The subscription-based business model is growing, because it’s sustainable and predictable.
The allure of recurring revenue, and predictable cash flow has led many aspiring entrepreneurs to explore this business model.
In this article, we will provide you with essential steps to start a subscription business in 2023, ensuring a solid foundation for success.
But before we do, let’s define subscription business:
What is a subscription business?
A subscription business is a business model where customers pay a regular fee to access a product or service instead of making a one-time payment. This fee is typically charged on a monthly or yearly basis, and customers have the option to choose the frequency of their payments.
Subscription businesses can be found in all sorts of industries: media and entertainment (Netflix, Spotify, etc); software and technology (apps, Adobe Creative Cloud, Microsoft Office 365); eCommerce and retail (Birchbox, Stitch Fix etc); food and beverage (HelloFresh etc); fitness and wellness (Peloton, ClassPass etc)
Essential steps to starting a subscription business
Step 1: Identify a profitable niche
Look at what subscription businesses are making money, and which are on the rise.
Then ask yourself the following questions:
What’s missing in those businesses that people would love to pay for?
What groups are ignored?
Once you’ve analyzed dozens of competitors, you can start see patterns and things that are missing.
PS! Competition is good! Picking a niche that doesn’t have any competition is a bad idea for several reasons:
- No competition is a sign that there is no demand
- There is no such thing as truly ‘unique idea’ (so don’t bother with that)
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If there’s money to be made, someone will seize the opportunity.
If nobody is competing in your space, there’s a very good chance that the market is too small or unprofitable.
Demand means you’ll find an audience. Audience means revenue.
Step 2: Be clear about your business goals
Is it a revenue number, customer acquisition, or a number of units sold – be sure to set yourself numeric targets.
Whatever your business goals are, you need to keep them top-of-mind—because they form the basis of your pricing strategy.
Step 3: Define your value proposition
Once you’ve identified a niche, it’s time to define your value proposition.
Clearly articulate the unique benefits and value your subscription service will provide to customers.
Your value proposition should answer the question, “Why should customers choose your subscription over others?”
Differentiate yourself by offering exclusive content, personalized experiences, convenience, or cost savings.
Step 4: Develop a pricing strategy
Your pricing should align with your revenue goals. Consider factors such as production costs, overhead expenses, customer acquisition, and retention costs, and desired profit margins.
Research pricing models prevalent in your industry, such as tiered pricing, freemium, or pay-as-you-go, and choose the one that best suits your business model.
It’s best to be conservative about pricing at the beginning. You can always increase your pricing later, but it would look weird if you have to reduce your pricing later.
Pricing should always be tested, adapted, and evaluated as your company evolves.
Step 5: Build a scalable platform
To run a successful subscription business, you’ll need a robust and scalable platform to manage customer subscriptions, payments, and content delivery.
Depending on your business needs, you can choose between building a custom platform, utilizing existing subscription billing and management software, or partnering with a subscription platform provider.
Step 6: Set up a hyper-secure website and internal systems
Cybersecurity is still at the top of most concerns for both – the business providers of digital solutions and end-users.
There is a continuous rise in the number of cyber incidents which only adds to such concerns.
The year 2020 offered a great opportunity for malicious elements to explore the tiniest security vulnerabilities in a business organization’s IT infrastructure.
More and more organizations are now operating remotely due to the COVID-19 pandemic, from the education sector to the IT sector, cybersecurity has become the main priority.
Using pen testing (penetration testing) will guarantee that your business has the best measures in place to prevent cyber attacks. The expert assessments will ensure you are more able to deter hackers, which will keep your business as safe as possible.
Step 7: Implement an effective customer acquisition strategy
Test different marketing channels to attract new customers. Email, affiliate marketing, ad search, paid social, organic search (SEO), and influencer marketing.
Highlight the unique value your subscription service offers and communicate how it addresses customers’ pain points.
Focus on building a community and fostering customer engagement to create a loyal subscriber base.
Step 8: Prioritize customer retention
Why retaining existing customers so important?
Because it costs more to acquire a customer than it does to retain one, and you can always draw more value from a loyal customer base.
Most subscription companies put all their efforts into acquiring new customers, but that’s not the most effective way to grow a business.
How to retain customers? Prioritize customer satisfaction by actively seeking feedback, addressing customer concerns promptly, and continuously improving your offerings based on customer preferences. Implement retention strategies such as personalized recommendations, exclusive perks, loyalty programs, and excellent customer support to foster long-term relationships with your subscribers.
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