How to start a subscription-based business

A subscription-based business revolves around providing ongoing value to customers in exchange for recurring payments. Rather than relying on one-off transactions, these businesses foster long-term relationships with subscribers, offering them a consistent stream of products, services, or experiences.

You’ll find a wide variety of companies using subscription-based business models these days, ranging from computer software services to clothing companies to meal preparation services. If you’ve ever wondered if this business model might work for you, we’re here to help. In this article we’ll explore:

• Benefits of a subscription-based business
• Types of businesses that work on a subscription basis
• How to start a subscription-based business

8 benefits of a subscription-based business

Here are eight of the most appreciated benefits of a subscription-based business:

1. Predictable revenue streams: One of the most significant advantages of subscription-based businesses is the predictability of revenue. With subscribers committing to recurring payments, businesses can forecast cash flow more accurately, providing stability and financial security.
2. Customer retention and loyalty: By offering ongoing value and personalized experiences, subscription-based businesses cultivate strong relationships with their subscribers. This fosters loyalty and reduces churn, as customers are less likely to switch to competitors when they're invested in a subscription service.
3. Scalability and growth: Subscription models are inherently scalable, allowing businesses to grow their customer base without incurring proportional increases in costs. As subscriber numbers increase, revenue scales accordingly, enabling businesses to expand operations and invest in growth initiatives.
4. Data-driven insights: Subscription businesses have access to a wealth of customer data, including preferences, behaviour patterns, and engagement metrics. By leveraging data analytics, businesses can gain valuable insights into customer needs and preferences, informing product development, marketing strategies, and decision-making processes.
5. Enhanced customer lifetime value (CLV): The recurring nature of subscription revenue extends the lifetime value of each customer. As subscribers continue to renew their subscriptions over time, their cumulative contribution to revenue grows, increasing their overall CLV and maximizing profitability for the business.
6. Flexibility and adaptability: Subscription models offer flexibility in pricing, packaging, and delivery options, allowing businesses to tailor offerings to different customer segments and market dynamics. This adaptability enables businesses to pivot quickly in response to changing consumer preferences and market trends.
7. Continuous engagement and feedback: Subscription businesses maintain ongoing communication with their subscribers, fostering a sense of community and engagement. This dialogue allows businesses to solicit feedback, address customer concerns, and continually refine their offerings to better meet customer needs.
8. Competitive advantage: In today's competitive landscape, subscription-based businesses have a distinct advantage in building brand affinity and differentiation. By offering unique value propositions and fostering meaningful relationships with subscribers, businesses can stand out from competitors and establish themselves as industry leaders.

Types of businesses that work on a subscription basis

When it comes to subscription-based businesses, there's no one-size-fits-all approach. Tailoring your offering to meet the unique needs and preferences of your target audience is essential. Here are three primary types of subscription models to consider:

Product-based subscriptions

In a product-based subscription model, customers receive physical goods on a recurring basis. This model is particularly popular in industries like fashion, beauty, food, and wellness, where consumers value convenience and variety. 

Key features:

• Curated selections: Offering a carefully curated selection of products tailored to your customers' tastes can enhance the appeal of your subscription.
• Customization options: Providing customization options, such as choosing preferences or selecting specific products, can personalize the experience for subscribers.
• Add-ons and upgrades: Offering add-ons or premium upgrades can increase average order value and cater to customers looking for additional value.

Service-based subscriptions

Service-based subscriptions focus on providing access to ongoing services or experiences rather than physical products. This model is prevalent in industries like software, media streaming, education, and fitness, where customers seek continuous value and convenience. From streaming platforms offering unlimited entertainment to online platforms providing team and event management, service-based subscriptions cater to diverse needs.

Key features:

• Unlimited access: Offering unlimited access to services or content for a flat fee can attract customers looking for value and convenience.
• Tiered pricing: Implementing tiered pricing structures with different levels of access can cater to customers with varying needs and budgets.
• Exclusive content or features: Providing exclusive content or features to subscribers can incentivize sign-ups and foster loyalty.

Hybrid subscription business models

Hybrid subscription models combine elements of both product-based and service-based subscriptions to offer a comprehensive value proposition. This versatile approach allows businesses to leverage the strengths of each model and cater to a broader range of customer preferences. 

Examples of hybrid models include software companies that combine products with digital content, or membership programs that offer both physical perks and exclusive services.

Key features:

• Diversified offerings: Offering a mix of products and services allows businesses to appeal to different customer segments and adapt to changing market trends.
• Flexibility and customization: Providing flexibility and customization options allows subscribers to tailor their experience to their preferences, enhancing satisfaction and retention.
• Cross-promotion opportunities: Leveraging cross-promotion opportunities between products and services can drive engagement and boost overall revenue.

