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Why You Should Try an e-commerce model that is subscription-based (+ How to Do It)

May 9, 2023

Many creators are moving away from a one-time pricing model to a subscription-based pricing structure. And the reason is simple that the regular payment structure lets them generate recurring revenue.

Look at a successful designer for Sew it! Academy Mimi Goodwin as an model.

The average one-time selling conversion rate for all industries is between 2.35 percent and 5.31 percent. That means if you create an online course with an upfront pricing structure, less than five percent of your customers will purchase the course. It may appear like a lot at first but it's impossible to determine how much you'll earn in the next month, especially when the number of visitors to your sales site is sporadic.

If you use a subscription business model instead your initial payment may be less, however you'll have the ability to forecast how much money you'll make over the next few months. Therefore, instead of looking to attract more customers, focus on improving the quality of your course online for current students.

It improves the learning experiences, which makes them more loyal as well as entices them recommend your course to others -- which, in turn, leads to more subscribers.

Find out:

What's a business model of subscription?

A subscription business model is one where customers have to pay a weekly, monthly or annual cost for access to your service or product. Depending on the length of period they select, customers can periodically renew their subscription while they're utilising your service.

Business models that are based on subscriptions benefit both the course creator and the customer. As a course creator (and the business owner), you can leverage your current relationships with customers to generate predictable revenue. This allows you to keep making investments in your company as well as preventing you from bombarding the audience with your courses often. Students be able to rescind your subscription anytime you like, without spending the same amount of money it would have been if you'd purchased in advance.

If you offer the right service or product in the appropriate sector, a subscription is a lucrative method of earning revenue.

How does a subscriber business model function?

The underlying principles of the subscription model for business is straightforward.

Your customers are charged regularly for your product/service and provide an option for them to pay for or cancel the service anytime. Your customers choose how long and how often they wish to purchase your service. If a client is able to keep renewing their monthly payments (usually with a credit/debit card) this offer will remain accessible to the customer. However, if they don't renew their account, they will be denied access immediately.

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

Popular examples of firms that are charging their customers by subscription include Netflix, Microsoft, and Spotify as well as Microsoft and Spotify. They have been reaping the benefits of this model for years. There's a good thing about it, this model of business isn't restricted to large companies. It can be used for creating your own product too.

Advantages of a recurring business model

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

    Predictable revenue stream    

One of the best aspects of a subscription business model is the fact that it makes it easier to predict how much money 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 date they'll have to renew their subscription.

When you factor in your churn percentage and your churn rate, you'll be able forecast your monthly recurring revenues (MRR) almost precisely.

Consider this example: Let's say you've got a 7% percentage of students enrolling in your program with a cost of $20 per month. If you don't get new students the following month, you'll make at least $40,000.

The longer the time your program is going, the more you'll be able to predict the number of customers you acquire and lose over a certain duration of time. It's easier to forecast 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 classes in project management. The best one you find offers two pricing models which are $1,000/one-time payments and $70/month. Which pricing structure seems more suitable for your needs currently?

The money I earn is on my monthly subscription payment.

Sometimes, the price tag of a product may appear too high for a prospect. Breaking down the price into monthly, weekly or annual payments make it more affordable and helps prospects incorporate it in their budget. This way, more people that can afford to pay monthly will convert and enroll to your class.

    Lower customer retention spends    

As your students continue to pay for your course and you're not required to reserve as much cash to cater to them as it would be had your program operated under a one-time pricing structure. Since they keep renewing their payments, it is possible to conclude that they are determined to maintain a long-term relationship with the course. This makes it less likely for them to churn which means you don't need to invest a significant amount of money in order to retain your customers.

    Stronger customer relationships    

Through a one-time installment payment system the customer pays once for your course and then that's all they pay for. With the exception of a handful who might reach out to let you know about their progress, the majority will likely not interact with you or your company in any way.

Subscription business models, on the other hand, allows customers to have access to your company (and in turn) for as long as possible. In the event that your customer support staff is available 24/7 to help answer students' questions and solving their problems, the students will grow to be awed by your brand. This is a major factor in the decision of whether or stop their subscription.

    Potential for upselling as well as cross-selling    

In 1968, the social psychologist Robert Zajonc devised the mere exposure theory, which states that when an individual encounters a stimulus, they develop more positive attitudes towards the stimulus.

For business, this implies that the more time your clients have access to your product, the more familiar you'll feel to the customers. As a result it will make your customers more likely to buy other services or products that you provide.

With cross-selling, you're making additional offers available to existing offers at a greater cost. If, for instance, you're only offering your online course at $25/month and you want to add an special membership plan to it and make it available for $35 per month.

Through upselling, you're trying to convince your existing customers to purchase a higher-priced product. So if you're offering a course at $25/month, you could market your related, but higher-priced class to students for 30 dollars per month.

A potential customer may not want to take the higher-priced alternative right away. But those who have been in your program for 6 months will likely increase their subscription (or take the course at a higher cost) since they're aware of the value your course offers.

