Why Switch to Subscription Billing?

Table of Contents

1. What is a subscription service?
2. Why use subscription billing?
3. How to use a subscription model effectively
4. Subscriptions create ongoing relationships
5. What is a subscription-based model?
6. How do I create a subscription model?
7. What types of subscriptions are there?

What's better than a customer? A subscriber. Many eCommerce merchants are figuring out that the best way to turn a client into a loyal, long-term source of income is to get them to purchase a subscription-based service package. Subscription models offer a wide variety of advantages over more traditional hourly and project-based methods of billing, and, with a little creativity, nearly any type of business can find a way to package what it's selling into a subscription.  

If you're billing your clients by the hour or by the project, or even if you're selling physical goods to your customers, chances are you can find a way to deliver your products or services as a subscription deal that will generate steady, reliable income over a long period of time.

What is a subscription service?

A subscription service is a service in which customers make recurring payments, often monthly, and are in turn provided with some ongoing or recurring benefit. The most well-known subscription services are streaming services like Netflix, which charges customers monthly in exchange for unlimited access to an online media library full of films and TV shows.

However, there are also subscription services for physical goods. In recent years, there has been a proliferation of businesses offering "subscription boxes," which offer customers an unknown assortment of products fitting a certain category or interest. Some offer ingredients and recipes for meals, others an assortment of the latest fashions, and others a random collection of goods related to a particular interest, such as comic books.

With the variety of ways in which subscription billing is used today, most businesses can find some sort of subscription model that they could offer their customers.

Why use subscription billing?

For service-based businesses, billing clients by the hour or by the project bakes in some hard limitations as to what you can charge. You're limited by time and by the staff you have available to assign to certain tasks, and when you bill by the hour, it can de-incentivize working with speed and efficiency in mind.

Project-based billing also creates a natural endpoint for your relationship with the client, once the work is completed. New client acquisition is costly, and every time you finish a project for an existing client, there's a chance they might shop around and choose to go with a different company next time.

Project and hourly-based billing is unpredictable, leading to lean months as well as months of crunch time. These sways can hurt morale among your staff and make financial planning and forecasting difficult.  

The major advantage of subscription billing is the predictability.  

When the amount of revenue coming in each month is relatively steady, you have less cause to worry about wooing and retaining clients. Instead, you can focus more of your time and energy on growing your business, improving your procedures, and finding creative solutions to any challenges you're facing.

Subscriptions also increase customer loyalty. A subscription that reliably and consistently delivers quality service or goods will create a lot of trust and satisfaction amongst subscribers, especially if they feel that they're getting good value for their money. This creates an emotional connection between the client and the company, one of the best indicators that they'll keep coming back and give positive reviews and recommendations.

How to use a subscription model effectively

There are many ways to incorporate subscription packages into an existing business model. For advertising and marketing companies, a subscription deal could include ongoing search engine optimization, social media posts, blog content, analytics, Google ads, email newsletters, and web design.  

Tiered subscription packages could offer different levels of service for smaller or larger clients, incorporating a few or many of these options.

Subscription deals also make a lot of sense for art, entertainment, and education-based platforms.  

Websites that offer written, photographic, video, and other media can allow customers to subscribe for added or premium content, or they can follow the Netflix model and restrict access to subscribers only, but provide those subscribers with access to a vast library of content.

For some types of businesses, the "network effect" can be a powerful incentive to get users to pay for a subscription. Multiplayer games, affiliate programs, and social apps all become more functional, as well as provide a better experience, when there are more people engaged. In this case, the effective benefit of the subscription is access to the other subscribers.

Subscriptions are also a good way to offer paid content and resources at a reduced rate in mobile apps and games, or to reduce or eliminate advertisements.

For companies that sell physical goods, the subscription box model allows the merchant to make large bulk purchases of products that have essentially already been sold, guaranteeing there will be no wasted inventory. These merchants may also have online stores or engage in affiliate deals to receive a cut of the profit when one of their customers wants to buy more of a product they received.

Companies that sell complex, expensive, or high-end products can offer service plans on a subscription basis, providing maintenance, upgrades, and repairs to subscribers.

Subscriptions create ongoing relationships

In the past, many subscription merchants have used dishonest tactics to trick customers into signing up for a subscription or to make it difficult for them to cancel. In recent years, both government regulations and card network rules have been implemented to crack down on these methods.

The truth is, however, it's always been better to acquire and keep customers by providing real value to them and keeping them happy.

The ideal subscription model is one that the subscriber doesn't want to cancel.

Most customers will quickly cancel when they don't feel like a subscription is providing them with a good deal for their money. However, when a customer has quality content, products, or services to look forward to regularly, the positive associations with the promise of reliable, predictable benefits will keep them loyal.  

For an eCommerce business, this means a steady income source that can be maintained by focusing on and enhancing the things their company does best, rather than struggling to lure in and retain fickle, one-time customers. No wonder subscription models are taking off!

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