Creative tips and tricks

The Reasons to Try the Subscription Business Model (+ How to Do It)

May 9, 2023

Lots of creators have started moving away from a one-time pricing model in favor of a subscription-based pricing system. And the reason is simple this: the subscription-based payment system allows them to generate regular revenue.

Just look at successful creator for Sew it! Academy: Mimi Goodwin as an illustration.

A typical one-time sales conversion rate for all industries is between 2.35% and 5.31%. This means that if you start an online course using an upfront price structure, less than five percent of your customers will purchase the course. It may appear to be a bit high initially, but there's no way to know how much money you'll make the following month -- especially in the event that traffic to your sales site fluctuates.

If you opt for a subscription business model instead, the initial payout may be lower, but you'll know what you'll be earning in the following months. Instead of trying to acquire new customers, you can concentrate on improving the quality of your online course for existing learners.

It improves the learning experience, makes them loyal, and encourages them to advocate for your course -- which, in turn results in a higher number of subscribers.

Find out:

What is a business model of subscription?

The subscription model of business is the one in which clients must pay a daily, monthly or annual charge for access to your service or product. Depending on the length of duration they decide to choose the customer can renew their subscription as long as they're making use of your service.

Business models that are based on subscriptions benefit both the course creator and the client. If you are a course designer (and the business owner) it is possible to use your existing customer relationships to generate predictable revenue. This lets you continue investing in your business as well as preventing you from bombarding the audience with your courses all the time. Students be able to rescind the subscription at any time and without having to pay the same amount of money it would have been if you'd purchased up front.

If you offer the right product or service in the correct industry, a subscription business is a profitable way of generating revenue.

What is a subscription business model function?

The underlying principles of an underlying subscription-based business model are easy.

You charge your customers regularly for your product/service and provide customers with the ability to pay for or cancel the service at any point. Your customers choose when and for how long they wish to purchase the offer. If a client is able to keep renewing their monthly payments (usually by using a credit or debit card) then the offer remains available to the customer. However, if they don't renew, they lose the access instantly.

The subscription model for business was first introduced in the 17th century by publishers of periodicals and newspapers. With the advancement of technology, many websites, businesses, and software-as-a-service (SaaS) platforms use this business model.

Popular examples of businesses that bill their clients for subscriptions are Netflix, Microsoft, and Spotify which have been reaping the benefits of this model for years. It's good to know that the business model doesn't have to be limited to big companies. You can use it for the creation of your own products, too.

The benefits of a subscription business model

A subscription business model has numerous benefits. Below are the top five benefits:

    Predictable revenue stream    

One of the appealing aspects of a subscription business model is that it makes it easier to forecast how much revenue your business can earn every month (or the entire year). Because your clients pay on a regular basis it is easy to know what they'll be paying and at what moment they'll need to renew their payment.

If you take into account your churn rate when you factor in your churn percentage, you'll have the ability to forecast your monthly recurring revenues (MRR) near accurately.

Consider this example: Let's say you have a 7% turnover rate, and you have 2,500 students are enrolled in your class with a cost of $20 per month. Even if you get no new students the following month, you'll make at least $40,000.

The more time you have going, the more you'll be able predict the number of customers you acquire or lose during a particular duration of time. It's easier to determine your MRR as well as your annual recurring revenue (ARR).

    More effective customer acquisition    

If you make $2000 per month in your part-time job as a barista, and you're looking to upskill by taking a project management course. The best one you find offers two pricing models: $1,000/one-time payment and $70/month. Which one of the pricing structures is more practical for you at the moment?

My money's on the monthly payment for the subscription.

Sometimes, the price tag of a product can appear too high to a potential buyer. Breaking down the price into weekly, monthly or yearly payments makes the product more affordable, and lets prospects include the cost in their budget. This way, more people who are able to afford paying per month are likely to convert and sign up to your class.

    Lower customer retention spends    

As your students continue to pay to attend your class, you don't have to set aside as much funds to reach them like you would have if your course operated on a one-time pricing structure. In addition, since they continue to pay their payments, it is possible to conclude that they are determined to maintain a long-term relationship with your institution. It's less likely to see them churning, so you don't have to invest a significant amount of money in order to retain them.

    Stronger customer relationships    

In a single-payment structure, customers pay once for your course and that's it. With the exception of a handful who may contact you to tell you of their progress, most people won't communicate with you or your company in any way.

The subscription model in contrast lets customers have access to your company (and the reverse) for all time. When your customer service team is always there answering your students' queries and helping them solve their issues and issues, they'll begin to be awed by your brand. This will greatly influence the decision of whether or cancel their membership.

    Possibilities for upselling and cross-selling    

In 1968, social psychology researcher Robert Zajonc devised the mere exposure theory. It says that when a person has been exposed repeatedly to a stimulus, they develop an attitude towards that stimulus.

For business, this implies that the longer your customers are able to access your products it will be more familiar feel to your customers. If this is the case, your customers will be more likely to buy other services or products that you provide.

With cross-selling, you're creating additional offerings to an already existing deal for a higher price. As an example, if you were to offer the online course for $25 per month and you want to add an exclusive membership program to it and make it available for $35 per month.

By upselling, you're entice current customers to purchase a higher-priced product. If you're selling the course for just $25/month you could market your related, but higher-priced class to students for $30 per month.

A potential customer may not want to take the costlier option right away, but a customer who's been in your program for 6 months will likely change their plans (or buy the higher-priced course) because they know the value your course offers.

