limited to big companies. You can use it for creating your own product too.

The benefits of a subscription business model

The subscription model of business has tons of advantages. These are just five:

    Predictable revenue stream    

One of the most appealing advantages of a subscription-based business structure is that it allows you to forecast how much revenue your company will earn each month (or the entire year). As your customers make payments repeatedly and you know the amount they'll be paying and at what date they'll have to renew their payment.

If you take into account your churn rate when you factor in your churn percentage, you'll have the ability to forecast your monthly recurring revenues (MRR) near exact.

For example: Say you have a 7% churn rate and 2,500 students enrolling in your program for a fee of $20 per month. Even if there are no new students the following month, you'll be able to 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 duration of time. This makes it easier to predict your MRR and annual recurring revenue (ARR).

    Better Customer Acquisition    

Imagine that you earn $2000 per month in the part-time work you do as a barista and you're seeking to improve your skills by enrolling in an online course in project management. The most effective one that you can find has two pricing structures 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 installment.

Sometimes, the price of a product may appear too high for a prospect. Breaking down the price into weekly, monthly or annual payments make your product less expensive, and helps prospects incorporate the cost in their budget. So, more individuals who 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 course, you don't have to set aside as much money to target them as it would be had your program operated under an all-in-one pricing system. And because they renew their fees, it's safe to say that they're determined to maintain a long-term relationship with your institution. This makes it less likely for them to churn and you won't need to invest a significant amount of cash to keep them.

    Stronger customer relationships    

With a one-time payment structure that allows customers to pay one time for the program and that's it. Apart from the select few that might contact you to tell you of their progress, the majority people won't communicate with your business much.

The subscription model in contrast, allows customers to have access to you (and vice versa) for the duration of time that is possible. When your customer service 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 their choice to either renew or not renew their subscription.

    Opportunities for upselling and cross-selling    

In 1968, social psychotherapist Robert Zajonc devised the mere exposure theory. This theory states that when an individual encounters an object, they acquire an attitude towards that stimulus.

In business, this means that the longer your customers have access to your product it will be more familiar appear to your customers. When this happens, your customers will be more likely to buy additional services or products that you provide.

Cross-selling is the process of creating additional offerings to existing offers with a price that is higher. As an example, if you're only offering the online course for $25 per month then you can add your unique membership program and offer both for $35/month.

With upselling, you're convincing existing customers to buy the product at a higher price. If you're selling the course for just $25/month you might promote your similar and higher priced course to your students at $30/month.

The new customer might not want to take the more expensive alternative right away. But someone who's subscribed to your course for 6 months will likely change their plans (or buy the higher-priced course) due to the value your course offers.

How do I transition towards a subscription model for business

If you're thinking of using a subscription business structure for your product there are six steps to follow:

    Figure out whether your company is a good choice for this structure of pricing.    

When you are deciding on the subscription-based pricing system for your company, you need to figure out if it's the right pricing structure for your company. In the case of example, if your service is one that customers need to access continuously for example, an online fitness course or online boot camp the subscription structure will be ideal for you. If it's only a once-off program, it won't be a great choice.

Once you're sure the model of subscription-based business will be a great fit for your service, proceed to the next step.

    Make realistic objectives to your subscription-based enterprise    

Your goals that you want to attain through your venture will influence the price point and the tiers you choose. Before you decide on prices, ask yourself what I would like to accomplish with the subscription model of my business?

Are you looking for faster growth or greater revenue? Is it better retention of clients and customers?

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

    Choose a subscription pricing strategy    

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

If you're just experimenting with an underlying subscription-based pricing system to the first time it's possible to keep things straightforward by making at least two or three packages. When you've measured your conversions and collect feedback from your customers, you can create more pricing levels that meet their needs.

In order to do this be aware of these aspects:

  • How you convey your product's value to your subscribers
  • The industry standards
  • The pricing incentives on your packages

For a good idea of where to begin consider the options your competitors are offering. Your goal is to create your products more appealing to your target audience.

