Subscriptions make it easier to plan your income. You become less dependent on other platforms and your business grows on its own - if you do it right. In this article, I'll explain how to create a suitable offer, find the right pricing model and make your subscribers happy.

Subscription business models have many names: Club membership, communities (e.g. with BuddyPress), maintenance contracts, subscription concepts (with WooCommerce) or flat rates are just a few examples. Magazines, insurance companies, fitness centers and many more have long relied on them for their business models. Digitalization is now making this an option for numerous other offers, products and companies.

For example, you can have consumables sent to you regularly by Amazon or other providers - and get them cheaper as a result. The graphic design application, on the other hand, no longer costs hundreds or thousands of euros upfront, but a manageable amount per month. Of course, this adds up over time, but the barrier to entry is lower. And the "surprise boxes" model is also based on this, with new products on a clearly defined overarching theme.

Reasons for the subscription business model

Subscriptions are interesting for companies, agencies and freelancers for various reasons, which allows for very different concepts:

1. Income is more predictable thanks to recurring payments. Of course, this is not 100 percent true, but it is more than if you have to keep encouraging new purchases.
2. Customers often spend more than they would if they had to order again each time. This is because the hurdle between you and the customer is now somewhere else: it is no longer the purchase that is difficult, but the non-purchase (i.e. canceling the subscription).
3. You become less dependent on third-party platforms, as more and more of your income comes from your existing customer base. If you do it right and delight your customers, they can even refer new customers, who in turn contribute to your regular income. For example, through commissions, bonuses, free products or affiliate models.
4. And last but not least, if this is an option for you: your company is more interesting for a takeover or sale with such a business model.

This is because your income in the subscription business does not depend as much on successful marketing measures as is the case with other concepts.

Subscription business model: examples

As mentioned at the beginning, there are subscription business models under many names and for many industries. For the most part, corresponding platforms can also be implemented quite easily with WordPress or WooCommerce. Here are some practical examples as inspiration:

Membership website (Membership)

In this case, a hopefully clearly defined target group receives an equally clear benefit, for example in the form of training, up-to-date information, forums for exchange, etc. This can be very successful, especially as a B2B offer, because the price then promises a direct monetary advantage: participants can use what they learn to improve their own business.

One variant of this model is the "exclusive club". There are conditions for membership in this model because:

• The price is particularly high
• The number of members is limited or
• Membership only works via personal invitations

The long-term value of such offers comes largely from the members themselves. You therefore need a certain basic number of members to ensure that the project attracts further interested parties.

Access to a content library

Netflix and Spotify are examples of this. In order for them to work in the long term, the offering has to keep growing. Otherwise you get the feeling that you have already seen everything. Accessing useful information such as databases, e-books or online video courses also falls into this category. A well-known platform for this is Udemy:

Services and premium service

This is where the maintenance contract briefly mentioned at the beginning comes into play: you regularly take something off your customers' hands for which they don't have to book you again and again. Or it works in a similar way to insurance: your customers pay a monthly premium to be able to call on your help if the worst comes to the worst. This could also be support for WordPress or WooCommerce.

In the "premium service" variant, you offer higher-quality support, for example with fast response times, a personal contact person, etc. The biggest difficulty here is finding the right balance: an interesting offer for your customers that is still worthwhile for you in the end. It is often important to gain initial experience with a manageable number of beta testers before you launch the offer on a larger scale.

Consumer products

I already mentioned Amazon above, but Dollar Shave Club and its many imitators also belong in this category. Customers "subscribe" to products that they would buy regularly anyway. In return, they get a discount.

As a startup or small company, you need a strong brand, a good story and an excellent customer loyalty strategy to prevail against the large e-commerce offerings. Your customers need to be so enthusiastic about your products and your service that they don't even think about comparing them with other offers.

Some of the ideas mentioned above can be combined. For example, a consumer product subscription can also offer a community for like-minded people. Or a membership website initially attracts new customers with a content library.

Finding the right pricing model for your subscription business

What all ideas have in common is that you, as the provider, have to make the benefits of the subscription crystal clear. This is because the barrier to entry is initially higher than with a one-off purchase. The term "subscription" alone can act as a deterrent.

That's why you should primarily advertise the benefits: Customers save money and/or time on consumer products, they have access to an exclusive library of content, they get to know exciting people from their own subject area and the like. Here are some examples of a suitable subscription business model:

Free samples and freemium

Some offers of this kind entice users with a free trial period so that they can experience the benefits straight away. Or a "freemium" model is implemented, in which a limited version is available free of charge. Last but not least, there is a combination of both: first, interested parties use the full range of functions for a trial period, then they are downgraded to the free model. And then they often get used to the premium functions. But remember: "Free" is not a business model, but at best a marketing tactic.

It is also not easy to successfully design such a free version. On the one hand, prospective customers should get a good impression. On the other hand, it should not be the case that the free option is enough for most people. At the same time, these customers can also generate costs, for example in terms of support.

Basic version

In this respect, a completely free offering is sometimes not economically viable. It is then an idea to introduce a fee-based "Basic" version with a limited range of functions instead. But beware: paying customers are often more demanding, even if they only pay a comparatively small amount.

