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Subscriptions are a popular way for businesses to build long-term revenue. Many business owners and online sellers choose to sell subscriptions as a way to build customer loyalty and increase stability in their earnings over time.
You might be wondering how to start a subscription business, and whether it’s even right for you. Depending on what you’re selling, there are multiple ways this can fit your business. Here’s a guide to understand how subscriptions can work for you, and things to consider before starting up.
What is a subscription business model?
A subscription-based business sells goods or services on a recurring basis. Customers can sign up to make a repeated purchase over time, such as monthly or weekly.
When you sell subscriptions, the buying process works differently than a one-time purchase. Here, it’s relatively hands-off. Customers save their checkout details and your store charges them automatically. You receive the order and fulfill it and repeat that process for each renewal until a customer cancels.
Benefits of selling subscriptions
Selling subscriptions is a great way to bring in repeat and long-term revenue. Being able to forecast revenue ahead of time is useful for budgeting business expenses and planning out your income.
Subscriptions also help you build customer loyalty and are a good tactic for growing your sales. It’s much easier to retain an existing customer than convert a new one. When you sell subscriptions you avoid time-consuming steps of the marketing process, like customer acquisition. Subscriptions can also be a useful tool in upselling other products in your store.
Types of subscriptions
The subscription business model you choose depends on the type of product you’re selling. We can break this down into three different models to consider.
1. Curated items, gift boxes, and collectables
These are curated items or products that fit into niche or special interests served by your subscription. These could be:
Gift boxes
Surprise collectables
Curated and themed sets of products
These serve areas of interest for buyers and tend to work well with products linked to hobbies or niche subgroups within a larger product area. This model works well for physical products rather than services.
A great example is cosmetics. Makeup, skincare, and hair care subscription boxes where items are curated by a business and sold to subscribers have become increasingly popular in recent years. Again, these can often be tailored to unique niches, such as K-beauty or Afro hair care.
But curated subscriptions don’t just have to be used to sell a selection of products. Sometimes a store will offer a single mystery product, such as a limited collector figurine or item sold at a recurring interval.
Pros of curated subscriptions
The main selling point of these types of subscriptions is their novelty. It gives your customers a chance to try new things without searching high and low. They can also save them money if you offer subscriptions at a competitive rate.
These types of subscriptions can also yield high profits because of their curated nature. Because these items are special, unique, and collectable, they’re not always as difficult to market to your customer base as they tend to have strong interest in and loyalty to the product niche.
Cons of curated subscriptions
These types of subscriptions can be complex to create with greater time investment needed to produce them. The curatorial nature requires time for sourcing, packaging, curating, and branding to keep product combinations and releases interesting. As the main sell of these products is their novelty, you also run the risk of earlier customer churn if the excitement wears off after initial sales.
2. Convenience items and recurring services
The second type of subscription model replenishes convenience items, offers recurring services, or services something needed regularly. These might be products that are used up at regular intervals such as:
Food items or supplements
Toiletries and household items
Cosmetics
Unique items that need specific types of replenishment, like a refillable sunscreen
These items don’t always have to be physical. They can also be client-based services performed regularly and provided on a retainer basis. Here are some examples:
Website and social media marketing
Accounting and bookkeeping
Virtual coaching
This model particularly fits many freelance services. For example, a freelance marketer might charge a 6-month subscription for social media management to clients.
Pros of convenience subscriptions
The selling point of this model is the convenience aspect of your products. These items are often required long-term, so you tend to have more customer retention and lower churn. This is particularly true if you're selling a unique item like a refillable cosmetic.
Cons of convenience subscriptions
These models run the possibility of garnering low profits as pricing needs to be affordable enough that customers will subscribe rather than buying products one-off. This can lead to lower profit margins long term, especially if you offer products at a discounted rate for repeat purchases.
3. Memberships and access to knowledge
This type of subscription gives your customers access to something placed behind a paywall, usually falling into categories of knowledge or access. It tends to suit products that aren’t physical, such as:
For example, you might be a copywriter starting a course teaching email marketing. Your buyers might pay for monthly access to a video library of educational how-to’s. Similarly, you might host a member’s club for creatives in your city and manage monthly payments online.
Pros of access subscriptions
A major selling point of these subscriptions is their community and high value. If you successfully position your brand, business, or product correctly, there’s a potential for high returns because of the perceived value to the customer.
In terms of knowledge, customers need to identify you or your brand as authoritative enough to be willing to pay for your knowledge or expertise. The same can be said for a club or membership, where buyers have to value its exclusivity or services to want to access membership.
In the case of knowledge product subscriptions, past products can continue making ongoing revenue over time. A course developed in one year can potentially generate repeat returns into the future, for example, and additionally encourage cross-selling of new courses and products your business provides.
Cons of access subscriptions
These types of subscriptions can be slower to see returns in the initial stages, and may require extensive marketing or reputation-building to convince customers of their value before use. You will additionally need to keep content fresh to discourage churn, which could require additional product tweaking over time.
Best practices for launching a subscription business
Starting a subscription business is relatively straightforward. Once you have your idea, choose your products and pricing, and set up a store to sell it, you’re most of the way there. Here are some tips to get a successful subscription off the ground.
Choose what type of subscription fits your product
An initial question is, what do you want to sell, and how does a subscription fit into your current offering? It may be useful to start a subscription with a product or service you already have in place. That way, you’ll have a better understanding of the type of subscription model needed and how profit should compare to one-off purchases.
Consider trialing a subscription as an add-on
Many businesses branch into subscriptions by offering one as an add-on to existing products. For example, you’ll see some businesses offer percentage discounts for repeat purchases or tiered pricing offers for multiple purchases of an item.
If you’re aiming to launch a subscription for a new product, it might be useful to offer the product or service for a free or discounted rate for a short period of time. This can help with producing reviews for future customers and building out a customer base for your new subscription.
Manage your subscription and track progress over time
Keep an eye on how well your subscriptions are doing over time. It’s useful to track things like customer churn and how long buyers remain subscribed for. These can help you find purchase patterns and how you might need to tweak products for better buyer satisfaction.
An additional thing to monitor is accidental churn. Things like expired cards and buyers moving homes can often unintentionally cancel subscriptions. It’s a good idea to build in reminder mailing or extra marketing for your subscription to deter this from happening.
Decide what you want out of it
Think of the long-term goals of starting your subscription and how you will measure success. Is the aim to increase revenue? Build trust with customers? Upsell new products?
Success can often look different depending on your model. Look at a mixture of factors like profits, number of sign-ups, and feedback to understand how well you’re doing.