How to Implement a Subscription Model Into Your Business 0

Posted On May 11, 2022, by Admin

Customers’ tastes and habits are changing along with the times. Among other things, consumers now require a more personalized, convenient, and cost-effective shopping experience. Naturally, businesses are trying to keep up with these shifts and curate their business models to fit clients’ new needs and preferences.

To that end, a relatively novel approach — the subscription business model — has gained popularity. An increasing number of firms that have been selling their products or services directly for years are now adopting it. In fact, experts predict that more than 75% of businesses will have made this transition by 2023.

So, let’s unpack the mystery behind the subscription business model and discover what it is, how it works, and why it’s so popular. Stay with us.

What Is the Subscription Business Model?

A subscription-based business plan is a recurring revenue model according to which companies charge a weekly, monthly, or yearly fee in exchange for their products or services.

The customer signs up to receive a product or service, chooses the frequency of delivery (usually on a weekly, monthly, or yearly basis) and pays for it in advance. Once the subscription period ends, the subscriber is free to renew it and repeat the cycle.

This business model is not limited to specific lines of work or types of products or services. It doesn’t force the company to sell any new goods either. Quite the contrary — a wide range of diverse firms use it. For example, some of the most successful subscription-based businesses are Netflix, Birchbox, Blue Apron, Microsoft, Spotify, Stitch Fix, and others.

The subscription-based business model allows customers to view and purchase existing products and services in a new and more convenient way.

Why Is the Subscription Business Model Popular?

The subscription-based business model has numerous benefits for both businesses that adopt it and their customers.

When it comes to the customers, the perks are pretty obvious. They get to enjoy their favourite products or services without investing any effort into shopping. They don’t have to spend time searching for products and making purchases every week or month, in person or online.

Instead, subscription boxes Canada offers practically show up on their doorsteps. All they have to do is open the door and pick them up. It’s even easier with online services, as they’re accessible during the entire subscription period.

However, the ways the subscription-based business plan can benefit your company might be less evident.

So, let’s look into them below:

• Customer pool— This business model can help you reach more customers and increase your customer pool. The user experience is seamless, and the cost of your product or service is changed in increments over a longer period. So, you might attract customers who wouldn’t have the time or the means to shop for your products or services otherwise.
• Revenue prediction— The subscription-based business model is a recurring revenue model. You’ll know how much you’ll earn over a particular period in the future because of the way it’s structured. This insight into your future profits will allow you to build your budget more accurately, reduce financial fluctuations, and implement more effective business strategies.
• Customer acquisition and retention costs— You’ll also spend less money on acquiring new or retaining old customers due to how this business model functions. Unlike the traditional model, this system will make your cash inflow more regular and encourage your customers to purchase your goods or services over longer, fixed amounts of time.
• Revenue expansion— The subscription business model will allow you to introduce new products or services to your customers in an easier and more cost-effective way. This is done through upgrades to subscription plans, like adding new features and/or non-essential products at no cost. These changes will help you expand your revenue without spending more on marketing.
• Customer relationship— The subscription-based business plan will allow you to work with the same customer base for a longer time. You’ll be able to monitor their behaviour and usage and develop strategies that will cater to their needs. The customers will gradually gain trust in your brand, renew their subscriptions, and contribute to increased revenue.

How to Build a Subscription Service Business Model

Building a subscription model is not an easy task. If you want to benefit from this business model maximally, make sure you don’t skip any of the following steps:

1. Establish a goal — Your business plan will work best if you start by establishing an aim. For instance, do you want this business model to help you boost revenue, increase customer pool, or improve customer retention?
2. Decide on a pricing strategy— Choose a subscription pricing strategy depending on the products/services you’re selling and the goal you’re trying to reach. Your pricing model should help maximize your customer acquisition and market share.
3. Choose an onboarding process— Think about the best way to reach your customers depending on what you’re selling and your target demographics. Moreover, make the sign-up process simple and accessible.
4. Bill right— One of the disadvantages of the subscription business model is how complex the billing process can be. So, make sure your system is straightforward, accurate, and transparent. Think about your market and then decide on payment gateways and methods. The correct billing system will help you build long-lasting relationships with your customers.
5. Track your business development— Monitor the way your business is evolving, and keep track of the effects the subscription business model has on it. Your revenue growth, recurring profit margin, customers’ behaviour and feedback, and retention rate are good indicators of your progress.

_______________________________________________________________

Schedule a call today with one of our team members to discuss your accounting or tax needs – For More Details, Click Here.

_______________________________________________________________

This blog is not meant to provide specific advice or opinions regarding the topic(s) discussed above. Should you have a question about your specific situation, please discuss it with your GBA advisor.

GBA LLP is a full-service accounting firm in the Greater Toronto Area, but we primarily service all of Ontario as well as the rest of Canada virtually, except Quebec. Our team of over 30, provides Audits and Reviews of financial statements, and Compilations of financial information, as well as corporate tax returns.  We provide specialized corporate tax and succession planning for small and medium businesses, in addition to general advisory services.

If you would like to schedule a call to discuss your accounting or tax needs with one of our team members, please complete the free no obligation meeting request on this page.