For some of the business models mentioned above, a free option is generally not possible or only possible to a limited extent. This applies to physical products, for example. Instead, the sales page must be implemented with every trick in the book, answer all questions and dispel all doubts. This includes things like: Money-back guarantee, flexible subscription conditions, store seal, social proof via customer opinions, FAQs, photos and videos, detailed descriptions and so on.

Ancillary costs, price increases and other pitfalls

Consider the additional costs when calculating your prices. This doesn't just include the fact that taxes are deducted and every transaction has to be booked. More importantly, payment providers such as PayPal or Stripe often charge a minimum fee per payment transaction, which means that small amounts - for example for a "basic" offer - have a poorer balance.

So you may well end up earning very little here. However, the good news is that anyone who has paid you once and hopefully had an excellent experience with you is much more likely to do so again. You should therefore make sure that you ultimately inspire your basic customers with your more expensive offers. Pricing is important in all of this, if only because it is not so easy to increase prices later on. Customers quickly react allergically to this. In addition, you may have already created the expectation that your subscription offer is only worth a certain price.

Working with price levels

A tip if you find yourself in this situation: Instead, introduce a new, higher-priced offer that has a new range of functions. For example, new options or a new service. Anyone who has booked the original version will keep it at the old price. You may also continue to offer it openly as an economy version. However, new content/elements/services may then only be available for the new, more expensive plan.

In general, several price levels with different scopes are widespread. Three tariff variants have proven themselves in many cases.
One last thought on pricing: A subscription model can also work as a mixed calculation and bring in follow-up orders. For example, you may have a website maintenance contract with a customer who then also books you if their needs go beyond this.

Important: The first 30 days are crucial

Once the offer and prices are in place, hopefully the first customers will come. The most important phase for a subscription is the first 30 days after the purchase: Here you have to show your subscribers that they have made the right decision. You need to create a sense of achievement as quickly as possible.

You should make sure that they actually use the subscription offer: Depending on the model, your new users will ultimately have to change their behavior and keep in mind that they have taken out your subscription. This is sometimes supported by "gamification", in which new subscribers collect points for activities and thus achieve a certain status.

In short, make sure you do this at the beginning:

• that every step is clear
• that subscribers know all their options
• that the benefits of the offer remain crystal clear and
• that they are completely satisfied and enthusiastic

This onboarding process is crucial for retaining your customers in the long term. Perhaps even surprise them with something extra that you haven't mentioned before. It doesn't have to cost much. Even a handwritten thank you note in the first delivery shows that your customers are not just payment transactions and CRM entries for you. You should also show your loyal subscribers your appreciation with little things like this from time to time later on.

The dream of superusers

With a little luck and effort, you will create a growing number of "super users": customers who love your offer so much that they will stay with you for a long time. And that they also refer new customers to you. If you support this with an affiliate program, your subscription business will ideally grow by itself. For this to work, however, you need to ensure two things:

1. The value and benefits of your offering must be maintained in the long term. Depending on the model, you will invest time, effort and money to add new content or keep the community alive, for example. As a warning, anyone who cancels a subscription has usually been dissatisfied for some time - and may be one of the most disgruntled ex-customers. So always pay attention to such warning signals and always be open to feedback.
2. Your subscription must work smoothly. This applies above all to the payment process. Even the smallest problem will cost you money. Because at such a moment, customers question the purpose of their subscription. The hurdle of canceling is then suddenly very low. But that is exactly what must not happen.

Also important: If someone does want to cancel, it should be as easy as possible. Firstly, this person may simply not be a good fit for your offer. Secondly, you make it more likely that they will return at a later date because they won't feel locked in or taken advantage of.

Important metrics for your subscription business model

There are also various metrics in the subscription business that you should keep an eye on at all times:

- Churn rate: A very important key figure. It shows you how many subscribers you lose over time. You should optimize your subscription business model based on this value and make sure that your existing customers stay with you for as long as possible. Otherwise, your offer will be a bottomless pit. So look at how long your subscribers stay with you on average.
- Lifetime Value: You can calculate what a subscription customer earns you from the time they sign up until they cancel. This value is important to compare with the next one:
- Customer Acquisition Cost: This is the cost of acquiring a new customer. Compared to the lifetime value, this value determines how much you can invest in your marketing measures.
- Monthly Recurring Revenue: A general measurement is the monthly recurring revenue. This shows you the current status of your offer.

My conclusion on subscription models

A subscription business model can fulfill a wide variety of roles. For some companies, it is the main source of income. For others, it can help to build long-term customer relationships.

As you may have seen from this article, such a business is very interesting from an economic point of view. The relative predictability of the income is very pleasant. At the same time, however, it takes time and effort to find the right offer and pricing model - and to keep existing subscribers happy.

It is important to keep in touch with your customers. This can be done in person or through automated tools such as feedback forms. In the end, you will hopefully build something like a personal relationship with your customers. This not only helps you to keep improving your offering. But the good relationship also makes it less likely that subscribers will cancel your service.

Featured image: Alain Pham