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The Reasons to Try an e-commerce model that is subscription-based (and How to Go About it)

May 9, 2023

A lot of artists have begun shifting from a one-time payment pricing structure towards a subscription-based pricing model. And the reason is simple: the recurring payment permits them to earn regular revenue.

Take a look at the successful founder from Sew it! Academy: Mimi Goodwin as an model.

The typical one-time conversion rate across industries stands between 2.35 percent to 5.31%. That means if you launch an online course with an upfront price model, fewer than 5percent of the people who view your course will purchase the course. It may appear to be a bit high initially but it's impossible to estimate how much you'll make the following month -- especially in the event that traffic to your sales site fluctuates.

If you opt for a subscription business model instead it is possible that the first payout will be less, however you'll know how much money you'll make during the subsequent months. Instead of trying to find new customers, you can concentrate on improving the quality of the quality of your course online for current students.

This improves your learners' satisfaction, builds their loyalty, and encourages them to promote your courseand, consequently results in a higher number of subscribers.

Find out:

What is a model for a subscription-based business?

Subscription business models are the one in which clients must pay a monthly, weekly or annual cost in order to access your product or service. Depending on the length of time they choose, customers can periodically renew their subscription while they're using your product.

The benefits of subscription-based models are for those who create the courses and also the customer. As a course creator (and business owner), you can leverage the existing relationships with customers to earn predictable, recurring income. This allows you to continue spending money on your business, and prevents you from bombarding the audience with your courses often. Students have the choice to cancel your subscription anytime you like and without having to pay more than you would have if you had paid upfront.

If you are able to provide the ideal product/service in the right industry, a subscription business model can be a very profitable way of generating revenues.

How does a subscription business model work?

The mechanism behind a subscription business model is easy.

You charge your customers in recurring installments to purchase your service or product and offer customers with the ability to renew or cancel at any point. Customers decide how long and how often they wish to purchase your offer. So long as the customer continues to renew their payment (usually by using a credit or debit card) this offer will remain accessible to them. However, if they don't renew, they lose access immediately.

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

Popular examples of firms that are charging their customers on a subscription basis include Netflix, Microsoft, and Spotify which have been reaping the benefits of this model for years. There's a good thing about it, the business model doesn't have to be limited to huge corporations. It can be used for creating your own product too.

The benefits of a subscription business model

A subscription business model has tons of benefits. Below are the top five benefits:

    Predictable revenue stream    

One of the best benefits of a subscription model is the fact that it makes it easier to estimate how much income your business will get each month (or year). Because your clients pay on a regular basis and you know the amount they'll have to pay as well as the precise moment they'll need to renew their subscription.

When you factor in the churn rate of your business, you'll be able to predict your monthly recurring revenue (MRR) near accurately.

Consider this example: Let's say that you have a 7 percent churn rate and 2,500 students are enrolled in your class for a fee of $20 per month. Even if you get no new students in the next month, you'll achieve at a minimum of $40,000.

The more time you have going, the more you'll be able to predict the amount of clients you will gain and lose over a certain amount of time. It's easier to determine your MRR and your annual recurring revenues (ARR).

    More effective Customer Acquisition    

Imagine that you earn $2,000 per month from your part-time job in the barista trade and are trying to get better at it by attending a project management course. The best one you find comes with two pricing options that include $1,000 as a one-time payment, and $70 per month. What pricing model is practical for you currently?

The money I earn is on my monthly payment for the subscription.

Sometimes, the price for a product could be too expensive to a potential buyer. The ability to break down costs into monthly, weekly or annual payments make it more affordable and lets prospects include the cost in their budget. In this way, more customers who are able to afford paying monthly will convert and enroll to your class.

    Lower customer retention spends    

As your students continue to pay to attend your class and you're not required put aside the same amount of funds to reach them like it would be when your class was based on a one-time pricing structure. In addition, since they continue to pay their fees, it's safe to say that they're in a permanent relationship with your institution. That makes it more difficult to lose them, so you don't have to invest a significant amount of cash to keep your customers.

    Stronger customer relationships    

In a single-payment structure the customer pays once for your course and that's it. Except for a few who may contact you to tell you of their progress, most will likely not interact with your company much.

The subscription model on the other hand lets customers have access to your company (and the reverse) for all time. When your customer service team is available 24/7 to help answer students' inquiries and resolving their issues and issues, they'll begin to believe in your company's reputation. This is a major factor in the decision of whether or not renew their subscription.

    Potential for upselling as well as cross-selling    

In 1968, social psychotherapist Robert Zajonc devised the mere exposure theory. This theory asserts that when a person has been exposed repeatedly to a stimulus, they develop more positive attitudes towards the stimulus.

In the business world, this means that the more time your clients can access your service and services, the more comfortable you'll feel to the customers. When this happens, your customers will be more likely to buy other products/services that you offer.

Cross-selling is the process of making additional offers available to existing offers with a price that is higher. For example, if you only offered your online course at $25/month and you want to add an exclusive membership program to it and offer both for $35/month.

Through upselling, you're trying to convince your existing customers to purchase a higher-priced product. So if you're offering a course at $25/month, you can market the related, but higher-priced class to students for $30 per month.

A new prospect may be reluctant to purchase the more expensive alternative right away. But those who have been in your program for six months is likely to upgrade their plan (or purchase the more expensive course) due to the value of your course.

