By Rieva Lesonsky
Are you looking for a way to attract more customers, sell more to the customers you already have and guarantee a steady stream of income to your business? Then the increasingly popular subscription sales model might be for you.
Once used only for magazines or “beer-of-the-month” clubs, the subscription model is picking up steam as businesses and consumers alike grow more comfortable with the idea of paying a monthly fee for products or services. Software companies have set the standard: With more companies and consumers happy to pay monthly or annual fees for things like software, cloud storage or streaming music, it’s become easier for businesses in a wide range of industries to translate the subscription model to their own products.
The New York Times recently took a look at some companies succeeding with subscription sales in the non-tech arena, including PetFlow, which forecasts sales of $30 million this year selling pet food; H. Bloom, which sells flowers, and Trunk Club, which sells clothing.
In addition to creating an ongoing revenue stream, the story notes some other advantages to the subscription model:
- You can make inventory purchases against future sales, enabling you to keep lower inventory levels and get better deals from suppliers.
- You are less likely to have to discount prices since you have customers ready to buy at a regular price.
- You can establish long-term relationships with customers, cutting your cost of customer acquisition.
- It’s easier to attract investors and get financing since you can show recurring revenues.
What types of products or services are best suited to subscriptions? Brian Lee, co-founder of ShoeDazzle, which sells women’s shoes by subscription, told the Times the tactic works best when the product is either a “necessity” or a “passion” for the customer. Is your product something customers won’t want to be without, like pet food, skin-care products or online document backup? Or is it something they’re obsessed with and ready to spend on, like gourmet food, craft beer or equipment for their favorite sport?
Also consider your customers. Ironically, the subscription model works well for both shopping junkies (like the shoe-obsessed women who sign up for ShoeDazzle’s monthly shoe deliveries) and people who hate shopping or don’t have time for it (think men and moms). DollarShaveClub is one company making waves by targeting men (typically shopping-haters) with subscriptions as low as $1 a month for razors and shaving supplies.
If you think your product or service could be suited to subscriptions, keep in mind this doesn’t have to be your sole business model. PetFlow estimates 60 percent of sales are subscription, but that’s still a sizable percentage buying the non-subscription way. Also look to the example of shopping sites like QVC or HSN, which offer subscription alternatives but also let customers buy one at a time. The more options you can offer customers for how to shop, the better.
Image by Flickr user Greg and Mellina (Creative Commons)Google+