The subscription business model is here to stay in Nigeria.
It is an eCommerce business model that very few people know about. And most of those that know are yet to implement as a business strategy.
Most of the internet-based eCommerce businesses as of today monetize their platform using the advertising model.
They allow users to use the platform for free and then filled the site with ads. The site, therefore, looks clumsy and distracted. News websites are bad about this.
My hate for seeing news websites cluttered with ads led me to start one that offers a clean and smooth experience to the users.
Founders of WhatsApp, Jan Koum and Brian Acton, built WhatsApp with a subscription business model in mind with a charge of $1 per year.
$1 per year may mean nothing to you as it seems like small money. But if you consider collecting $1 from over 500 million users, you will marvel.
In this article, you will learn:
- How to apply the subscription business model to your business no matter your industry?
- Ways your business will be more profitable and less stressful after you embrace the subscription business model.
- The different subscription model types and how they apply to your business.
- How to measure the success of your subscription business model business?
Let’s get started.
History of the Subscription Business Model
The subscription business model started far back in the 1500s when there were many undiscovered lands.
The European map publishers would invite people to come to pay for the future editions of their maps covering lands yet to be conquered.
Soon the newspaper publishing industry adopted this method in the early 1700s.
They also would ask readers to subscribe to monthly editions of their magazines.
A well-known pioneer in subscription-based news is Wall Street when they asked users to pay for their best content.
Within 18 months, they had records of 200,000 paying customers.
The Financial Times followed by introducing a “metered model” paywall.
Ever since companies embrace the subscription business model.
Subscription Business Model Case Study
The king of ecommerce, Amazon, started out selling books but today sells almost everything from detergent to electronics.
But those are not my focus. My focus here today is Amazon Prime.
As of the time of writing this, Amazon subscribers pay $99 a year for streaming movies and also free shipping on some products.
The report shows that Amazon makes more profit from prime members in a year than typical customers.
The world’s most successful technology company, Apple, found a new way to get customers for its business.
This happened when they shift their business model to focus on subscription.
It was in 2011 when Apple launched a project called Joint Ventures.
With Joint Ventures, Apple will help a business owner get up and start running for an annual fee of $499.
They will set up your computer, transfer your data and train your employees in using their new products.
Also, the Apple One to One is another subscription business model. They help customers repair and service their (Apple’s) products for $99 per year.
Microsoft also has gotten its share of the subscription economy.
They launched what I consider today the world’s most successful software program in history, Microsoft 365.
They [Microsoft] want you to pay for their products once and forget them.
So, they launched into cloud computing offering their products based on subscription.
Other industry case studies:
Charge a one-time fee for installations and monthly monitoring revenue.
Doctors can offer patients the subscription model for a regular checkup.
Also, a pharmacist can send drugs and supplements to his patients’ needs every day to him.
Homes and Gardens:
You can help your subscribers weed their grasses and clean their homes a certain number of times per month for a fee.
Your business can run on a subscription model by offering your services based on the chosen package.
For example, a graphic designer can charge subscribers for 10 or more graphics works per month on a subscription basis.
Sell subscription to hotels and offices, offering them the delivery of fresh-cut flowers.
You can also charge more to help them change the flowers every week or month.
Consulting or Coaching:
Develop a system and method that standardize your service offering.
A client who needs your help today will need it tomorrow. Turn him/her to a subscriber.
The big companies, Amazon, Apple, Microsoft, and many others are not rejecting the buy and sell model.
They are only adding a subscription model to build recurring revenue for their businesses.
Whatever it is you do, a subscription model will boost your income and the overall value of your business.
How I Got the Subscription Business Model Ideas?
When I started out in my web design business, build a relationship with clients, listen to their needs and offer a solution to them.
After listening, they will ask me to send my proposal. Since each project is different, I will have to sit and craft out a proposal that will meet up with client’s expectations.
The good news is, “Most never got back to me” Oh! Sorry. That was bad news.
The stress of having to get new clients was stressful. Every month I had to depend on running Facebook Ads or word of mouth.
And even when you meet with one, his expectations (should I say way of thinking) is awkward.
They will always have an excuse:
- The price is too much (for a premium service?)
