Modern creative news

Why You Should Try an e-commerce model that is subscription-based (+ Steps to Implement it)

May 9, 2023

Many creators are shifting from a one-time payment pricing structure in favor of a subscription-based pricing system. The reason for this is quite simple this: the subscription-based payment system permits them to earn recurring revenue.

Look at a successful designer from Sew it! Academy Mimi Goodwin as an example.

The typical one-time conversion rate across industries stands between 2.35% and 5.31%. That means if you create an online course that has an upfront price model, fewer than 5% of your audience will purchase the course. The initial revenue may seem as a huge amount at first, but there's no way to know how much money you'll earn in the next month, particularly when the number of visitors to your sales page is intermittent.

If you choose to use the subscription model of business instead, the initial payout may be lower, but you'll be able to predict how much money you'll make in the following months. Therefore, instead of looking to attract new customers, you can focus on improving the quality of your course online for current students.

This enhances your students' satisfaction, builds their loyalty and stimulates them to recommend your course to others -this, in turn results in a higher number of subscribers.

Find out:

What exactly is a business model of subscription?

Subscription business models are one where customers have to pay a monthly, weekly or annual charge in order to access your service or product. Depending on the length of duration they decide to choose the customer can renew their subscription the duration of using your product.

The benefits of subscription-based models are for the creator of the course and the client. If you are a course designer (and business owner) it is possible to use the existing relationships with customers to earn predictable, recurring income. This allows you to keep spending money on your business, and stops you from over-saturating your customers with your content often. If you're a student, you'll be able to rescind your membership at any time you want but without paying more than you would have if you had paid upfront.

If you offer the right product/service in the right industry, a subscription business model can be a very lucrative way to generate revenue.

What is a subscription model of business work?

The mechanism behind a subscription business model is straightforward.

You charge your customers regularly for your product/service and provide an option for them to cancel or renew at any point. Customers decide how long and how often they want to pay for your service. 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 them. If they do not renew, they lose the access instantly.

The business model of subscription began to be introduced in the late 17th century by the 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 include Netflix, Microsoft, and Spotify as well as Microsoft and Spotify. They have been reaping the benefits of it for years. It's good to know that this business model isn't limited to large companies. You can use it for the creation of your own products, too.

Benefits of a subscription business model

The subscription model of business has many benefits. These are just five:

    Predictable revenue stream    

One of the most appealing benefits of a subscription structure is that it allows you to estimate how much income your business can earn every month (or year). Because your clients pay on a regular basis, you'll know how much they'll have to pay as well as the precise moment they'll need to renew their payments.

If you take into account the churn rate of your business and your churn rate, you'll be able determine your monthly recurring income (MRR) nearly precisely.

For example: Say that you have a 7 percent churn rate and 2,500 students enrolled in your course at $20/month. Even if you get no more students next month, you'll be able to achieve at a minimum of $40,000.

The longer the time your program is going, the more you'll be able to predict the amount of clients you will gain and lose over a certain duration of time. This makes it easier to forecast your MRR as well as your annual recurring revenue (ARR).

    More effective Customer Acquisition    

If you make an average of $2,000 per month through your part-time job as a barista, and you're seeking to improve your skills by enrolling in an online course in project management. The best one you find comes with two pricing options which are $1,000/one-time payments and $70/month. Which one of the pricing structures is more suitable for your needs at the moment?

My money's on the monthly subscription payment.

Sometimes, the price of a product can be too expensive to a potential buyer. Breaking down the price into weekly, monthly or yearly payments makes the product more affordable, and helps prospects incorporate the cost in their budget. So, more individuals who are able to afford paying monthly will convert and enroll into your program.

    Lower customer retention spends    

Because your students pay regularly to attend your class and you're not required to reserve as much funds to reach them like you would have when your class was based on the basis of a single-time price structure. In addition, since they continue to pay their payments, it is likely that they're committed to a long-term association with you. This makes it less likely to see them churning, so you don't have to invest a significant amount of money to retain the customers.

    Stronger customer relationships    

With a one-time payment structure the customer pays once for the course, and then that's all they pay for. Except for a few that might contact you to tell you of the progress they've made, most people won't communicate with your company much.

The subscription model in contrast lets customers have access to your company (and vice versa) for the duration of time that is possible. If your customer support team is available 24/7 to help answer students' questions and helping them solve their issues, the students will grow to believe in your company's reputation. This is a major factor in the decision of whether or cancel their membership.

    Opportunities for upselling and cross-selling    

In 1968, social psychology researcher Robert Zajonc devised the mere exposure theory, which says that when a person encounters an object, they acquire more positive attitudes towards the stimulus.

In business, this means that the longer your customers have access to your product it will be more familiar appear to the customers. When this happens the customers are more likely to buy additional services or products that you provide.

By cross-selling, you're creating additional offerings to existing offers at a greater cost. As an example, if you were to offer the online course for $25 per month, you could add your special membership plan to it and offer both for $35/month.

Through upselling, you're trying to convince existing customers to buy an item that is priced higher. If you're selling an online course for $25/month, you can market the related, but higher-priced course for students to $30/month.

The new customer might not want to take the more expensive alternative right away. But those who have been signed up to your course for a period of 6 months may upgrade their plan (or purchase the more expensive course) due to the value your course offers.