For example, if you're teaching Pilates for parents who are new to the sport, you could check the pricing packages of other Pilates programs on the internet. If you see that prices range from $20/month to $65/month, then you may take this as your base.

A beautiful packaging design does not necessarily mean you should price your product lower than your competition. It is possible to charge the same price bracket, however you give slightly better incentives or perks. You could even charge a bit higher than your competitors when you're offering benefits that they're not.

The bottom line is that customers must examine your pricing options and feel like if they do business with you, they'd get a bang for their buck.

    Make it easy for prospective customers to sign up    

A subscription should be simple and straightforward. Your customer shouldn't to be confused on the best way to sign-up when they arrive on your website. You also don't want users to be wasting 30 - 60 mins navigating your sign-up forms.

Additionally, you should include a link to your pricing page in your website's navigation menu so prospects can find it easily. Your pricing page should include your subscription packages and their pricing should be listed clearly in a language that your target visitors can recognize.

Finally, include ways for customers to change their billing information and upgrade or cancel their plan of subscription.

    Grow your business by using the appropriate technology    

Since the plan is to collect recurring payment from customers, you want to ensure that your subscription billing system is supported with the proper tools that can receive and process these transactions.

If you typically send a large number of items to clients at the same time using a bulk delivery service, it will help you streamline your shipping process and reduce costs.

    Offer exceptional customer service    

Your website should include numerous ways for prospective customers and clients to connect with your customer service team when they are having questions or run into problems. Contact options may include chatbots and live chat as well as email or phone calls.

The ease at which people have access to your customer support and the level of service that they get could determine if they'll renew their membership or not. You must make sure that you're offering the top quality support possible to your customer base as well as establishing connections with the people they interact with.

Examples of products that utilize a subscription model

Subscription business models are used in different ways by businesses across several sectors. Here are five companies that successfully use a subscription-based pricing structure.

    Online courses - Copy School    

Copy School is an extensive online program that shows individuals how to write all kinds of strategic copy -which includes content for websites, social media ads, and emails -- for companies. The class is intense and has resulted in incredible copywriters that work for billion-dollar companies and earn high-end money.

Due to this, the price for Copy School is expensive -- $3,997 one-time payment for unlimited access (or the one-time payment of $1,998 to take advantage of the ads-supported course). However, Copy School has two subscription options which make it simpler for the customers to afford it: $348/month (ad-supported) or 697/month for six months.

    streaming platforms - Netflix    

When it was first introduced to its market Netflix used to be a rental of DVDs. However, with the advent of broadband internet, smartphones as well as smart TVs, Netflix was rebranded as an online video-on-demand (VOD) streaming platform. Now, it's an online streaming service that allows users to watch television and movies on connected devices via the internet.

Netflix's pricing tiers vary between $6.99 to $19.99. The choice of plan is based on video quality and how many devices a subscriber wants to join to one account.

    Software-as-a-service platforms -    

    Memberships ClassPass ClassPass    

ClassPass is a program for membership that caters to fitness and beauty lovers. By acquiring an ClassPass membership, members can book classes and appointments in top gyms, studios Salons, spas, and gyms across the globe. ClassPass membership packages vary between $29/month (for eight credits) and $159/month (for 80 credits ).

    Physical products - BirchBox    

Birchbox provides its customers with boxes which contain between two and six beauty products every month. Each beauty box is customized by a test the client takes at beginning. This allows customers to experiment with different products, as the same product is never sent twice.

If a client finds a product they love, they can buy it directly on BirchBox's website. A monthly subscription costs $13 per month and discounts are available for 3-month, 6-month, and 12-month subscriptions.

Increase your revenue by implementing a subscription model for your business

With subscription-based businesses You can't simply make up prices randomly and then just wait for customers to join. It's up to you to do the effort. Customers will be more likely to keep their subscriptions if they believe they're receiving the most value from their dollars.

To provide value to your customers You'll have to connect with your people, discuss with them about their concerns as well as offer them tried and tested solutions. This is the only way to assign the price of your service which your customers will gladly sign up for.