Subscription-based business models have become increasingly popular across various industries. Notable businesses such as Netflix, FastSpring, and Microsoft have successfully implemented this revenue model for years. The great thing is that your business can also leverage the advantages of a subscription model to achieve certain success.
In this article, BSS Commerce Shopify will delve into the definition of a subscription business model, how to start a subscription business, how it works, and the numerous benefits it offers. Not only that, this blog will provide you with a selection of subscription model examples that can serve as inspiration for your own business. Thereby, you can easily apply for your business, don’t wait any longer; let’s scroll down to learn more:
- 1 A Quick Overview of a Subscription Business Model
- 1.1 What is a Subscription Business Model?
- 1.2 What Are The Types of Subscription Business?
- 1.2.1 Subscriptions for a fixed set of goods or services
- 1.2.2 Subscriptions for unlimited use of a service or collection of services
- 1.2.3 Pay-as-you-go (PAYG) subscriptions
- 1.2.4 Subscriptions for basic access or minimal service with additional charges based on usage
- 1.2.5 Online subscriptions for supporting content creators using crowdfunding
- 2 Top Benefits of Using a Subscription Business Model
- 3 How to Start a Subscription Business in 5 Main Steps
- 4 How to Start a Subscription Box Business With Shopify
- 5 3 Examples of Subscription Business Models
- 6 How to Start a Subscription Business – The Final Verdict
- 7 How to Start a Subscription Business – FAQs
A Quick Overview of a Subscription Business Model
What is a Subscription Business Model?
The subscription business model is a pricing strategy in which customers pay a recurring fee at regular intervals (usually monthly or annually) to access a product or service. This model provides a predictable revenue stream for businesses and can help to build customer loyalty by offering ongoing value to subscribers.
The idea of the subscription business model dates back to the 17th century, when book and newspaper publishers first introduced it. Nowadays, customers usually subscribe to services online by providing their credit card or checking account details and authorizing recurring charges. If the customer doesn’t cancel the subscription by the end of the period, it will automatically renew, and the customer’s account will be charged. This ensures uninterrupted access to the product or service purchased.
Subscription business model is commonly used by businesses that offer digital products or services, such as software, streaming media, or online courses. Notably, renowned platforms such as Netflix and Spotify have successfully embraced this approach.
There are numerous subscription box business ideas available, including options such as food, coffee, personal care, and beauty products, among others.
Several well-known subscription box businesses, such as HelloFresh in the food service subscription model, Netflix in the streaming service subscription model, FastSpring in SaaS, and more.
However, let’s keep in mind that the subscription business model is not limited to these specific industries. With the right strategy, almost any type of business can adopt a subscription model and offer subscriptions to their customers.
What Are The Types of Subscription Business?
There are various categories of subscriptions available, including:
Subscriptions for a fixed set of goods or services
Periodicals, like newspapers or magazines, offer different types of subscriptions:
- Paid circulation
- Non-paid circulation
- Controlled circulation
Subscription boxes that contain a variety of consumables:
- Community-supported agriculture
- Meal delivery service
- Meal kit delivery service
Subscriptions for unlimited use of a service or collection of services
- Usage can be personal and non-transferable, for a family, or for a group utilizing a service at the same time.
- In the publishing industry, a subscription to a bundle of several journals at a discounted price is known as a “big deal.”
- Software as a service
Pay-as-you-go (PAYG) subscriptions
- Consumers subscribe to purchase a product periodically, providing convenience as they don’t have to remember to buy it regularly.
- This model, also known as the convenience model, has been popularized by companies like Dollar Shave Club, Birchbox, and OrderGroove. Many other retailers have started offering subscription model services based on their success.
Subscriptions for basic access or minimal service with additional charges based on usage
- Basic telephone services charge a predetermined fee for monthly use but may have extra charges for additional services like long-distance calls, directory services, and pay-per-call services.
