Six Reasons a Subscription Billing Model Adds Value to Your Business

— July 11, 2019

Six Reasons a Subscription Billing Model Adds Value to Your Business

Your business probably relies on several subscription services. Software applications like QuickBooks for finance, HubSpot for marketing, Zoom for meetings, the list goes on. Software companies have all but made subscription billing the norm, but what about other industries?

Well, I’m in the market for a car. For a while, I’ve enjoyed the freedom that comes with car-sharing service Zipcar, but the costs can quickly add up.

Enter Volvo.

Volvo’s cars are now available on a subscription model. You pay a fixed monthly fee for access to a vehicle which includes insurance and maintenance. And cars aren’t the only thing on subscription.

You can get everything from toothbrushes to razor blades to flowers on a subscription model.

So, my question to you is:

Could you offer some sort of subscription plan to your customers?

Here are six reasons recurring plans add value to your business:

1. Predictability:

Having subscribers means you can forecast. In the flower business, waste is a big problem. The average flower store throws out more than half of its inventory each month. In contrast, online florist Bloom and Wild, has no high-street presence, a single warehouse and no need to hold stock. While their business is data-driven; meaning they can predict seasonal trends, they also offer customers a subscription service.

H.Bloom, another subscription-based flower company that sells flowers to hotels and spas, say they throw out less than 2% of their flowers because they can accurately predict how many flowers are needed to fulfil their orders. Subscription services are making these businesses much cheaper to run than a traditional high-street florist.

2. Eliminate Seasonality:

Many businesses suffer through seasonal highs and lows. In fact, a whopping thirty percent of a typical flower store’s revenue comes on Mother’s Day and Valentine’s Day – ultimately leaving them to scramble and make a sale in November. By contrast, Bloom and Wild has a steady stream of subscribers that pay each month.

Even car wash companies are taking advantage of subscription billing models. At Mister Car Wash – where they offer a membership for unlimited car washes – they receive revenue year-round, even in rainy months.

3. Improved Valuation:

Recurring revenue boosts the value of your business. Whereas most small companies trade on a multiple of profit, subscription-based businesses often trade on a similar multiple of revenue.

4. The Trojan Horse Effect:

Once you subscribe to a service, you become much more likely to buy other things from the same company. That’s one reason Amazon is so keen to get you to buy subscriptions to things like Prime or Subscribe & Save. Amazon knows that once you become a subscriber, you are much more likely to buy additional products.

5. The Sale That Keeps On Giving:

Unlike the transaction business model where you have to stimulate demand through advertising to get customers to buy, with a subscription based model, you sell one subscription and it keeps giving month after month.

6. Data & Market Research:

When you get a customer to subscribe, you can start to see their spending and consumption habits. This data is the ultimate in market research. It’s how Netflix knows which new shows to produce and which to can.

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Author: Jean Moncrieff

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