How do I transition into a model of business that is subscription-based

If you're considering making use of a subscription-based business model to sell your product, there are six actions you must take:

    Figure out the possibility that your business would be an appropriate choice for this structure of pricing.    

Prior to establishing the subscription-based pricing system for your business, figure out if it's the right pricing model for your business. For example, if your product is one that customers need to access continuously for example, an online fitness course or online boot camp then a subscription-based business structure will be ideal for you. If it's only a once-off program, it isn't a good match.

Once you're sure a subscription business model will be a great fit for your service, proceed to your next steps.

    Set realistic goals to your subscription-based enterprise    

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

Is it faster growth or greater revenue? Is it better retention and acquisition of customers?

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

    Choose a subscription pricing method    

Then, you can get to the most enjoyable part of creating your subscription bundles.

If you're just trying out the subscription-based pricing model initially then you should keep it straightforward by making one or two packages. When you've measured your conversions and get feedback from your customers, you'll have the opportunity to design more tiers that cater to their preferences.

For that take note of these factors:

  • The way you communicate your product's value to your subscribers
  • The industry standard
  • The incentives to price your bundles

For a good idea of where to begin consider the options your competitors are offering. It is important to tailor your offerings more attractive to the people you want to target.

For example, if you're giving Pilates to parents with new children You could look up the pricing packages of other Pilates classes on the web. If you discover that prices range from $20/month to $65/month, then you may use this as your baseline.

A beautiful packaging design isn't always a requirement for pricing your products lower than competitors. It is possible to charge the same price bracket, however you provide slightly higher incentives or perks. It's possible to charge slightly more than the competition in case you're providing perks aren't.

The bottom line is that your customers should look at your pricing tiers and think that you are a good choice. If they did business with you, they'll get an excellent value.

    Let it be easy for potential customers to sign-up    

Signing up for a subscription package should be easy and straightforward. It isn't a good idea for your prospective customers to be at a loss about what to do when they arrive on your website. You also don't want your prospects to waste 30--60 minutes navigating your sign-up forms.

Also, include a link on your page of pricing in the navigation menu on your site so that customers can locate it quickly. On your pricing page, the subscription plans and prices should be clearly listed in a language that your target customers will be able to be able to comprehend.

Also, provide ways for subscribers to update their billing information and modify or terminate their plan of subscription.

    Grow your business by using the appropriate technology    

Because the intention is to receive recurring payments from clients, you need to make sure that your billing software is backed by the appropriate tools to take and manage these payments.

If you often ship a lot of products to clients at the same time, a bulk shipping service will help you streamline your delivery process and cut costs.

    Deliver exceptional customer care    

On your website, include numerous ways for prospective customers and customers to reach your customer service department if they are having questions or have issues. Some contact options include chatbot, live chat, email as well as phone calls.

It's the ease that people have access to your customer support as well as the quality of assistance they receive may very well determine whether they'll keep their subscription or not. Therefore, you must ensure that you're delivering the best possible customer support to your base as well as establishing connections with them.

A few examples of services that use a subscription business model

Subscription business models are employed in various ways by various businesses in different sectors. Below are five businesses that successfully use an arrangement of pricing based on subscription.

    Online courses - Copy School    

Copy School is a comprehensive online course that teaches people how to write all kinds of strategic copy -which includes content for websites, social media advertisements, as well as emailsto companies. The class is intense and has produced amazing copywriters who work with billion-dollar companies and earn 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 once-off payment for an ad-supported program). However, Copy School has two subscription options which make it simpler for clients to pay for the course -- $348 per month (ad-supported) or $697/month for six months.

    streaming platforms - Netflix    

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

Netflix's pricing tiers vary between $6.99 to $19.99. The plans you select depend on the quality of your videos and also the number of devices the subscriber wants connected to the same account.

    Software-as-a-service platforms -    

    Memberships - ClassPass    

ClassPass is a membership service for beauty and fitness enthusiasts. By acquiring an ClassPass membership, members are able to book appointments and classes at top-rated gyms, studios and salons as well as spas around the world. ClassPass's subscription plans range between $19 per month (for eight credits) up to $159/month (for 80 credits ).

    Physical products - BirchBox    

Birchbox sends its customers boxes with two to six products for beauty each month. Each beauty box is customized based on a quiz that customers take at beginning. The arrangement lets the client to try out different beauty items, since the same product will never be sent out two times.

Once a buyer finds a product they love, they can buy it through the BirchBox website. The monthly subscription starts at $13/month and there are discounts on 3-month, 6-month and 12-month subscriptions.

Enhance your income with a subscription business model

When you run a subscription-based business it isn't enough to make up prices randomly and then wait for customers to sign up. You must put in your effort. Your clients will only be able to keep their subscriptions if they believe they're receiving sufficient value for the money they pay.

To provide value to your customers To provide this value, you must reach out to your intended people, discuss with the people they're targeting about their issues and offer tried-and-tested solutions. Then, you can assign prices to your product that your audience will happily sign up for.