When it comes to starting a subscription business, there are pros and cons to consider. On the one hand, it’s easier than ever to start a subscription company. on the other hand, it’s harder to gain traction because of subscription fatigue. So what’s the key to success? Coming up with a novel take on the subscription business model.
One of the biggest challenges facing subscription businesses is pricing. Too many founders fall in love with using subscriptions to become low-price leaders, which requires more capital than you think. It helps to compare your pricing to other offerings like entertainment.
Ask yourself if you would rather compete at the Netflix or Amazon Prime price points. If you’re not sure, it’s probably best to err on the side of caution and go for a higher price point. It’s also important to have a solid understanding of your target market in the planning stage. And it’s best not to take on industry leaders head-on on their turf. Look for a fringe group of customers who aren’t being served.
What is a subscription business?
There is no definitive answer to the question of what is a subscription business. Subscription business models come in all kinds of shapes and sizes. There is no single way to create a successful subscription business. The only caveat is that you must concentrate unwaveringly on customer success and producing lifetime value.
Subscription business ideas must take into account that the subscription model is not built on one-time purchases. They are created with recurring income in mind. Exponential growth is possible, especially for SAAS companies. Subscription business owners must continually improve the customer experience because it seems like new online businesses enter the market every couple of seconds.
Here are a few subscription business models that you can consider when starting subscription companies in 2022:
You can think of subscription boxes as care packages that you send to your customers or target audience every month. The contents of the box are a surprise, but they’re always tailored to the customer’s interests. For example, if you love makeup, you might sign up for a beauty box subscription. Pet owners can have pet supplies and toys delivered. My favorites are meal kits.
Most people are familiar with streaming services like Netflix, Amazon Prime Video, and Apple Music. These platforms offer movies, TV shows, and other forms of entertainment that you can watch on-demand. You pay a monthly fee to have access to the content.
Subscribe-and-save is a relatively new form of e-commerce in the grocery industry. It’s a subscription-based service for stables that need to replenish on a periodic basis.
SASS (Software As A Service)
SAAS companies use this model to reduce their maintenance cost. It’s expensive to maintain multiple versions of the same software. Also, it’s expensive to convince more customers to invest in upgrades once all the bugs are worked out and things are working well.
You could make the case that a membership site is the simplest subscription-based business model to understand for new entrepreneurs. Most small business owners belong to the local chamber of commerce or trade association. So they think they understand the membership economy. They also believe marketers who tout them as the quick-wins and easy money.
For the record, all business is hard. There are very overnight successes or examples of real passive income. You’ve got to stay engaged or your revenue streams will dry up. Stand-Alone membership sites are very difficult if you don’t have a pre-existing audience or fan base.
A newer form of the membership site model is called a branded community. People confuse this service frequently with membership sites. It’s understandable because you use the same software to host the two subscription services. Think of a branded community as a long-running focus group. It’s a place where your fans gather to help you improve your subscription service.
Bonus: Usage-Based Subscriptions
The newest trend in subscription business models is usage-based subscriptions. It is prevalent with subscription services that consume resources like web hosting or machine learning. This subscription business model uses service tiers based on a predetermined amount of resources. If the customer uses more it bumps them up into a higher tier.
What are the pros and cons of starting a subscription business in 2022?
The pros of starting a subscription business in 2022 are that it is a model that the general public is aware of and feels comfortable with. This means that it is likely to be successful as people are already familiar with the concept and are likely to be more likely to trust a company that uses this model.
In addition, recurring revenue is a great way to ensure that a company is stable and has a consistent income. For the record, stable and consistent income is a hallmark of great acquisition targets. You will get a better price should you decide to sell the company or exit in some other way.
However, there are also some cons to starting a subscription business in 2022. One of the biggest challenges can be coming up with a solution that hasn’t been seen before. With so many companies using this model, it can be difficult to stand out from the crowd.
Starting a business is difficult no matter when you do it. Subscription businesses are harder to start because they imply a long-term commitment. It can be hard to justify why now is the right time given the uncertainty that businesses faced in the last couple of years.
What pricing challenges do subscription businesses face?
Unlike other startup businesses, they have very little flexibility. Once you settle on a price you’re stuck. You can increase prices by delivering more value. However, you will still lose customers who become attached to the original pricing. This makes it difficult to find the right price point for your business.
You also have to consider the lifetime value of your customers when pricing your subscription. If you charge too much, you may never see those subscribers again. But if you charge too little, you may not be able to cover the costs of providing the service. It’s a delicate balance to strike.
Also, you have to resist the desire to offer coupons or discounts. Customers will start their commitment to you. They will wonder if they had waited would they have received a much lower price. And if they decide to stop their subscription will they be able to buy back in at a substantial discount.
How do you manage customer acquisition costs?
Acquisition costs can be seen as a special form of pricing challenges. New customers cost and time due to digital marketing. They generate revenue on a recurring basis. The challenge is that it may take more to acquire the subscribers than you make on the original transactions. However, the lifetime value of the subscribers should be recouped in a relatively short amount of time.
How to find a target market for your subscription business?
There are a few different ways that subscription businesses can find their target market. One way is to look for an established audience that is already interested in the type of product or service that you offer. Another way is to think about your personal preferences and try to find a group of people who share those interests.
The best way to find a target market for your subscription business is to think about what you have to offer and what type of person would be most interested in it. You should also consider what your strengths are. Once you have a good idea of who you are and how you make purchasing decisions then you have the start of a target market.
How to compete with existing industry leaders in your niche?
There are a few key ways to compete with existing industry leaders in your niche. First, identify any changes in your opportunity space, and play to your strengths. Second, always be learning and innovating. Finally, cultivate a strong community around your brand.
Speed matters in business, and it’s especially important when you’re competing with well-established industry leaders. By being quick to identify changes in your opportunity space and playing to your strengths, you can stay ahead of the competition.
Look for underserved groups of customers within your target market, and focus on serving them better than anyone else. Consider what unique perspectives or skills that required to best serve them. Big companies like to reuse services in places where they don’t fit and ask customers to adjust. You can think of this as an opportunity calling your name.
Big Take away
You can definitely start a successful subscription business in 2022. It’s easier now than it has ever been because people know and trust subscription business models. There will be challenges like there in every business. However, it’s easier if you already have access to your target audience. Given the right strategy, you can build a successful business in 2022.