Have you had a gym or magazine subscription before? Many people don’t like them, but when applied properly, subscriptions are awesome for both your business and your customers. Subscriptions have experienced a big resurgence in the tech arena, and that’s what we’ll be discussing.
Retention is a problem that some entrepreneurs have with this model, but if executed properly, retention can be easy peasy. First, let’s talk about why subscriptions are awesome.
Subscriptions Are Awesome
Subscriptions Lower Up Front Costs
The immediate benefit of subscription is the lowered costs to use your products. Adobe has begun doing this recently. You can purchase Photoshop for about $700 or you can subscribe for as little as $20.00 each month.
For a small company, or even just a free-lancer starting out, the subscription might be a very attractive offer, especially if they don’t have $700 lying around.
Subscriptions Encourage Use
In addition to easier entry, the subscription encourages use. In fact, I know people (myself included) who purchased a subscription to something because we believed it would force us to use it (the gym).
That can be an actual benefit to a customer. When they purchase your product for one lump sum, it is a sunk cost that can sit on a shelf. When there is a recurring fee, they are constantly reminded to use your product.
Subscriptions Create Loyalty
When a customer is subscribed to your product, it creates a loyalty. You both are now involved in a mutually beneficial relationship in which they are using, and depending on your service.
In addition, the customer is more likely to request features and suggest enhancements that would make their use of the product better. When a customer buys a product out-right, they are less likely to make suggestions because they suggestion will be rolled out into the new version that they’ll have to buy anyways. It is too much of a hassle.
More Reasons Why Subscriptions are Awesome
Recurring Revenue
The obvious main benefit to you is a continuous and growing stream of revenue to draw from. Customers that stick around long enough will eventually spend more than they would have with an outright purchase, and few would know or care.
Retain Customers
Preventing customers from leaving is often a problem, and businesses have tried numerous things to prevent customers from leaving, some of which border on tyrannical:
- Contracts
- Large fees to leave contracts
- Obscuring how to cancel.
- Funneling cancellations through high pressure retention desks.
The truth is, you don’t necessarily have to shackle your customers to your product or service. A great way to retain customers is with the freemium model (discussed next).
Freemium Rocks Too!
What is freemium? Freemium is a business model where you offer a free version of your product or service with options to upgrade. One of the important factors with freemium is that you provide a fully functional free version, but offer additional options to make the pay version enticing.
An excellent example of this model is a service called Hootsuite. Hootsuite is a social media management web application that lets you manage your social networks from one centralized location and offers insightful reports.
You can send out tweets, update Facebook, and manage numerous other social networks all from one place. Their free version allows you to have 5 profiles on the account, and you get limited reporting.
Their upgraded version (at $6.00 each month) allows unlimited profiles and you can get more advanced reports. They have additional upgrades beyond that as well for larger companies.
You are not locked into a contract and you can switch back to their free version at anytime, with no strings attached. This fosters loyalty, because customers won’t feel forced to pay money if they don’t need the advanced features.
When that customer gets larger, their business will be comfortable with Hootsuite, and suddenly Hootsuite will have a new, loyal, paying customer. Brilliant!
More Freemium Success Stories:
- Spotify
- Skype
- Facebook Games by Zynga (Farmville, Yoville, etc.)
- Nearly every free game on the Android and iTunes markets.
Consider Subscriptions
If your business can manage a subscription model, it is definitely worth considering. There are benefits in it for both you and your customers. If executed properly, it can result in higher revenues, higher loyalty, happier customers, and better retention.