How do I transition to a subscription business model

If you're considering the use of a subscription structure for your product there are six steps to follow:

    Find out if your business is a suitable match for this price structure.    

Before setting up the subscription-based pricing system for your company, you need to figure out whether this is the best price structure for your business. If, for instance, your service is one that clients require continuous access to -- such as an online fitness course or online boot camp then a subscription business model will work great for your business. If it's only a once-off course, then it likely won't be a great fit.

When you're confident that the model of subscription-based business will work well with your product, take your next steps.

    Create realistic targets to your subscription-based enterprise    

What you hope to attain through your venture will determine the price points and levels you decide to set. So before you pick prices, ask yourself: What do I hope to achieve with the subscription model of my business?

Are you looking for faster growth or more revenues? Is it better customer acquisition and retention?

In addition, your objectives help you determine prices that'll help you attract the ideal customers, but they'll also influence the messaging of your website/sales page content.

    Pick a subscription price approach    

Then, you can get to the exciting part: designing your subscription bundles.

If you're only trying an underlying subscription-based pricing system for the first time, you can keep things straightforward by making either one or two plans. When you've measured your conversions and gather feedback from your customers, you'll be able to create additional pricing packages that are tailored to your customers' preferences.

For that take note of these aspects:

  • Your method of communicating your product's value to your customers
  • The industry standards
  • The price incentives for your package

To know where to start, look at the packages the competition offers. It is important to tailor your products more appealing to your target audience.

If, for instance, you're instructing Pilates to new parents, you could check the cost packages for other Pilates programs on the internet. If you discover that prices range from $20/month to $60/month, you can apply this as a base.

The attractiveness of your packaging isn't always a requirement for pricing your products lower than competition. It is possible to charge that same price range but offer slightly more incentives or perks. It's possible to charge an extra amount than the competition if you're offering perks that you don't.

The main point is that your clients should examine your pricing options and believe that if they do business with you, they'd get a bang for their buck.

    Make it easy for prospects to sign up    

A subscription plan should be straightforward and easy. It isn't a good idea for your prospective customers to be at a loss on what to do after they visit your site. You also don't want users to be wasting 30 to 60 minutes trying to navigate your sign-up forms.

Include a hyperlink on your page of pricing on your website's navigation menu so customers can locate it quickly. The pricing page on your website, the subscription plans and prices should be clearly listed in a way that the visitors can recognize.

Also, provide ways for customers to change their billing details, as well as change or cancel plan of subscription.

    Expand your business using the appropriate technology    

As the goal is to get recurring payments from customers, you want to be sure your subscription billing system works by the appropriate tools to receive and process these payment.

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

    Offer exceptional customer service    

In your site, you should provide various ways for potential customers and clients to connect with your customer service team when they need help or encounter issues. Some contact options include chatbot and live chat as well as email or telephone calls.

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

Some examples of websites that utilize a subscription model

The subscription business model is utilized in a variety of ways by companies across a variety of areas. Below are five businesses which have succeeded in using the subscription model to set prices.

    Online courses - Copy School    

Copy School is a robust online class that instructs people how to write all kinds of strategic copy -which includes content for social media sites, website ads, and emails -which is for businesses. This course is intensive and has produced amazing copywriters who work with multi-million dollar companies, and make top dollar.

Due to this, Copy School's price Copy School is expensive -the one-time fee of $3,997 for life-long access (or $1,998 one-time payment for the ad-supported course). However, Copy School has two subscription packages that allow clients to pay for the course -- $348 per month (ad-supported) or $697/month for 6 months.

    Streaming platforms - Netflix    

At the time it launched on markets, Netflix used to be a rental of DVDs. However, with the advent of broadband internet, smartphones, and smart TVs, Netflix changed its name to the video-on demand (VOD) platform. Today, it's a streaming platform with subscriptions that allows users to watch television and movies on Internet-connected devices.

The pricing levels of Netflix vary between $6.99 up to $19.99. The choice of plan is based on the quality of your videos and also the number of devices the user would like to join to one account.

    Software-as-a-service platforms -    

    Memberships - ClassPass    

ClassPass is a program for membership for beauty and fitness enthusiasts. By acquiring a ClassPass membership, users can book classes and appointments at the top studios, gyms, salons, and spas around the world. ClassPass' subscription packages range from $19/month (for 8 credits) up to $159 per month (for 80 credits). ).

    Physical items - BirchBox    

Birchbox sends its customers boxes with two to six beauty products every month. The beauty boxes are customized based on a quiz that the customer takes at the beginning. The arrangement lets the client to experiment with different products, as the same item is not sent two times.

Once a buyer is able to find a good product and want to purchase it, they can do so through the BirchBox website. The monthly subscription starts at $13/month and there are discounts on 3-month, 6-month and 12-month subscriptions.

Make more money by implementing a subscription model for your business

With subscription-based businesses, you can't just make up prices randomly and then wait for customers to sign up. You must put in the effort. Your customers will only upgrade their plans when they feel like they're getting enough value for their money.

In order to provide this benefit, you'll need to get close to your target audience, speak with them about their pain points and offer tried-and-tested solutions. Then, you can assign prices to your product which your customers will gladly sign up to.