When you’re trying to grow your business, setting your sights on a clear way forward can be tough. There are so many different ways to approach growth these days that most founders get lost in the shuffle — especially if you’re trying to set up a membership or subscription service.
Why Offer Memberships and Subscriptions?
Ever since “Software as a Service” (SaaS) took the world by storm, the subscription model has proven incredibly lucrative. After all, it allows you to shift from a one-time payment or one-time purchase and automatically convert users into returning customers.
With the likes of autopay, you can almost guarantee continued revenue. Plus, it’s a model that’s been applied in almost every industry, from clothing and beauty to food, gadgets, and apps. With a subscription or membership model, your business can more easily forecast revenue.
Aside from creating a sense of financial stability, these models also help to increase lifetime customer value (LTV) and even increase how much revenue you pull in per product.
For instance, while software companies used to sell a license for $600, the subscription model allows them to charge $49/month. Not only have they almost made the same within just a year, but monthly upcharges for premium support and extra users could easily bring revenue up to $700 or $800 annually.
Needless to say, the subscription model offers a myriad of benefits if you are trying to grow your business sustainably. The question is, where do you start?
How to Use Subscriptions to Grow Your Business
If you’re interested in using the subscription or membership model to help grow your business, here are some key tips and considerations to keep in mind.
Decide Between Subscriptions vs. MembershipsThere’s a very minor distinction between subscriptions and memberships. Subscriptions tend to have a constant or recurring benefit, whereas the benefits of memberships tend to be less structured. Subscriptions are also generally tied to a product, whereas a membership may not be.
For instance, an online forum might charge a membership fee for every user, and so would a platform providing online courses. Memberships tend to offer “paid access” that allows the user to do something at their own pace (e.g., chat, learn, shop), whereas subscriptions provide a product (e.g., special software, magazines, monthly wine boxes).
When choosing whether to call your business’s model a “membership” or “subscription,” it comes down to your preference. A subscription generally implies a monthly fee (although you may offer a discounted annual payment option), while memberships may be paid monthly, quarterly, or annually, and you may even provide a lifetime plan.
- Structure Your Pricing Carefully
By far, choosing how to structure the pricing for your subscription or membership is the most difficult step of all. If you do not yet have a business plan specific to this model, it’s time to sit down and create one. The key figures you need to evaluate include:
- Low and high ranges for all variables you need to cover, such as shipping;
- The total cost of providing your services/products to customers;
- Different “tiers” you may be able to offer and the associated costs;
- The profit margin you would like to produce from each tier;
- The amount your competitors are charging for similar offerings;
- The high and low amounts your customers would be willing to pay.
If you do not know how much your competitors are charging or how much customers might be willing to pay, some detailed market research is in order. Once you have that information, you should seek to strike a balance — you don’t have to underprice your competitors, but you do need to stay within your customer’s budget.
- Find Opportunities for Upsells and Cross-Sells
Once you have a customer signed up for your subscription or membership, your goal is to keep them on board for as long as possible while also maximizing your revenue and improving their experience. Two ways you can achieve this are through upsells and cross-sells.
Identifying the potential needs of certain customers and turning them into “add-on” services or tier upgrades will help you offer the best solution for every client.
For instance, software companies know that not all customers require premium support, so they often only include it in higher tiers. Likewise, the subscribers of a clothing box may not want to video chat with their stylist every month, but it could be an extra fee if they ever want someone to analyze their current wardrobe or help them plan for a special event.
Tips for Implementing a Subscription Model
Many businesses are excited to give the subscription model a go. After all, it has many benefits, particularly for your bottom line. However, it’s important that you’re not just jumping on the bandwagon. If you’re thinking about implementing a subscription model, it’s essential that you do your research first.
If you decide that subscriptions are the right move to grow your business, the next step is to partner up with vendors who can help you make it a reality. At National Merchants Association (NMA), we can help you maximize revenue by reducing fees and improving the payment experience for your customers.
About National Merchants Association
National Merchants Association (NMA) is an industry-leading merchant advocacy group dedicated to reducing or eliminating the unnecessary fees associated with accepting credit card payments.
Since 2004, NMA’s payment processing solutions have been delivering tailored solutions, best-in-class customer service, and high-quality service offerings for local and national businesses across multiple industries. Whether it’s high-risk or low-risk, brick-and-mortar or eCommerce, National Merchants Association will create the best processing experience for your company. For more information, visit www.nationalmerchants.com or call 866 509 7199 to get started today!