If you’re like most Americans, you likely have a pile of deliveries on your doorstep several times a week. And among the Amazon Prime packages and grocery deliveries, you probably have at least one or two subscription deliveries in the mix.
Though most subscription companies used to be reserved for specialized services or print newspapers and magazines, today there’s a subscription business model for just about everything. You might have a subscription service for anything from baby diapers and baking kits to gym clothes and razors.
So what are the advantages to the consumer of a subscription over ownership? Do subscription models work? And are there any disadvantages of subscription business models?
The Rise of the Subscription Business Model
Over the past decade, subscription-based businesses have skyrocketed in popularity. There are many reasons for their rise, but perhaps the top factors are convenience and low cost.
Just as Costco members get access to low-priced products for an annual fee, subscribers can get access to cheaper products that get delivered right to their door. These products can even be customized and personalized to the taste of the customer, making them a desirable choice when it comes to the subscription model vs. pay-as-you-go.
The subscription business model is attractive to companies because it offers a more predictable income and greater customer loyalty. It also offers the chance to dive into untapped markets and can usually avoid the ups and downs of the market.
Disadvantages of Subscription Business Models
Even with the many obvious advantages of subscription-based companies, you may be wondering: Do subscription services make money? Why have a subscription business model?
Despite the many perks for customers, there are some disadvantages to a subscription business model for business owners. Fortunately, there are ways to overcome these disadvantages and come out on top.
Learn more about common disadvantages of subscription business models—and what to do when you face them.
1. Increasing Competition
Now that subscription-based businesses are popping up left and right, it’s more likely you’ll run into competition in the industry. This competition could make it more difficult to attract and keep customers—but all is not lost. You can set your company apart by choosing strong and unique branding, delivering top-tier customer service, and providing the highest quality product on the market—because nothing beats quality, consistency, and human connection.
Of course, there are still plenty of ideas left untapped in the subscription service industry, so get creative—and don’t delay! The longer you sit and think on your idea, the more likely someone else will beat you to the punch.
2. High Cancellation Rate
Customer churn is always something to consider when starting a business. And unfortunately, the subscription business model is no different. If you’re starting a new subscription company, you’ll need to consider the possibility of customer turnover and what you’ll do to avoid high cancellation rates.
You can work to retain customers by consistently offering new products, providing high-quality customer service, and making it easy for customers to cancel if they choose to do so. Making it harder for a customer to cancel will only make them resent your business more. They might even spread negative feedback about your business and drive more customers away. Instead, make the cancelation process as transparent and intuitive as possible.
3. Uncertain Revenue in Startup Phase
We’ve mentioned how subscription-based businesses are attractive because they provide a steady stream of revenue—but all that goes out the window when you’re in the startup phase. At this point, revenue can be very uncertain, and you may be questioning why you dove into this business model in the first place.
But stay positive and committed, because once you weather the storms of the startup phase, you’ll see a reliable flow of income that will outweigh the ups and downs of the typical market. Make sure you have a solid investment strategy to launch your business and you’ll be in good shape once you have a loyal customer base.
4. Initial Sign-Up Avoidance
It’s easy for consumers to purchase a new product once—there’s no commitment, and if they don’t like it, they can return it or simply avoid buying it again. But when there’s a contract involved, things get a little more tricky.
Many customers are wary of signing up for an ongoing service since they aren’t sure if they’ll find value in the product. They may want to avoid the commitment, or they may be worried about getting stuck in a contract that’s hard to get out of.
You can avoid this pitfall by setting aside a special budget for bringing in new customers and proving the value of your subscription services. You can also offer free, no-commitment trials and make it easy to cancel.
5. Constant Need to Provide New Value
Today’s consumers are easily bored—and even more easily distracted. For this reason, subscription business models need to constantly provide new value to their customers, which can be exhausting and time-consuming. Just as Netflix is constantly changing the movies and TV shows offered on their platform, other subscription services need to stay relevant by coming up with new products and services.
Fortunately, this can be overcome by building new and interesting products into the business model. For example, cooking delivery boxes can provide new recipes every week, and beauty boxes can include samples of the latest new products.
Get Help Managing Your Subscription Customers
As you’ve seen with these subscription-based business model examples, there are many pros and cons to running this type of business. Luckily, you can handle any obstacles that come your way with smart planning and research.
Still, running a subscription-based company can be overwhelming if you’re tackling it on your own. If you’re looking for more guidance on managing your subscription customers, ROI Solutions can help.
Contact us to learn more about our subscription continuity services. We’re experts in helping companies big and small handle all of the hurdles that may come with a subscription-based business model. Get in touch to see how we can help your business thrive.