Every business needs to come up with creative ways to drive sales.
Sure, you may be doing well today, but how are you planning on making money tomorrow? What about next month or next year?
Whether your company sells a product or offers a service, you should consider using the subscription business model to generate recurring sales.
Historically, implementing a subscription business model has proven to be highly profitable.
In the last five years, the use of this model has grown by more than 100%.
Businesses knowing how to offer valuable subscriptions end up with extremely loyal customers, which is why it’s such an effective customer retention strategy.
Even ecommerce brands have been using subscriptions to drive sales.
That’s because the consumer market has accepted this model, causing it to grow in popularity over the last year.
Once you’re able to get customers to pay for a subscription, you’ll get recurring sales on a monthly or annual basis.
As a result, your company will be in a great position for sustainable growth over time.
But if you’ve never implemented a subscription model in your business, it might be intimidating for you. Where do you start?
And if you have already set up a subscription model, it may not be working as well as you thought it would.
That’s why I created this guide.
Whether you’re new to the subscription concept or you want to make adjustments to your existing subscription model, I’ll explain what you need to do to be successful in this space.
Don’t charge for your basic package
Offer your most basic package free.
Now for some of you, this may not be realistic. For example, if you’re offering clothing or accessories delivered on a monthly basis to your customers, you can’t just give that away each month.
But if you are offering an intangible service, it’s a great way to get people interested if you have multiple packages.
Here are some industries in which you can leverage a free package to eventually get your customers to pay for the service:
- mobile apps
- streaming services
If you have a mobile application, this strategy is a great way to improve the profitability of your small business mobile app.
Let’s look at the Pandora packages as an example:
Pandora is a music streaming service.
As you can see from its website, it has three different listening packages. The basic package is free.
This introductory package gets people familiar with the service. If they had to pay from the beginning, they’d be less likely to try it in the first place.
But if you offer something free, people will be more likely to use it because there is no risk.
Now you’ll have a better chance of getting these free subscribers to upgrade to a fee service.
Offer a free trial for your premium services
So you’ve offered your basic package free. But customers still haven’t upgraded yet.
Well, they don’t know what they’re missing.
If you offer them a free trial of a paid service, it will be harder for them to go back to the basic version. Let’s use the Pandora example again.
The platform offers a 30-day free trial for their $4.99 package. For one month, customers will experience personalized content with no advertisements.
Once they go back to music that’s not personalized and are forced to listen to ads, they’ll be more inclined to pay the monthly fee for the enhanced experience.
Roughly 60% of all businesses are able to convert free trial users into customers:
Those conversion rates are outstanding.
If you are offering physical products, such as a box of items mailed to customers on a monthly basis, you can use this strategy as well.
Even though you may not be able to do this long-term, you can still offer a month or two of your package free.
Here’s something else to consider. The more expensive your subscription is, the longer your free trial period should be.
Again, we’ll continue to use Pandora as an example.
It offers a 60-day free trial to customers who want to try its most expensive package at $9.99 per month.
It’s worth giving away two months if you can generate $120 per year from each subscriber.
Set up different membership plans
Profitable subscription models have different plans. There are a few reasons for this.
First of all, not everyone can afford your most expensive membership, but you don’t necessarily want to exclude those people from being paying customers.
Second, you want to offer plans based on the needs of different customers.
People don’t want to pay for a feature or benefit they won’t use. But if someone knows they need something, they’ll gladly pay an additional fee.
Let’s look at the Netflix membership plans as an example:
All of the plans offer the first month free and the ability to cancel anytime. Netflix customers can watch from their laptops, tablets, phones, and TVs.
But the basic membership doesn’t offer HD video and only lets you watch on one screen at a time.
For someone who doesn’t have an HD television and doesn’t plan on sharing the account with anyone else, this is a suitable option.
But if you’ve got a family sharing the account and streaming simultaneously on multiple HD devices, you will need to subscribe to the most expensive option.
Allowing customers to select their plans gives them a personalized experience. Plus, we already know personalizing your website boosts conversions.
Analyze your product’s or service’s features, and come up with a few different membership plans targeting the needs of various customers.
Give discounts to customers who pay in advance
Obviously, you want your customers to be subscribers for as long as possible. That’s how you make money with recurring sales.
But you don’t want to force your customers into a long-term contract.
This strategy can make people hesitant to sign up. Consumers like having the option to cancel any time without having to pay a penalty.
That’s why monthly subscription plans are so common.
The problem with monthly subscriptions is that if a customer cancels after a couple of months, you don’t have a chance to generate high profits from them.
