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The Reasons to Try a Subscription Business Model (and How to Go About It)

May 9, 2023

Many creators are changing from a one-time pricing structure to a subscription-based pricing structure. This is due to a simple reason this: the subscription-based payment system allows them to generate recurring revenue.

Just look at successful creator from Sew it! Academy: Mimi Goodwin as an illustration.

The average one-time selling conversion rate in all sectors is between 2.35 percent to 5.31%. If you create an online course with an upfront price structure, less than 5percent of the people who view your course would purchase it. The initial revenue may seem to be a bit high initially, but there's no way to estimate how much you'll make the following month -- especially in the event that traffic to your sales page is intermittent.

If you choose to use an alternative business model that relies on subscriptions it is possible that the first payout will be smaller, but you'll know how much money you'll make during the subsequent months. So instead of looking to attract new clients, you could concentrate on improving the quality of your existing online courses for students.

It improves the learning satisfaction, builds their loyalty as well as entices them promote your course- which, in turn, leads to more subscribers.

Find out:

What's a model for a subscription-based business?

A subscription business model is the one in which clients must pay a weekly, monthly or annual charge to get access to your service or product. Based on the time they choose the customer can renew their subscription for while they're making use of your service.

Business models that are based on subscriptions benefit both those who create the courses and also the customer. If you are a course designer (and the business owner) you are able to leverage your current relationships with customers to get predictable recurring revenue. This lets you continue investing in your business as well as preventing you from bombarding your audience with your course often. As a student, you'll have the option of cancelling the subscription at any time but without paying as much money as you would've if you'd paid up front.

If you provide the best product/service in the right sector, a subscription model could be a lucrative method of earning revenues.

What is a subscription business model function?

The mechanics of the subscription model for business is simple.

Customers are charged on a recurring basis for the product or service you offer and give them the option to cancel or renew at any time. Your customers choose how long and how often they want to pay for the offer. So long as the customer is able to keep renewing their monthly payments (usually by using a credit or debit card), the offer is accessible to customers. However, if they don't renew their account, they will be denied the access instantly.

The business model of subscription began to be introduced in the late 17th century by editors of periodicals and newspapers. With the advancement of technology, many websites, businesses, and software-as-a-service (SaaS) platforms use this business model.

Some of the most popular businesses that bill their clients by subscription are Netflix, Microsoft, and Spotify which are reaping the rewards of it for years. The good news is, the business model doesn't have to be limited to huge corporations. You can use it for creating your own product too.

Benefits of a subscription business model

A subscription business model has tons of advantages. Here are five of them:

    Predictable revenue stream    

One of the best advantages of a subscription-based business model is that it allows you to estimate how much income your company will earn each month (or the entire year). As your customers make payments repeatedly it is easy to know what they'll be paying and at what date they'll have to renew their subscription.

If you take into account your churn percentage, you'll be able to predict your monthly recurring revenue (MRR) near exact.

Consider this example: Let's say that you have a 7 percent turnover rate, and you have 2,500 students enrolling in your program for a fee of $20 per month. Even if there are no new students in the next month, you'll be able to make at least $40,000.

The longer your course is in place, the better you'll be able predict how many customers you gain or lose during a particular period of time. This makes it easier to forecast your MRR and annual recurring revenue (ARR).

    Improved Customer Acquisition    

Imagine that you earn $2,000 per month from your job that's part-time as a barista and you're seeking to improve your skills by enrolling in classes in project management. The one you're looking for comes with two pricing options: $1,000/one-time payment and $70/month. What pricing model is feasible for you right now?

The money I earn is on my monthly installment.

Sometimes, the cost of a product may appear too high for a prospect. Breaking down the price into monthly, weekly or annual installments makes your product less expensive, and lets prospects include it into their budget. In this way, more customers that can afford to pay monthly will convert and enroll into your program.

    Lower customer retention spends    

Since your students repeatedly pay for your courses so you do not have to set aside as much money to target them as you would have had your program operated under a one-time pricing structure. In addition, since they continue to pay their fees, it's likely that they're in a permanent relationship with the course. That makes it more difficult to lose them which means you don't need to invest a significant amount of money to retain them.

    Stronger customer relationships    

Through a one-time installment payment system, customers pay once for the program and that's it. With the exception of a handful that might contact you to let you know about the progress they've made, most of them likely won't interact with your business much.

Subscription business models, in contrast lets customers have access to you (and vice versa) for all time. When your customer service team is available 24/7 to help answer students' queries and resolving their issues, the students will grow to believe in your company's reputation. This is a major factor in their decision to renew or not renew their membership.

    Possibilities for upselling and cross-selling    

In 1968, social psychologist Robert Zajonc devised the mere exposure theory. This theory states that when an individual is repeatedly exposed to an object, they acquire more positive attitudes towards the stimulus.

In the business world, this means that the longer your customers are able to access your products it will be more familiar appear to your customers. As a result it will make your customers more likely to buy other items or services you have to offer.

Cross-selling is the process of creating additional offerings to an already existing deal at a greater cost. If, for instance, you're only offering the online course for $25 per month, you could add your exclusive membership program to it and then offer it for $35/month.

Through upselling, you're trying to convince current customers to purchase the product at a higher price. For instance, if you're offering a course at $25/month, you can market the related however, more expensive course to your students at $30 per month.

The new customer might be reluctant to purchase the costlier option right away, but someone who's signed up to your course for six months is likely to upgrade their plan (or take the course at a higher cost) due to the value your course offers.