- When the basic service is offered free of charge, this business model is often referred to as Freemium.
Online subscriptions for supporting content creators using crowdfunding
- Fans can interact and send tips to content creators while also gaining access to exclusive paid content.
- Popular examples of platforms offering this type of subscription are Patreon and OnlyF.
Top Benefits of Using a Subscription Business Model
To know more about how to start a subscription box business, let’s refer to the top benefits of using a subscription business model as follows:
More First-time Customers
A product or service’s pricing can occasionally deter potential customers from trying it out. However, by implementing a weekly, monthly, or annual payment structure, you can effectively lower the price point. This approach provides an enticing opportunity for customers to explore your offering without a significant financial commitment, thereby attracting new customers and making them curious about the brand.
Easy to Predict Accurately About Revenue
Subscription models provide a streamlined approach to forecasting monthly revenue for the business. With customers making recurring payments, you can anticipate the timing and amount of each transaction. When you’re factoring budget into the business strategy, you can gain a precise understanding of the business’s available resources.
Build Stronger Relationships with Customers
Working with the same customers on a regular basis provides an opportunity to cultivate enduring relationships with them. In addition, it becomes more feasible to establish a cohesive community as a significant number of your customers share common interests.
As a result, through actively listening to and acknowledging your customers’ needs, you can effectively foster a sense of loyalty and create a fan base that not only remains steadfast but also contributes to your profitability.
Increased Customer Lifetime Value (LTV)
The entire amount of money you may anticipate a customer to bring in during their relationship with your business is known as your customer’s lifetime value. You may develop an engaging and entertaining experience that entices people to return and time again by offering constant value over a long period of time. Customers are likely to cheerfully pay your premium as long as they can reasonably believe that your subscription will continue to provide them with value.
Reduce the Customer Acquisition Cost (CAC)
Instead of exerting effort to attract potential customers who are unfamiliar with or skeptical of your brand, a subscription business model enables you to concentrate on serving customers who already have a strong affinity for your products or services.
In addition, numerous subscription-based brands benefit from a substantial number of word-of-mouth recommendations. This will be more efficient and cost-effective compared to conventional advertising strategies.
How to Start a Subscription Business in 5 Main Steps
Applying a subscription model to your business plan can be a fascinating idea. However, to ensure that you achieve success, there are crucial steps that you need to take. Here are 5 main steps about how to start a subscription business:
Step 1. Market Research and Find a Subscription Idea
Before starting a subscription business, it is imperative to establish strong groundwork. Although the subscription business model has proven to be successful for numerous businesses, it may not be the best fit for your business.
For beginners, before committing, let’s pay attention to some of the basics, which are crucial elements such as conducting research and finding an idea to ascertain whether providing a subscription service can be advantageous for your business.
Step 2. Set Up a Pricing Strategy
Based on the type of product you offer and your objectives in developing a subscription model, you may opt for a specific pricing strategy.
For instance, to design your subscription packages and tiers, you can keep it simple by creating a single package that kickstarts your revenue model based on subscriptions. As you receive more feedback from your customers and gain a better understanding of their preferences, you can then develop various packages tailored to different customer segments.
Step 3. Create a Seamless Sign-up Procedure
It is of utmost importance to make sure that the process of signing up is uncomplicated, easy to use, and highly adaptable to customers. This will enhance the effectiveness of the marketing strategy and limit any confusion that may lead potential customers to abandon their carts before subscribing.
On the other hand, establish a billing system that can effortlessly accept and process recurring payments. At once, you can also design the website to incorporate user-friendly features that allow subscribers to customize their contact and billing information, as well as upgrade or cancel their subscriptions.
Step 4. Build a Seamless Integration Process
To establish a successful subscription business model, it is imperative to possess an automated procedure that enables the expansion of the business. Prior to commencing a subscription business model, let’s make sure that there is a seamless integration with the eCommerce system, payment gateway, and logistics and fulfillment businesses.
