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4 Reasons why you should start Subscription Business Model

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3 minute read // Branding

Businesses that use subscription models are growing. The pay-once, use-forever business model is currently being replaced by the subscription business model by a large number of companies. This is true since sending clients recurring invoices has many advantages. Your business might expand significantly and see more sales if you move to a subscription business model.

1. Customers are attracted to subscription-based pricing more.

Customers will prefer making $25 monthly payments over $500 in one go. This is because the higher price creates an entry barrier for your products. There are exceptions, but on general, the more expensive your items are, the fewer people can afford to acquire them.

Since they lower the entry barrier for goods and services, subscription fees make it simpler for more prospective customers to purchase your product. Although long-term costs may be higher for consumers, they can enjoy the product immediately. They gain from the extended benefits you may provide as your business grows and you keep improving your services.

Global markets are easier to access since you may be able to accept all forms of payment and are not impacted by the cost of delivery of goods.

Even in commercial transactions, the lower price point may help you avoid drawn-out sales discussions with procurement teams by allowing you to evade the budget threshold.

The increase of your monthly recurring revenue (MRR) is encouraged by all of this.

2. Easily predict your revenue from recurring billings

A pay-once company model necessitates ongoing client acquisition and conversion in order to generate revenue. It might be expensive. If you have one bad month, it could be more challenging for you to recover the investment you made in client acquisition.

Your customers make recurrent payments to you when you use a subscription-based business model. Since the amount of recurring payments is decided at the time of the initial transaction, you can predict your monthly income easily. Additionally, you may ensure that you aren’t stocking or ordering more materials than you actually require by doing this.

When recurring billing is automated, the interval between billing cycles is shorter. It halts the flow of money in its tracks.

A single transaction’s revenue stream is much smaller compared to recurring subscriptions.

3. Increased return on client acquisition expenditures due to subscription billing

One-time payment methods provide a predetermined rate of return on your customer acquisition cost(CAC). However, under the subscription model, there is no specified return on this crucial element.

This is because, while the CAC will essentially remain the same, the CLV will increase as they remain with your business (depending on marketing and conversion routes).

Subscription-based businesses are altering how continuous connections are maintained and retained, despite the fact that a customer’s membership can last for a variety of lengths of time. Resources for gaining committed customers are becoming more widely available every day.

Lowering the client churn rate is essential to taking use of this particular advantage.

4. Upselling and cross-selling can increase your earnings

Since you communicate frequently with your customers, you are building a strong sense of trust with them. As a result, marketing supplemental and additional services is made easier. Upsells in a subscription business is often easier because the customer already knows you and will be open to whatever more value you have to give.

Customers are also more likely to view additional services as more reasonable if subscription costs have been taken into account when determining their projected monthly or yearly spending. This is especially true for members that use your subscription for learning and/or development because they may find that add-ons speed up the process for them.

Customers can easily understand different pricing systems, such as tiered pricing, bulk pricing, etc.

When customers are ready to move forward on the upgrade route, several pricing structures, such as tiered pricing, volume pricing, etc., can make it easier for them to do so.

Conclusion

Subscription is a very good business model. Adopting a subscription model, considering the characteristics of your products, can greatly increase your company’s sales and earn you a stable profit. At first glance, it may seem difficult to get started with subscriptions, but in fact, it is easy to get started with Shopify. Flatline will support you in this regard, so please feel free to contact us.

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