Here’s Why You Should Add Subscriptions to Your Offer

3 min read
03 May 2019

Subscriptions have taken on a brand-new lease of life in the last number of years, mainly as a result of the massive global shift away from buying in-store to shopping for almost anything you can name online.

By complementing existing payment options with a subscription offering, your business could see substantial growth, as well as increased customer lifetime value and higher revenue.

Here are four ways subscriptions can benefit your business.

1. Subscriptions Can Attract Many More Customers

Subscriptions tend to offer two very important things to customers; (1.) a lower barrier to entry for many types of product, and (2.), convenience.

Customers would much rather commit to a lower fee of $US20 a month than a high upfront fee of – let’s say, US$600.

So, the more expensive the product, the fewer the number of people that can buy it. Multimedia and creativity software company, Adobe realized this back in 2013.

Instead of selling photoshop and design software boxes for as much as US$2,500 a piece, the company decided instead to offer its products for a monthly fee of between US$10 and US$50.

As a result, heaps of new customers flocked to Adobe’s services, causing the company’s stock-price to soar. Today, almost every big software company offers subscription services.

Convenience can override price in some cases. Home delivered meal-kits are the prime example. You pay a little bit more but save on a shopping trip and on long deliberations on what recipes to follow for the week. 

By offering a high level of convenience and/or lowering the barrier of entry to your products, your company stands to reach a much larger audience through subscriptions.

Using automation to adequately scale operations counterbalances lower price-points and, the longer customers stay with you, the more they will invest over time. 

2. Subscriptions Offer a Predictable Revenue Stream 

Embracing subscriptions means switching from transactional, one-time purchases to regular payments. Since the amount of recurring payments are decided with the customer during the initial sale, businesses are able to more accurately predict their revenue each month. 

For an enterprise to run a subscription model, it's recommended to use an enterprise subscription management software

This ability to forecast revenue can even help boost a company’s stock valuation. Razor subscription service, Dollar Shave Club, managed to get a US$1 billion valuation by the time the e-commerce start-up had reached its fourth year. This is because they were able to show that they had 3.2 million monthly subscribers who were on track to bring the company an impressive $US200 million in the upcoming 12 months. 

3. Loyal Customers Can Turn a Bigger Profit for Your Business

One-time payment models force businesses to work very hard to keep attracting and converting new customers, which is a huge pressure on sales. It’s much easier, and cheaper to sell to and increase the life-time value of existing customers – five times cheaper according to research.

Because you have continuous contact with your subscribers, you can reach out to them at key touch points, not only for renewals, but to also sell complementary or additional services. Existing customers take less convincing because all barriers to purchase have already been overcome. If your customers are happy with your services and see that your company is striving to offer them value, they only need a slight nudge to spend more.

Just a 5% increase in customer retention can increase a company’s profitability by as much as 75%. This is why it’s so important for subscription businesses to take a strong customer-centric approach.

4. You can Demonstrate the Value of Your Product with a Free Trial

Free trials are a great way to attract customers to your product. They are an opportunity to prove the value of your service and to offer a proof of concept – plus you get useful customer data when they sign up.

‘Try before you buy’ is an offer that is prevalent across subscription services. Companies that are masters at using free trials as a means to get subscribers to upgrade their services and stay long term include Netflix, Amazon, Spotify and Dropbox. See details on Dropbox’s up-selling strategy here. 

Free trials are difficult to manage through a traditional payment system. Subscription management systems, on the other hand, are optimized to administer the high transaction numbers subscriptions require, including frequent subscription status changes – from free trial to a full subscription, for example – as well as upgrades, downgrades, add-ons and cancellations. 


Are you thinking of adding subscriptions to your offer?

Reach out to our team for an informal chat on how Cloudmore can help. 

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