How to move into a model of business that is subscription-based

If you're thinking of making use of a subscription-based business model for your product, there are six steps you should take:

    Determine whether your company is a suitable fit for this pricing structure    

When you are deciding on a subscription-based pricing structure for your business, work out whether it's a suitable pricing structure for your company. In the case of example, if your product is one that users are required to have access for a long time for example, a fitness program or an online boot camp -- then a subscription business model will work great for you. However, if the product is a single training course, it will not be the best fit.

Once you're sure the model of subscription-based business will be a great fit for your service, proceed to the next step.

    Set realistic goals for your subscription-based business    

The goals you intend to achieve through your business will decide the prices and the tiers you choose. When you are deciding on pricing think about what do I want to accomplish through a subscription business model?

Is it faster growth or more income? or is it more effective customer acquisition and retention?

The  objectives help you determine costs that will help you reach your ideal clients However, they'll influence the tone of your site/sales page copy.

    Select a pricing approach    

It's now time to get the exciting part: designing your subscription bundles.

If you're only trying a subscription-based pricing structure to the first time, you can keep things simple by creating one or two packages. As you measure your conversions and get feedback from your customers, you'll be able to create additional pricing levels that meet their needs.

In order to do this, pay attention to these factors:

  • Your method of communicating your product's value to your clients
  • The industry standards
  • The pricing incentives on your packages

If you aren't sure where to begin, look at the packages your competitors are offering. The goal is to make your packages more appealing to the people you want to target.

For example, if you're instructing Pilates to parents with new children, you could check the price packages of different Pilates classes on the web. If you see that pricing tiers range from $20/month to $60/month, you can use this as your baseline.

A beautiful packaging design isn't always a requirement for pricing your item lower than competitors. There is a possibility that you could charge the same range, but give slightly better incentives or perks. It's possible to charge an extra amount than the competition in case you're providing perks they're not.

The main point is that your customers should look at your pricing tiers and believe that you are a good choice. If they did business with you, that they'll receive a bang for their buck.

    It makes it simple for prospective customers to sign up    

The process of signing up for a subscription should be simple and straightforward. Your customer shouldn't to be confused as to what to do when they arrive on your website. It is also not ideal for users to be wasting 30 - 60 mins navigating the sign-up page.

Additionally, you should include a link to your pricing page within the menu navigation on your website so prospects can find it easily. On your pricing page, your subscription options and price should be clearly displayed in a language your customers will be able to be able to comprehend.

In addition, you should provide options for customers to change their billing information and upgrade or cancel their subscription plans.

    Scale your business with the best technology    

Because the intention is to collect recurring payment from customers, you want to be sure your billing software works by the appropriate tools to take and manage these payments.

If you often ship a lot of products to customers at once using a bulk delivery service, it could help simplify the shipping process as well as reduce the cost.

    Deliver exceptional customer care    

Your website should include various ways for potential customers or customers to contact your customer service department if they have questions or encounter issues. Contact options may include chatbots or live chat, emails or phone calls.

It's the ease that people can reach your support team as well as the quality of assistance the team provides could decide if they'll continue the subscription or not. You must make sure that you're providing the highest possible customer support to your base as well as establishing connections with your customers.

Some examples of websites that use a subscription business model

Subscription business models are used in different ways by various businesses in different sectors. Below are five businesses that successfully use a subscription-based pricing structure.

    Online courses - Copy School    

Copy School is an extensive online class that instructs people how to write all types of strategically written copy- including copy for websites, social media ads, and emails -- for companies. The class is intense and has created amazing copywriters who work with large corporations and are earning top dollar.

Because of this, the cost for Copy School is expensive -the one-time fee of $3,997 for lifetime access (or $1,998 one-time payment for an ad-supported program). But, Copy School has two subscription plans that allow their customers to pay for it -- $348/month (ad-supported) or 697/month for 6 months.

    streaming platforms - Netflix    

When it first launched on markets, Netflix initially was an online rental platform for DVD's. But with the emergence of broadband internet, smartphones and smart TVs Netflix was rebranded as an online video-on-demand (VOD) streaming platform. Today, it's a streaming platform with subscriptions that allows users to watch movies and TV shows on Internet-connected devices.

The pricing levels of Netflix range between $6.99 from $6.99 to $19.99. The plans you select depend on the quality of your videos and also how many devices a subscriber wants to connect to one account.

    Software-as-a-service platforms -    

    Memberships ClassPass ClassPass    

ClassPass is a membership program for beauty and fitness enthusiasts. With a ClassPass membership, members can schedule appointments or classes in top gyms, studios Salons, spas, and gyms across the globe. ClassPass's subscription plans range between $29/month (for 8 credits) up to $159/month (for 80 credits ).

    Physical items - BirchBox    

Birchbox provides its customers with boxes with two to six items of beauty every month. Each beauty box is customized according to a questionnaire that the customer takes at the beginning. This arrangement allows the customer to test different items, since the same product is never sent more than once.

Once a buyer discovers a product they like, they can buy it directly on BirchBox's website. Monthly subscriptions start at $13/month, and you can get discounts on 3-month, 6-month and 12-month subscriptions.

Enhance your income by implementing a subscription model for your business

In subscription-based companies it isn't enough to create random pricing and just wait for customers to sign up. You have to put in the work. Your customers will only renew their plans if they believe they're receiving enough value for their money.

In order to provide this benefit To provide this value, you must get close to your target customers, talk to them about their concerns and offer tried-and-tested solutions. Then, you can assign prices to your product which your customers will gladly sign up to.