How to move to a subscription business model

If you're contemplating making use of a subscription-based business model to sell your product, there are six steps to follow:

    Determine the possibility that your business would be an appropriate fit for this pricing structure    

Prior to establishing a subscription-based pricing structure for your company, you need to figure out whether this is the best price structure for your business. In the case of example, if your product is one that users are required to have access for a long time -- such as a fitness program or an online boot camp -- the subscription model will work great for your business. If it's only a once-off training course, it isn't a good choice.

When you're confident that the subscription model would make sense for your product, take your next steps.

    Set realistic goals to your subscription-based enterprise    

What you hope to achieve through your business will decide the prices and tiers you set. When you are deciding on pricing, ask yourself what I would like to accomplish with A subscription-based business model?

Do you want faster growth, or higher income? or is it more effective retention of clients and customers?

Not only will your goals help you set costs that will help you reach the ideal customers They'll also affect the messaging of your website/sales page content.

    Pick a subscription price method    

Now, it's time for the fun part: creating your subscription plans.

If you're just experimenting with the subscription-based pricing model to the first time, you can keep things simple by creating either one or two plans. As you measure your conversions and collect feedback from your customers, you'll be able to create additional pricing packages that are tailored to your customers' preferences.

For that be aware of these factors:

  • Your method of communicating your product's value to your subscribers
  • The industry standard
  • The price incentives for your package

For a good idea of where to begin take a look at what that your competition is offering. The goal is to make your offerings more attractive to your target audience.

For example, if you're teaching Pilates for parents who are new to the sport then you can look at the pricing packages of other Pilates classes on the web. If you find that the price ranges from $20 per month to $60/month, you can apply this as a base.

A beautiful packaging design doesn't necessarily mean pricing your product lower than your rivals. You could still charge in that same price range but provide slightly higher incentives or perks. It's possible to charge slightly more over your competition, in case you're providing perks they're not.

The main point is that your clients should examine your pricing options and believe that you are a good choice. If they did business with you, they'll get an excellent value.

    Let it be easy for potential customers to sign-up    

Signing up for a subscription package should be easy and simple. Your customer shouldn't to be confused as to the best way to sign-up when they arrive on your site. You also don't want them to spend an exasperating 30 to 60 minutes trying to navigate your sign-up form.

Additionally, you should include a link to your pricing page on your website's navigation menu so customers can locate it quickly. Your pricing page should include your subscription options and pricing should be listed clearly in a language your audience will recognize.

Finally, include ways for customers to change their billing details, as well as change or cancel subscription plans.

    Grow your business by using the appropriate technology    

Because the intention is to receive recurring payments from customers, you want to be sure the subscription system works by the appropriate tools to receive and process these payment.

If you often ship a lot of products to customers at once A bulk-shipping service will help you streamline your shipping process as well as reduce the cost.

    Deliver exceptional customer care    

Your website should include various ways for potential customers or customers to contact your customer service team when they are having questions or encounter issues. Contact options may include chatbots or live chat, emails as well as phone calls.

It's the ease that people can reach your support team and the level of service that they get could determine if they'll renew their subscription or not. So you need to ensure that you're offering the top possible support to your client base as well as establishing connections with your customers.

A few examples of services that use a subscription business model

The subscription business model is used in different ways by companies across a variety of sectors. Here are five companies that successfully use an arrangement of pricing based on subscription.

    Online courses - Copy School    

Copy School is an extensive online program that shows students how to write various types of strategically written copythat includes copy for websites, social media ads, and emails -- for companies. The class is intense and has created extraordinary copywriters who have worked with multi-million dollar companies, and make the highest amount of money.

Because of this, the price for Copy School is expensive -it costs $3,997 as a one-time payment to get lifetime access (or the one-time payment of $1,998 for an ad-supported program). But, Copy School has two subscription packages that make it easier for clients to pay for it: $348/month (ad-supported) or $697/month for 6 months.

    Streaming platforms - Netflix    

When it was first introduced to the market, Netflix was a DVD rental service. However, with the advent of smartphones, broadband internet as well as smart TVs, Netflix was rebranded as an online video-on-demand (VOD) platform. Today, it's a subscription-based streaming platform that lets users watch films and TV shows using internet-connected devices.

Netflix's pricing tiers vary between $6.99 up to $19.99. The plan you choose depends on video quality and the number of devices the subscriber wants to join to one account.

    Software-as-a-service platforms -    

    Memberships - ClassPass    

ClassPass is a program for membership for beauty and fitness enthusiasts. By acquiring an ClassPass membership, customers can book classes and appointments in top gyms, studios, salons, and spas around the world. ClassPass membership packages vary from $19 per month (for eight credits) to $159 per month (for 80 credits ).

    Physical products BirchBox    

Birchbox sends its customers boxes which contain between two and six items of beauty every month. The beauty boxes are personalized based on a quiz that customers take at start. The arrangement lets the client to try out different beauty items, since the same product will never be sent out more than once.

Once a buyer discovers a product they like, they can buy it through the BirchBox website. A monthly subscription costs $13/month and there are discounts on 3-month, 6-month and 12-month subscriptions.

Enhance your income with a subscription business model

When you run a subscription-based business, you can't just set random prices and wait for customers to sign up. You must put in the work. Your customers will only keep their subscriptions if they believe they're receiving sufficient value for the money they pay.

To provide value to your customers To provide this value, you must reach out to your intended customers, talk to them about their concerns as well as offer them tried and tested solutions. Only then can you ascribe costs to your products that your audience will happily subscribe to.