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Is the Subscription Model Best for Your Business?

By Kaiti Norton
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Subscription models have taken the global economy by storm, and it's likely that you've already encountered them in your business or personal life. If you watch movies on Netflix or get your refill razor cartridges shipped to you automatically, you're a subscriber. Similarly, if you pay for your business software on a monthly basis, you likely subscribe to a Software-as-a-Service (SaaS) provider.

You might be wondering if your business could benefit from implementing a subscription model for your customers. The answer depends on a few key considerations:

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What type of subscription model is aligned with your business?

There are three primary subscription models that are most common. To determine which one is most appropriate for your business, there are three questions you should ask yourself. Will your prospective subscription model be:

  • Something you replenish?
  • Something you curate?
  • Or something to which you provide access?

The replenishment subscription model

With a replenishment subscription model, you'll be responsible for sending the same items to your customers on an automatically recurring basis. This offers your customers the convenience of truly effortless ordering and also secures predictable revenue for the future, even if the subscription price is lower than the price they would pay when ordering manually. Usually, this model is meant to replace the orders a customer places manually for something they use daily, monthly, quarterly, etc. Examples of businesses centered around replenishment subscriptions include Dollar Shave Club, Quip, and Ritual

The curated subscription model

A curated subscription model presents a unique opportunity to establish your business as a tastemaker or trendsetter. On a regular cadence — usually monthly or quarterly — you'll send your customers a package of specially selected items that are tied to a specific theme. This is ideal for businesses that have identified a niche market of customers who are looking for an easy way to explore new products. If your business frequently introduces new inventory, this model can be a useful tool for soliciting targeted feedback or testing a specific product before offering it to your broader customer base. It also creates an atmosphere of exclusivity for the customers who want a personalized, VIP experience while shopping. Prominent curated subscription services include FabFitFun, Scentbird, and Book of the Month Club.

The access subscription model

The access subscription model is perhaps the least demanding of your time and resources. As the name indicates, this type of subscription grants access to something otherwise not available to the public. This is typically content-based, such as downloadable resources, entertainment, or educational content. It can also be service-based, like rentals or expedited/priority service. Either option serves as a more passive expectation than actively fulfilling individual orders for one of the other subscription types; especially for content-based access subscriptions, you will be able to control how frequently new content is added to the content library and your customers will be able to access it whenever is convenient for them. Access subscriptions are perhaps the most common types of subscriptions, and examples include MasterClass, Spotify, and Amazon Prime.

How much should you charge for your subscription?

Pricing a subscription can be a bit more complicated than pricing merchandise or services. This is largely because you need to research what price point will cover your time investment and expenses while still being attractive to your customers long-term. Charge too little and your subscription isn't profitable. Charge too much and your customers won't see the value in subscribing.

This is where customer research will come in handy: if you know your ideal customer's average salary, you'll get a better idea of what's a reasonable amount to charge. You may want to host a focus group with participants within your target demographic and ask them whether the subscription price you have in mind would make them more likely or less likely to subscribe. If they would be less likely, explore ways you can reduce your costs. This could look like swapping less expensive products for "premium" ones in a curated subscription, researching alternative packaging and shipping solutions for replenishment subscriptions, or minimizing production requirements for an access subscription.

When considering the cost of your subscription, you should also think about pricing tiers. Offering basic and premium tier options gives your customers more flexibility to select the subscription that best suits their needs. For access subscriptions, you can also structure your pricing according to the number of "users" who would be accessing your subscription (individual vs. household subscriptions). Similarly, offering a free (or discounted) trial period gives you a chance to establish proof of concept with little to no risk for your customers. You might also offer discounts for annual or quarterly subscriptions as opposed to monthly subscriptions — this incentivizes your customers to commit for a longer period of time so you can count on their subscription revenue.

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How frequently should you deliver your subscription?

The frequency of your subscription will depend on the subscription model, the products you include, and the amount you charge. This is especially true when billing and delivery frequency are directly correlated.

Since replenishment subscriptions are usually for items that are used often, it might be best to allow your customers to customize their delivery schedule according to how quickly they run out. For example, Native's deodorant subscription is set to a three-month delivery schedule by default, but customers can change to one-, two-, or four-month delivery if they need to receive their next shipment more or less frequently.

The nature of curated subscriptions mean they are a bit less integral to daily life than replenishment subscriptions, but you should still offer an option for your customers to skip a delivery whether it's weekly, monthly, or quarterly. Winc's wine subscription, for example, allows customers to skip a month's delivery for any reason, free of charge.

Access subscriptions are slightly different since they don't rely on a shipment of goods, so monthly subscription renewal usually makes the most sense. However, the option to "pause" their subscription will give your customers the peace of mind that they won't be charged for a subscription they won't be using for a period of time. Most streaming services like Hulu and Netflix have new content added every month and offer the option to pause a user's subscription with the click of a button.

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Top tools for managing subscriptions

The day-to-day management of a subscription program is a bit different from managing normal retail- or service-based businesses. Depending on your subscription type, you may be managing sourcing, inventory, scheduling, and content creation in addition to other typical business operations. Subscription management tools can help automate the shipping and billing processes so you can focus on promoting your subscription, fulfilling orders and/or creating content, and responding to customer inquiries. They can also help customers manage their own accounts and streamline your logistics and operations.

Some of these tools include:


This article was originally published on December 30, 2020
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