How to start a subscription business

April 29, 2021
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We don't necessarily need to know how to start a subscription business to get one off the ground. And we hope this read will be part of the relevant research you complete before defining how to create your own subscription business this year. Congratulations on reading up on this. 

Here, we include information on a few subscription types. And we tie that to our financial model for a subscription business, especially. We hope all of this can help you in this exciting new journey. 

How subscription businesses stand right now.

In an article dated February 2018, McKinsey shared how "15 percent of online shoppers have signed up for one or more subscriptions to receive products on a recurring basis." By then, the market was already known for its growth. They claimed it had "grown by more than 100 percent a year over the past five years." And that study kept highlighting valuable data, really. For instance, we also know from it that "46 percent of consumers in [their] survey subscribed to an online streaming-media service, such as Netflix." Think of these figures (and many more out there) as you set your own venture for your own company. 

If the thought of eCommerce is appealing to you or your precise niche, then the upcoming news is even better. August 2020 figures by UnivDatos Market Insights already announced a US$ 478 billion market projection by 2025. We're 4 years away from that, still. 

We should think about what UnivDatos clarifies when they say that today's "consumers are demanding products & services that are customized, seamless & flexible." This fact helps justify going into this type of work model. However, let's see why starting a subscription business could make sense for any entrepreneur. 

Why start a subscription business?

1- MRR and streamlining

From a corporate perspective, starting a business under this type of subscription model can, at minimum, help scale on a predictable monthly recurring revenue. That's also known as MRR for short. Knowing how many customers are committed to which fee over a specific period can give you the necessary cash flow to grow. 

Streamline processes and map the different kinds of investments that stem from that somewhat steady income. Careful on cancellations and other incidentals, though. Those can easily create changing scenarios. An aspect of this model is one can't fully rely, mathematically speaking, on projected income based on sign-ups. Those can easily change overnight. 

Related Article: SaaS Company KPIs Explained

2- Customer acquisition and loyalty

Also, estimate the number of funds spared on fixed subscribers for specific periods. Your customer acquisition costs can be significantly lower than trying daily to attract new clients. 

Loyalty programs here can also boost substantially as you move clients over diverse cycles. Add all of this to your marketing and sales efforts if you didn't start that way. Imagine the know-how on your target audience! 

As you can track usage patterns and actions so neatly, these models allow more personalized solutions and even selling new or different products to the same clientele. 

3- Customization at better pricing

Then, analyze the customer or user front. Consumers can have access to a considerably lower fee by facing recurring charges. And this commitment can get them conveniences in a specific pre-approved or arranged term. And they can extend or cancel, too, if needed. 

If we, on top of it all, customize the options we make available to them, then clients can make the best of our entire service or product offer. 

4- Relationship nurturing

In the end, all these factors nurture relationships with our client base. Set on a different time basis, these financial models are an effective way to help build our companies. 

How to start a subscription service and do it right

To get a service started such as this, first, do what we believe you must be doing correctly to be reading this. Do research!

Then, think of creating a community. And come up with ways to keep customers engaged. Focus on your marketing strategies. And think of spreading the word. For that, influencers, other websites, established networks, and other resources can be critical. 

Seek partnerships. Also, come in close contact with relevant stakeholders. And get tons of feedback on your starting business. If you keep your offer updated to the market's capabilities, there's already a win there. Now, seek to innovate if you can. 

What are the different subscription types? 

For types of subscription, we'd like to at least mention access, curation, and replenishment. We'll cover what those are next. But that list isn't exhaustive. 

There are also freemium versions to contemplate, along with pay-as-you-go or unlimited options. The umbrella, though, is mostly comprised of the 3 categories we'll outline below.  Just in case, also, every option here comes with a set of pros and cons, right? It's the same as with everything, almost, it seems. So, consider your offer, startup path, and your overall plans and vision to decide amongst one of these. 

Paying to access benefits

The most common option with which we're all most familiar is the first one, access subscriptions. Its name certainly describes those wisely. Through them, people can pay to access a service. And users are also typically rewarded either in rate or through added perks. Recurring is a perfect example of a software as a service (SaaS) option. 

Curated deliveries in exchange

If the second one as a service sounds new to you, imagine a perfectly well-curated box at your doorstep. You open it, and it tends to your interests! Whatever you open up in that delivery speaks to you in some way or another. 

Those are curated subscriptions. Users experience and rejoice in surprise that touches their daily routine. And all of it happens in ways for which they're willing to pay frequently. Talk about the joy of Christmas gift-opening! Now, transport that to our daily lives, and you have curated subscription services. 

Stock me up!

As for replenishment, we speak of services whereby essential items are automatically restocked for users, especially at a discounted pricing. This kind of sign-up tends to work for more extended periods. People will typically let their hired service stock them for many months. So, it's common to run into yearly plans with this option. 

How to build a financial model for a subscription business?

Does building a financial model for this kind of company sound overwhelming? Estimating growth shouldn't be equally demanding. Get help from our Subscription Business Financial Model to do so seamlessly by calculating other margins. Weigh acquisition costs, MRR, and even your churn/retention. You can even track standard KPIs, including LTV, CAC, CAC, LTV, and SaaS Quick Ratio.
The file's entirely editable for any company whatsoever. Yet, SaaS startups will find a customized version even more useful. Starting at USD 79.00, you can just buy the template or get it free by joining Slidebean Founder's Edition.

Get this Financial Model
Angelica A.
Freelance and Remote Web Content Writer is the current hat under which Ang keeps on the global move. Writing blogs, website content and (especially) Facebook ads for diverse small businesses, entrepreneurs and international parties is part of the common work under Ang's belt. Otherwise, you'll see Ang riding a motorcycle on their vegan way out of theater rehearsal.
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