How do I transition towards a subscription model for business

If you're thinking of using a subscription business structure for your product there are six actions you must take:

    Figure out whether your company is a suitable choice for this structure of pricing.    

Before setting up the subscription-based pricing system for your business, figure out whether this is the best pricing structure for your company. For example, if your service is one that clients require continuous access to like a fitness program or an online boot camp then a subscription business model will work great for you. But if it's a one-off course, then it likely won't be a great choice.

Once you're sure the subscription model would work well with your service, proceed to your next steps.

    Create realistic targets to your subscription-based enterprise    

The goals you intend to accomplish through your company will determine the price points and tiers you set. So before you pick prices consider what I would like to accomplish with A subscription-based business model?

Are you looking for faster growth or more income? Is it better retention and acquisition of customers?

In addition, your goals help you set costs that will help you reach your ideal clients However, they'll influence the tone of your site/sales page content.

    Select a pricing method    

Then, you can get to the most enjoyable part of creating your subscription bundles.

If you're only trying a subscription-based pricing structure for the first time it's possible to keep things simple by creating either one or two plans. As you measure your conversions and gather feedback from your customers, you'll have the opportunity to design more levels that meet their preferences.

To do that be aware of these factors:

  • The way you communicate the benefits of your product to your subscribers
  • The industry standards
  • The incentives to price your package

To know where to start take a look at what the competition offers. It is important to tailor your products more appealing to your target audience.

If, for instance, you're giving Pilates to new parents, you could check the cost packages for other Pilates courses on the web. If you see that price ranges from $20 per month to $65/month, then you may apply this as a base.

A beautiful packaging design does not necessarily mean you should price your products lower than competition. There is a possibility that you could charge that same price range but provide slightly higher incentives or benefits. The price could be a bit higher over your competition, when you're offering benefits that aren't.

The main point is that your customers should examine your pricing options and feel like you are a good choice. If they did business with you, they'd get the most value for their money.

    It makes it simple for potential customers to sign-up    

A subscription package should be easy and simple. You don't want your prospect to be confused about how to sign up when they arrive on your website. Also, you don't want your prospects to waste 30 to 60 minutes trying to navigate the sign-up page.

Also, include a link to your pricing page on the menu navigation on your website so prospects can find it easily. Your pricing page should include your subscription packages and their pricing should be listed clearly in a language your audience will understand.

In addition, you should provide options for customers to change their billing details, as well as modify or terminate their subscription plans.

    Grow your business by using the best technology    

Because the intention is to get recurring payments from clients, you need to be sure the subscription system is supported with the proper tools that can receive and process these transactions.

If you often deliver a variety of goods to customers at once using a bulk delivery service, it will help you streamline your shipping process as well as reduce the cost.

    Offer exceptional customer service    

In your site, you should provide several ways for prospects and clients to connect with your customer service department if they have questions or have issues. Some contact options include chatbot, live chat, email, and telephone calls.

The ease at which people can reach your support team as well as the quality of assistance the team provides could determine whether they'll keep the subscription or not. So you need to ensure that you're offering the top quality support possible to your customer base as well as establishing connections with the people they interact with.

Examples of products that use a subscription business model

The model of subscription-based business is used in different ways by various businesses in different sectors. Below are five organizations that successfully use the subscription model to set prices.

    Online courses - Copy School    

Copy School is an extensive online course that teaches students how to write various types of strategically written copywhich includes content for social media, websites, advertisements, as well as emailswhich is for businesses. The class is intense and has resulted in incredible copywriters that work for multi-million dollar companies, and make the highest amount of money.

Due to this, the cost for Copy School is expensive -the one-time fee of $3,997 for unlimited access (or the one-time payment of $1,998 to take advantage of the ads-supported course). However, Copy School has two subscription packages that make it easier for the customers to afford the course -- $348 per month (ad-supported) or $697/month over six months.

    streaming platforms - Netflix    

At the time it launched on markets, Netflix was a DVD rental service. But with the emergence of broadband internet, smartphones, as well as smart TVs, Netflix rebranded to be a video-on-demand (VOD) platform. Today, it's a streaming platform with subscriptions which allows viewers to stream television and movies on internet-connected devices.

Netflix's pricing tiers are available between $6.99 to $19.99. The choice of plan is based on video quality and how many devices a user wants connected to the same account.

    Software-as-a-service platforms -    

    Memberships ClassPass ClassPass    

ClassPass is a program for membership designed for fitness and beauty enthusiasts. By acquiring a ClassPass membership, users can schedule appointments or classes at the top studios, gyms Salons, spas, and gyms around the world. ClassPass's subscription plans range from $29/month (for 8 credits) to $159 per month (for 80 credits). ).

    Physical products - BirchBox    

Birchbox provides its customers with boxes that contain two to six items of beauty every month. The beauty boxes are personalized according to a questionnaire that the customer takes at the beginning. The arrangement lets the client to experiment with different products, as the same item is not sent more than once.

Once a buyer discovers a product they like and want to purchase it, they can do so through the BirchBox website. A monthly subscription costs $13/month, and you can get 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 it isn't enough to make up prices randomly and then just wait for customers to sign up. You must put in the work. Customers will be more likely to keep their subscriptions if they feel like they're getting the most value from their dollars.

In order to provide this benefit, you'll need to reach out to your intended people, discuss with them about their concerns, and give them tried-and-true solutions. Then, you can assign costs to your products that your audience will happily subscribe to.