However, if you want to provide a tangible product, contemplate utilizing warehouse management software that seamlessly integrates with the eCommerce site. In other words, consider a bulk shipping service, which will streamline the process and optimize costs for you.
Step 5. Deliver Exceptional Customer Service
The subscription-based business model necessitates excellent customer service. This shows to consumers that they can rely on your brand to always, no matter what, put things right. When consumers are choosing whether or not to renew their subscription, the quality of the service they have received might play a significant role. If you strive to surpass expectations, there’s a far higher chance of success for your subscription business.
How to Start a Subscription Box Business With Shopify
Start a Subscription Box Business With Shopify
To start a subscription business with Shopify, apart from 5 main steps in the section “How to Start a Subscription Business in 5 Main Steps” above, you should have a powerful and stunning store built into the Shopify eCommerce platform.
If you are not familiar with building a website on Shopify, hiring a Shopify expert will be the best choice that help you save a lot of time. You can consider the Shopify Website Development Services by BSS Commerce Shopify which is designed to help merchants create a website quickly and easily. BSS Commerce Shopify offers specialized solutions for every industry and business, ensuring that your website is tailored to your specific needs.
Lean code ensures high website performance, while flexible and responsive functions are ready for your business to expand. With this service, you can have a website that is both efficient and effective, giving you the tools you need to succeed in a subscription business model.
Boost Sales With BSS Subscriptions for Products & Services
Once you have a website on Shopify, the fastest way to start a subscription box business is to utilize a Shopify subscription app. Among many subscription apps on the Shopify app store, the subscription app by BSS Commerce turns out to be a notable option.
BSS Subscriptions offers a complete subscription solution that enables merchants to provide monthly product deliveries to their customers, resulting in lower churn rates and higher revenue. This application allows you to sell products through various methods, including pay-as-you-go, standard or advanced prepaid, discounts, and more.
BSS Subscriptions app’s dashboard allows you to track subscription performance, including total order amount, average order value (AOV), and more. In addition, customers can manage their subscription status through a dedicated subscription page on the online store.
- Automatic Recurring Payment: Recurring orders will be charged automatically.
- Diverse Subscription Options: Offer your customers a range of subscription plans to choose from.
- Subscription Management: Allow customers to control their subscriptions through their accounts page.
- Monitor Subscription Progress: Analyze subscription data by visualizing it to track performance.
- Subscription Alerts: Keep your customers informed about their subscription usage through email notifications.
- Free plan available and 14 days free trial.
- Starter plan: $5 per month
- Pro plan: $10 per month
- Advanced plan: $20 per month
To sum up, BSS Subscriptions is a great application worth trying. It will help you optimize the time for starting a subscription business. To know more practically about how the subscription business model works as well as the success it brings, let’s scroll down to learn more about the three examples of this model below.
3 Examples of Subscription Business Models
Streaming Service Subscription Model – Netflix
Streaming services provide everyone with the opportunity to enjoy a wide range of entertainment options, including movies, television shows, and music, in exchange for a monthly fee. This particular model offers consumers the advantage of accessing their desired entertainment content at any time and from any location.
Netflix’s success as a million-dollar titan can be attributed to their wise choice of the subscription business model. The subscription model eliminates the stress and uncertainty of revenue for Netflix. With a fixed income from recurring payments, they can easily predict their income by monitoring the number of subscribers each month.
In addition, the subscription business model allows Netflix to focus on building strong relationships with its customers. By analyzing their viewing habits and recommending similar content, they can keep their customers happy and attract new prospects to their site.
In a nutshell, the subscription business model is an effective way to meet the ever-changing demands of customers while building stronger relationships with them.
This business model is not limited to Netflix alone, as other industries such as software, health, and beauty products can also benefit from it. Below is the next example of the HelloFresh brand, the food service subscription model, that you can refer to to apply for your business.
