Do you remember the time when subscriptions were limited to only newspapers, magazines and milk? Now we cannot get through the day without coming across a new type of recurring delivery. Is that not true? It seems the subscription business model has taken over our lives.
From groceries and health kits to OTT subscriptions and pet supplies — we can get almost anything delivered to our literal and proverbial doorstep.
This is good news for you if you’re a business owner looking for a way to stabilize the amount of money flowing in at any one time.
Editor's note: GoDaddy now has a hosting centre located in India, enabling faster load times and better security for customer websites. You can read more here.
What is a subscription business model?
In simple words, it is a business model in which a particular business charges its customers recurringly (rather than once) for continued access to its products or services. Subscriptions have a monthly or annual fee and help generate recurring revenue for the brand.
What compelled the subscription business model to gain prominence in the past decade? The answer is personalization. You see, consumer preferences have transformed immensely. They prefer custom products or services, and subscriptions are all about that. Indian consumers are no exception, which brings us to our next section.
Subscription economy in India: then and now
Let us take a step back and reminisce about the times when we waited for the traditional milkmen to come to deliver milk at our doorsteps. Yes, that was a subscription business model of sorts — offline and convenient with monthly payments.
Fast forward to 2021, Indians have helped take OTTs such as Netflix, Amazon Prime, and Hotstar to the next level.
As per a Pixights report, Indians on average spend INR 295 per month on an OTT platform.
About 62% of Indians have subscribed to three or more of such platforms.
Today, we can opt for memberships on Zomato, MakeMyTrip, and Urban Company for exclusive deals, and gain access to specific products via Furlenco and Blue Tokai subscriptions. That is the power of a subscription economy in India.
However, three factors are driving the subscription revolution in India, namely:
- Growth of eCommerce: According to Statista, the Indian eCommerce industry is set to be worth $200 billion by 2027. This is fueled by ever more seamless shopping experiences, broader service and product ranges, and flexibility in payment options.
- Transition to digital payments: UPI BHIM, Paytm, GooglePay, COD are just some of the options that have enabled an increasing number of people to shop online. Moreover, deeper internet penetration has also contributed to the shift in consumer preferences.
- Increased spending: Urbanization and higher income levels have led to increased spending in the country's urban and rural-urban areas. India is set to become the third-largest consumer economy by 2025.
That explains the remarkable growth in subscription revenues in 2019 — $785 billion! But how exactly can Indian startups in particular benefit from the subscription business model? Let us have a look in detail.
Related: How to add electronic payment system to your business
Benefits of selling subscriptions
There are many reasons why entrepreneurs opt for subscription-based business models. Below, we’ll review some of the key benefits.
Positive impact on the cash flow
In a subscription business model, you know roughly how many subscribers will pay your subscription fee in any given month or year.
Regular, predictable cash flow helps new businesses pay the bills.
Of course, there may be slight fluctuations in the number, but you can make a pretty good estimate. That will help you realize the amount of money your startup will be earning within a specific timeframe. Subscriptions lead to recurring income.
Increased customer loyalty
The biggest reason why consumers subscribe to a product or service is that it saves them time when it comes to making recurring purchases. There is no disruption in their usage. Moreover, subscriptions can scale with customers as their demands increase or decrease.
They do not have to repeatedly purchase the business offering, but can pay for additional value via an upgrade. Greater customer loyalty pushes them to stay longer with your business.
Easy personalization
It is effortless for customers to scale up, downsize or even change their subscription order — as per their preferences.
For instance, if they have subscribed to monthly healthy snack boxes and want to switch the snacks or increase the quantity, they can do so hassle-free.
This helps them stick to such subscription plans for a more extended period, thereby increasing their lifetime value to the business.
Effective demand forecasting
If you sell a product, such as lifestyle boxes, health kits, or books, curating subscription boxes would become easier for you as you would be able to forecast the demand for products accurately rather than investing time to analyze the buying patterns of the subscribers. This facilitates inventory management and keeps unnecessary logistical costs at bay.