By understanding the nuances of each subscription model and aligning your offering with the needs and preferences of your target audience, you can create a compelling subscription experience that sets your business apart. Whether you choose a product-based, service-based, or hybrid approach, the key is to deliver value, convenience, and delight to your subscribers.

How to start a subscription-based business

Conduct market research and validation

The first step is to determine whether your business offering has a market ready to pay for it.

• Identify niche opportunities: If you’re not yet sure what to offer, conduct thorough market research to pinpoint underserved niches or unmet needs in the market.
• Analyze competitors: Study existing subscription businesses actively operating to understand their offerings, pricing strategies, and customer demographics.
• Assess market demand: Use surveys, interviews, or focus groups to gauge interest and validate your business idea among businesses or consumers.

Develop your value proposition

Clarify what it is about your offering that will drive businesses or individuals to sign up.

• Define your unique selling proposition (USP): Clearly articulate what sets your subscription business apart from competitors and how it addresses specific pain points or provides unique benefits.
• Tailor offerings to market preferences: Customize your products or services to align with the preferences, cultural nuances, and buying behaviors of consumers.

Choose the right subscription model

Ensure you’re choosing the best structure for the products or services you’ll offer.

• Evaluate key factors: Consider factors such as your target audience, industry trends, and revenue goals when selecting the most suitable subscription model.
• Determine pricing strategies: Develop pricing tiers that balance perceived value for customers with profitability for your business.
• Consider trial and freemium options: Explore offering free trials or freemium versions of your subscription service to attract new subscribers and encourage conversions.

Build your brand and online presence

The stronger your brand and presence are online, the faster your business will grow.

• Establish a strong brand identity: Develop a compelling brand identity that resonates with your target audience and effectively communicates your values and unique selling proposition.
• Build a user-friendly website: Create a visually appealing and easy-to-navigate website that showcases your offerings and facilitates seamless subscription sign-ups.
• Utilize social media and content marketing: Develop a robust social media presence and create engaging content to increase brand awareness, foster customer engagement, and drive traffic to your website.

Set up operations and logistics

Planning for and creating solid logistics for your company from the start saves a lot of potential hassle over time.

• Implement efficient inventory and fulfilment processes: Establish streamlined processes for managing inventory and fulfilling orders to ensure timely delivery of products or services to subscribers.
• Choose secure payment gateways: Select reliable and secure payment gateways such as QuickBooks Payments that offer recurring payments and provide a seamless one-time setup experience for customers through a secure online payment portal.
• Ensure compliance with legal and regulatory requirements: Familiarize yourself with laws and regulations governing subscription businesses, including privacy laws and consumer protection regulations, and ensure compliance.

Acquire and retain customers

Acquiring new customers is often the costliest part of starting a new business, while retaining existing customers is often the cheapest.

• Develop effective marketing strategies: Create targeted marketing campaigns to attract new customers and drive subscription sign-ups, leveraging channels such as social media advertising, email marketing, and influencer partnerships.
• Optimize for search engines: Implement search engine optimization (SEO) strategies to improve your website's visibility in search engine results and attract organic traffic.
• Prioritize exceptional customer service: Provide prompt and attentive customer support to address inquiries, resolve issues, and ensure a positive customer experience that encourages retention and word-of-mouth referrals.

Optimize for growth and scalability

If you’re not prepared for explosive growth, you risk undoing all the hard work you put into starting your new business.

• Monitor key performance indicators (KPIs): Track relevant metrics such as subscriber growth, churn rate, and customer lifetime value to measure progress and identify areas for improvement.
• Iterate and improve offerings: Continuously gather feedback from customers and iterate on your products or services to enhance value, address pain points, and stay competitive in the market.
• Plan for scalable growth: Develop a scalable growth strategy that includes investing in infrastructure, expanding your team, and scaling operations to support increased demand while maintaining quality and efficiency.

How QuickBooks can help

Starting any business involves numerous steps, and subscription-based businesses are no exception. Recurring payments with QuickBooks Payments can help you put your billing on autopilot so your customers are automatically charged on a set schedule. This reduces the risk of late payments and improves cash flow consistency while enhancing customer experience. 

Disclaimers

Money movement services are provided by Intuit Payments Inc., licensed as a Money Transmitter by the New York State Department of Financial Services. For more information about Intuit Payments' money transmission licenses, please visit https://www.intuit.com/legal/licenses/payment-licenses/.

QuickBooks Payments: QuickBooks Payments account subject to eligibility criteria, credit, and application approval. Subscription to QuickBooks Online required. Not available in U.S. territories or outside the U.S.

Automatic Matching: QuickBooks [Online/Money] will only match bank deposits with transactions processed through QuickBooks Payments. Not all transactions are eligible.

Eligible payments are automatically matched with 100% accuracy: QuickBooks Payments transactions made outside of QuickBooks Online are not eligible for automatic matching. Not all financial institutions participate.