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What You Need to Know About Starting a Subscription Business

Posted by Origins Ecommerce - June 15, 2020 in , ,

The subscription economy is thriving. Regardless of what goods and services you offer, there has never been a better time to add a subscription component to your business. In this article, we will lay out some important considerations to make when starting a subscription business.

The Expanding Subscription Economy

As we move through the second decade of the millennium, we are seeing more and more businesses of all shapes and sizes upgrading their portfolio to include a subscription component. There is no shortage of reasons why this is trending so significantly:

It is quite clear that we’re living in a more subscription-oriented economy, and businesses who can add a that element to their model stand to benefit tremendously.

With that in mind, here are a few core essentials that you need to know whether you’re starting a subscription business entirely from scratch, or simply trying to optimize your existing one.

Retention First, Acquisition Second

While it may seem like acquiring new customers should be your number one focus (and it is important for the health of your business), it is not nearly as significant as customer retention. Subscription businesses thrive on recurring revenue, and if you cannot retain your existing customers, you will not be able to manage a stable business.

It is paramount that your subscription business has a retention strategy in place. This strategy should be reviewed and optimized on a recurring basis as well; your customers are the lifeblood of your business, so keeping them happy and subscribed is essential.

Addressing Churn

Going hand in hand with retention, churn is an important KPI you will want to keep track of to measure how “sticky” your product is with customers. You will always be faced with some degree churn that cannot be completed removed, but the percentage is entirely dependent on your retention efforts.

There are a lot of ways to keep your subscriber base, but here are a few tips to consider when putting together a plan for addressing and reducing churn:

Customer Segmentation

Not all customers are the same, but some of their patterns and use cases might be: develop customer personas and put together unique retention tactics for each persona respectively. It is more work, but the payoff is well worth it.

Personalized Experience

When it comes to customer loyalty, personalization is supreme:

  • 91% of consumers are more likely to shop with brands who provide relevant offers and recommendations
  • 80% of customers are more likely to purchase a product or service from a brand who provides personalized experiences
  • In 2019,72% of consumers stated they would only engage with marketing messages that are customized to their specific interests

Whether it’s product recommendations, email messages, or a team that is dedicated to making sure the customer’s unique needs and pain points are being heard and addressed, there are lots of ways to personalize the experience for your customers.

Involuntary Churn

Not all churn is instigated intentionally: sometimes your customer may be perfectly happy with your subscription service, but due to an unforeseen event like a credit card expiring, they might accidentally churn. This is no minor issue either: involuntary churn can account for up to 20% of a company’s overall churn rate.

The best way to handle involuntary churn is to onboard a payments platform with expertise in recurring billing that has mechanisms in place to automatically manage this using a method like dunning management and retry-logic.

Net Promoter Score

Another thing you can do to measure the customer experience is to put together a Net Promoter Score (NPS) survey. These surveys are designed to engage customers, determining their level of satisfaction with your business, and the likelihood of them recommending it to other people. A pre-emptive NPS survey can help you fix a leaky churn bucket before it becomes fatal for your organization.

Transitioning from Perpetual to Subscription

A common myth associated with starting a subscription business is that the transition from offering a perpetual product to a subscription one is too difficult to do smoothly. While there are certainly going to be some businesses that have a more complicated licensing model than others, the reality is that thousands of businesses have done this already, and the chances that yours is too complicated to do this effectively is simply not true.

Here are a few things to archive in the back of your mind when planning the transition:

  • Put the customer first. What can you do that will be as easy and frictionless for them as possible to hop on to the subscription model?
  • Determine a pricing model that makes sense. What are your customers comfortable paying? What price point would make sense for them? Consider what you’ve been charging for a perpetual license and offer a fraction of that at a monthly or annual rate.
  • Expect initial losses. Subscription businesses are not designed to make lots of money quickly. They prioritize long-term business health over rapid profits, so keep that in mind and prepare yourself for some revenue losses in your first year. Just know that you will likely recuperate this in the second and third years and be in a much healthier position than you would have been in with a perpetual model.

Price Flexibility

When you do determine an appropriate price for your subscription offering, remember that it does not have to be permanent. You are likely not going to get the price exactly right on the first try, and that is okay. Here are a few things to consider when you want to make a price change:

  • Value and trust. So long as you are providing a quality, reliable product or service, you’ll be providing a valuable offering that will keep your customers happy and trustworthy of your business.
  • Update often. This is particularly important if you plan on increasing the price: make sure you are continuously adding new features or service options if your product allows for it. When customers know they are getting more than they originally signed up for, they’ll be more comfortable with paying a little more.

At the end of the day, remember that it is much more effort for a customer to switch to a completely new subscription product than it is for them to pay more money due to a price change. So long as your customers trust you and the product or service is valuable, most of your subscriber base will choose you over a competitor.

International Enablement

In 2019, worldwide retail ecommerce accounted for 3.53 trillion US dollars, and is expected to soar to 6.54 trillion by 2022. In short: if you only cater your subscription business to one specific region, you are going to miss out on a lot of revenue opportunities.

Even if you are just starting a subscription business from scratch, expanding to new international markets doesn’t have to complicated – especially if you partner yourselves with the right payment processing solution.

Lots of out-of-the-box ecommerce solutions (like PayPal) can do this, and these solutions can further be enhanced and integrated with supplementary partner offerings so that you’re not only opening yourself up to even more markets, but you’re offering more advanced subscription management, reporting dashboards, tax collection, and cart localization – all significant things when optimizing your international revenue.

Any Business can Be a Subscription Business

Finally, the last key takeaway to make is that any business can be a subscription business, regardless of how niche your product or service may be. Whether you’re selling a physical good in the form of a subscription box, or a digital solution like a SaaS product, with a little creativity and the right pricing strategy, you too can hop on the subscription train and reap the rewards.

If you have any questions about starting a subscription business, or how to optimize your recurring payments processes, don’t hesitate to reach out to the Origins Ecommerce team. We will be happy to share our wisdom with you and help augment your business so that you are in a position to make even more money online.

About the Author

Origins Ecommerce

We love sharing our expertise in online payments and helping our customers succeed. From the technical team to our customer service team, everyone at Origins Ecommerce is ready to support your success. Our goal is to reduce your expenses and risks while optimizing your revenue, by managing your online payments for you. The Origins Ecommerce payment solution is there to keep your payments in motion, so you don’t have to.
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