You can learn more about how to manage a supply chain here.
3 types of subscription-based business models
There are various ways in which you can classify subscription-based business models. However, they are primarily categorized into three groups:
1. Access-based
Accessibility subscriptions work best for software and eCommerce companies as they give consumers online access to content or products. They can pay on a monthly/annual basis for on-demand entertainment or one-day shipping.
Furlenco, a Bangalore-based furniture rental company, allows its customers to rent attractive furniture for a monthly fee.
Although there is a lock-in period, their customers enjoy a certain level of flexibility when switching furniture or renting more items.
In media streaming services, Voot, Hotstar, Amazon Prime are great examples in India. Similarly, SaaS companies such as Dropbox offer their customers its cloud hosting service on a subscription, along with add-on features.
2. Curation-based
This type of subscription-based business model comprises curated or personalized items meant to help consumers discover and sample products at a fee. Have you heard of subscription boxes? They are a big hit in the beauty and fashion industry.
Some of the popular examples in the case of curation-based subscription business models include:
Here, every product is offered in a monthly "subscription box-style service." It works best for B2C businesses selling products.
3. Replenishment-based
Such kinds of subscriptions work best when consumers want to automate their consumption of everyday consumables such as:
- Milk
- Bread
- Snacks
- Razors
The Nibble Box, for instance, replenishes healthy snacks every month for a fee.
Similarly, LetsShave is enormous in the men's subscription community and offers its customers shaving razors and creams in a box periodically.
BigBasket Daily is a separate subscription-based service by BigBasket that enables customers to subscribe to specific foods and home items.
Subscription pricing models: what to use?
Pricing is one of the core ingredients that makes any product or service successful. If you offer quality services to your customers at an affordable rate, they will repeatedly purchase from you. So, if you are sure you want to sell subscriptions, but are unsure about the pricing plans, this section will help you figure it out:
- Flat-rate pricing: It is ideal in scenarios where the product is offered with set features at a fixed price. Hotstar is an example.
- Tiered pricing: This is a commonly-used model that works best for software products. It usually comprises two to five tiers of pricing plans, each of which is segregated based on different sets of product features. Dropbox follows tiered pricing, as do web hosting providers such as GoDaddy.
- Per-user-based pricing: This allows businesses to charge a service based on the number of individuals using it. Take the reference of Netflix.
- Pay-as-you-go model: This is simple. You pay for how much you have used a product or service. For example, for an internet subscription, it could be the bandwidth used.
- Per feature pricing: This allows consumers to pay for what they need. For instance, The Nibble Box will enable you to create a box of snacks, chocolate powder, and teas based on your requirements. You can subscribe to the box after one trial or switch to different products.
Your decision on choosing a pricing approach should be influenced by your target audience and the nature of your product or service.
5 factors to consider before opting for a subscription business model
Always remember that your customers will make or break your subscription business model. If they like it, you’ll succeed.
However, if they think it is a way to charge them more, they won’t.
That is why you must keep the following things in mind:
1. Simplify the buying process
Offer flexible payment options and plentiful gateways for a smooth user experience.
2. Bundle product or service features
You can also experiment with customer clusters and personalize!
3. Every customer is different
One pricing plan will not suit them all. Keep your pricing flexible and iterative, experimenting with different price points to find the ideal price.
4. Consistently evaluate your value proposition
This will help you stay one step ahead when it comes to fulfilling customer needs.
5. Reward customer loyalty
Offer discount deals, exclusive add-ons, and more to keep your customers engaged. Invest in customer success to enjoy massive dividends in the future.
Related: Choosing between the types of business models
Are you ready to sell subscriptions?
Suppose you can win your customers with exciting subscription plans and offerings and create a fantastic experience for them. In that case, you will have no problem leveling up your recurring revenues and garnering a significant customer base for the long haul.
Before you take the plunge: study your industry niche and competitors, identify ways to sell your products or services, sort out your inventory, and get going!