- I will get back to you when I am ready. (Not still ready)
- I don’t need a website now (seriously) and more.
With time, I could overcome the stress of writing a proposal for each client. How?
I stopped offering custom services and prices. I productized my services.
It was possible by listing my offerings, charges, and terms and conditions on the site and in print.
When you see my packages, you immediately decide if my services are for you or not.
That alone sieve out chaff clients from the serious ones. Which in turn saves me the stress of answering calls often.
The singular reason why you don’t price at the supermarket is not because of the environment, nor the quality of products you are buying.
It solely because the price is already on it. So, if you can afford it, you add it to the basket. If you can’t, you walk away.
Humans like to abuse freedom. Don’t allow that in your business.
But that business model was not enough. Yes, I could save time and energy in dealing with clients. That didn’t stop the fact I have to seek new clients every month.
To combat this.
I choose the subscription business model.
You understand that the motive behind the subscription business model was not the low price. It was, so they won’t do business elsewhere.
I welcome you to join me.
What are the Subscription Business Model Benefits?
Saves Time and Energy
At the time Facebook acquired WhatsApp, it (Whatsapp) only had 55 employees.
Operating on the subscription business model saves you the headache of managing employees.
Also, the subscription model saves both you and your subscribers time.
For the subscribers, it takes away the repetitive task of buying the same products over and over.
For you, it takes away the headache of begging customers to pay their fees when it’s due.
Recurring Revenue and More Profit
This business model allows you to build recurring revenue that allows you to bring in sales without having to sell to customers every month.
For example, in my web design business, I receive a fee to launch a client website.
And I collect a monthly (subscription fee) maintenance fee – more money to my account.
These is the most obvious benefits of the subscription model.
Sustainability and Easy to Sell
With this model, you can run your business without your presence. You are the owner, yet it doesn’t depend on you.
Investors appreciate businesses with future promising profits than one with only records and rewards.
If your business runs on the subscription business model, it makes it easy to sell whenever you choose to.
In this century, we base companies on their recurring revenues.
Remove Guesswork and Charge Upfront
If you sell physical products, one major you will have when making orders is to regulate your demand.
If you stock low, you lose out of sales because of customer demand. And if you stock high, you end up with products all over with no customer to buy.
Have you been when you have to keep reminding clients to pay after you have delivered your services?
Then you should embrace the subscription business model. You can now know the amount of demands you have based on your existing subscribers and charge upfront.
Also, charging for a subscription means you have more cash upfront than your current level of work.
Most small businesses today are closing because of fierce competition from big companies. One reason is that they operate on the capital gain (onetime sale) and not cash flow (recurrent sales).
The subscription business model can make them the David over Goliath.
When customers pay for a subscription, they want to use their money worth to the last dime. They engage more with your business, which brings you more customers.
You see this when you pay for Netflix; you want to watch all movies even when you can’t exhaust the movies.
Subscription Models Frequently Asked Questions
What are the factors affecting the subscription model?
While there are many factors influencing this model, I will mention these three as top influences.
The Buyers’ Markets
Today’s buyers prefer to rent. They prefer access over control. They believe in eCommerce than their ancestors. These gave room to welcome these business models.
Access to Data.
It is easy for you to get customers’ data based on a repeated purchase than a one-time sale.
A user who keeps subscribing to a particular service shows deep interest in that category. So, business owners prefer this.
Most small businesses can only afford to pay for a small space. This forces them to display only certain products they feel customers will buy.
With your eCommerce website, you can display as many products as you have without restriction.
As you know, eCommerce works perfectly with the subscription model.
Does the subscription business model have pros and cons?
I have mentioned the pros above. They include:
- Saves Time and Energy
- Recurring Revenue and More Profit
- Sustainability and Easy to Sell
The cons are:
- You will get less cash in the short term when users subscribe than they buy. Don’t panic, you have the customer’s lifetime value.
- Your investors, partners, or employees will most likely fight against. It’s not their fault, they just can’t see as much as you are seeing.
- You will be afraid to make the switch to a subscription since you have run your business in the traditional way ever since. You can start with some aspect of your business, not the whole.
The subscription business model is worth applying in your business.