Food Service Subscription Model – HelloFresh
If you are seeking to diversify your dining habits, it might be worth contemplating a food service subscription. These enterprises not only bring food directly to your doorstep but also furnish you with recipes to prepare. Consequently, you receive both the necessary ingredients and guidance to create a homemade meal, even if you lack any culinary expertise.
HelloFresh operates as a meal subscription service, providing customers with all the necessary ingredients to prepare a full meal. Every package contains meticulously portioned and individually wrapped food items, ensuring precise measurements as required by the recipe. Through delivering pre-measured and prepackaged ingredients, HelloFresh eliminates the need for time-consuming preparation work, allowing customers to save valuable time in the kitchen.
Subscription Management Software for SaaS – FastSpring
SaaS subscription models have become increasingly prevalent in the current market. Notable companies such as Google Workspace, FastSpring, HubSpot, Adobe, and Slack have adopted this model, requiring users to pay a monthly fee in exchange for access to their software. However, once the subscription is discontinued, access to the software is only available until the end of the billing period.
FastSpring is the next name in a subscription business model example. FastSpring is a robust and user-friendly subscription management software for SaaS businesses. FastSpring caters to digital businesses worldwide, offering a customizable storefront, efficient order management, and automated tax calculation. With its intuitive interface, businesses can easily handle payments and subscriptions.
One of the key features of FastSpring is its wide range of payment options, allowing businesses to cater to their customers’ preferences. It seamlessly integrates with popular platforms like WordPress vs Shopify, making it convenient for businesses to manage their subscriptions.
To ensure a secure and reliable transaction experience, FastSpring provides 24/7 customer support and implements stringent security measures such as SSL encryption and fraud protection.
How to Start a Subscription Business – The Final Verdict
In general, starting a subscription business requires careful planning and consideration. It is important to identify a target market, develop a compelling product or service, and establish a pricing strategy that aligns with customer value.
Additionally, implementing effective marketing and customer retention strategies can help drive growth and ensure long-term success. By understanding the unique dynamics of the subscription business model and staying focused on delivering value to subscribers, entrepreneurs can embark on a path toward building a thriving and sustainable subscription business.
BSS Commerce Shopify hopes that these guidelines about how to start a subscription business will be helpful for you in applying them to your business. Finally, don’t miss out on the most recent posts in the BSS Commerce Shopify blog to gain useful knowledge in the eCommerce industry.
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How to Start a Subscription Business – FAQs
What is the beginning cost of a subscription box on Shopify?
The cost of starting a Shopify subscription box can range from a few hundred to several thousand dollars, depending on your specific business model and objectives. The primary fixed cost is the Shopify subscription fee, which amounts to $25 per month for the basic Shopify plan.
On the other hand, there will be variable costs to consider, including expenses for products, packaging, shipping and handling, marketing, and promotions, among others. It is crucial to thoroughly evaluate these costs and allocate your budget wisely to guarantee a prosperous launch.
Is it possible to sell digital subscriptions on Shopify?
Yes. Despite it being a well-known platform for product-based businesses, you can simply add them as products. If you need to provide digital downloads to your customers, several apps in the Shopify app store can help you with that.
How can I make a subscription box for dropshipping?
Dropshipping and subscription boxes are distinct business models that require different approaches. To start a subscription business box, it’s crucial to provide consistent, high-quality products to prevent customer turnover.
Not only that, adhering to a regular delivery schedule is essential. If you’re considering merging these two models and dropshipping subscription boxes, it can introduce operational challenges. It’s vital to source products from a trustworthy supplier to avoid potential issues.
Can a subscription business make a profit?
Yes, a subscription business can make a profit. Numerous prosperous businesses have established their business models around subscription-based services, indicating that a subscription business can indeed generate profits.
Thanks to implementing a recurring fee for customers to access products or services, subscription businesses can maintain a consistent revenue stream over time. Nevertheless, the business must manage customer acquisition and retention costs effectively to ensure profitability.