Who knows. Maybe in that short period of time they didn’t have a chance to fully experience everything your subscription plan had to offer.
If you want people to commit to longer periods of time, you can offer discounts for advanced payments. Take a look at this example from Constant Contact:
As you can see, the site offers a 10% discount and 15% discount to subscribers who pay for six months and 12 months in advance, respectively.
Even though you’re making less off each customer per month, you’re locking them in for a longer term.
This is a much more effective strategy than forcing your customers to commit to a year-long contract charging them on a monthly basis.
Giving them the option benefits both of you. They’ll get a discounted rate, and you’re guaranteed to make money.
Plus, it adds a personal touch—a topic I previously talked about and will continue discussing in greater detail throughout this guide.
Provide added benefits to your customers
Depending on your business, offering subscriptions exclusively may not be in your best interest.
You can still use other business models in addition to your subscription model.
If you fall into that category, you need to make sure the subscription memberships come with benefits that justify the cost to your customers.
Otherwise, they won’t have any incentive to join.
A perfect example of what I’m talking about is the Amazon Prime membership:
You don’t need to pay a monthly or annual fee to buy something on Amazon. Anyone can use this ecommerce platform.
But customers who shop frequently and want their items delivered as fast as possible may be more inclined to pay for the Amazon Prime subscription.
This membership offers a two-day free shipping.
In addition to the shipping benefits, Amazon Prime members also get access to music and video streaming services.
As I explained earlier, the platform has packages designed for everyone.
Customers who want only the video streaming service can pay $8.99 per month.
It costs $12.99 per month to get all the membership benefits, including video streaming, two-day shipping, music streaming, photo storage, unlimited reading, and free same-day delivery for certain items.
That totals just under $156 for the year, assuming the membership does not get canceled.
But if a customer wants to save money and knows they’ll use the service for an entire year, they can pay $119 annually and save roughly 25% on their membership.
Amazon also offers a free 30-day trial for its Prime service.
Do you see how the company incorporated most of the strategies I talked about so far?
It’s always a good idea to follow the lead of successful companies and apply their concepts in your own business.
Set your subscriptions to renew automatically
Let’s say you get someone to sign up for one of your subscriptions. That’s great news!
You’ve got their credit card information, and you’re ready to start processing their account.
But you want to make sure you set these memberships up to renew automatically.
Don’t worry: I’m not saying you should do this to deceive or trick your customers. Just include this in the terms they agree to when they’re signing up.
You don’t want to annoy them each month asking them for their credit card information again. Get their permission from the beginning to bill their cards each month.
This is a great way to get recurring sales.
If you give the customer the option to opt out each month, they may decide to cancel.
But if their card just gets charged without any contact or notification, they may just keep the service whether they’re using it or not.
For example, how many of you have or had a gym membership? You get charged each month whether you’re there every day or never show up.
You don’t cancel it because it’s more of a pain to go through that process and then sign up again when you want to go.
Your customers will treat this membership the same way. Sure, you obviously want your customers to take advantage of the products and services you’re offering.
But if they’re paying for it anyway, does it matter whether they use the service or not? Not really.
Allow your customers to customize their subscriptions
I’ve talked about personalization quite a bit in this guide.
You can take this concept to the next level by allowing your customers to fully customize their subscriptions. Take a look at this example from Sirius XM Radio:
It has membership options allowing customers to pick and choose which stations they want on their accounts.
You can find ways to apply the same concept to your business as well.
For example, let’s say your brand sells beard grooming and shaving products for men.
You sell products directly from your website, and you also have subscription options to deliver a box of products on a monthly basis. Allow your membership subscribers to customize each order.
Some customers may want more razors, while others may want more shaving cream and aftershave lotion.
The membership prices will vary based on the type of products and quantity of items the customer wants to be delivered each month.
The subscription business model is extremely profitable, and it’s growing in popularity.
Whether you’re adding subscriptions to your business for the first time or making changes to your existing model, the tips and tricks in this guide will improve your chances of success.
Offer your basic package at no charge. Then, let customers try the premium options with a free trial.
Create different membership plans to target a wider range of prospective customers.
Your standard memberships should be charged on a monthly basis and renew automatically.
Encourage customers to pay in advance by offering discounted rates for an annual plan.
Provide added benefits to make sure your subscriptions are worth the cost.
Focus on personalization and customization, enticing consumers to sign up for your subscription service.
If you follow the advice I’ve outlined in this guide, you’ll be able to achieve sustainable growth in the form of recurring sales through subscriptions.
How is your brand using the subscription business model to generate recurring sales?