The value of subscriptions: sell once, earn for years

  1. A conveyor belt.
    Ray Newman

    Ray Newman UKBF Regular

    147 31
    0 |

    There’s a reason we’re always being nagged to sign-up for free trials and constantly offered what seem like deep discounts if we agree to recurring payments: subscriptions, with their guaranteed stream of revenue, are great news for businesses.

    The theory is that, even if you have to lower your prices to get a buyer on the hook, you’ll then more than claw back the cost over the duration of what will hopefully be a long and happy subscription period.

    Every month a customer stays with the programme is one when you’re deriving income without having to expend energy on sales or marketing.

    A predictable income puts a business in a stronger position when it comes to long-term decision-making and securing further funding.

    To some degree, it’s about harnessing the potential of consumer inertia: once you’ve signed up, it’s more effort to cancel a subscription than to just let it roll on, which is exactly what happens.

    That is, of course, why some sneaky providers allow you to sign up with one-click online but force you to phone up to cancel. And when you do call, it’s why they transfer you to the slickest, smoothest call handlers they have in ‘customer retention’, where you’ll often be offered generous incentives to give them just one more chance.

    For a long time, British consumers were resistant to subscriptions for precisely this reason, but the tide seems to have turned. Research published in March 2019 by Zuora, which offers services to subscription-based businesses, suggests that since 2012 the average company in the ‘subscription economy’ has increased revenue by 321%.

    Not just magazines

    The subscription model was invented 300 or so years ago as a way of making a predictable income from what was then an exciting innovation: mass-produced print publications. Even now, when you say the word ‘subscription’, most people think of glossy magazines.

    Increasingly, though, the subscription model is becoming all pervasive.

    In 2013 Adobe, producers of the industry standard graphics editing software Photoshop, ceased to sell its products as one-off purchases. Instead, users were obliged to sign up to its subscription service, the Creative Cloud, launched in 2011.

    Many users who were used to paying a few hundred pounds for the latest version of Photoshop every couple of years were outraged.

    Under this new regime, they would have to pay around £30 each month to access the software and, what’s more, keep paying it forever or lose the ability to open and edit their own files.

    It was a canny move by Adobe whose leadership calculated it had such a hold over the creative professions that, once the grumbling subsided, most users would bite the bullet and pay the monthly fee.

    They were right.

    Adobe’s share price has rocketed in the intervening period, from a little over $30 in early 2013 to a then all-time high of about $50 straight after the subscription-only model was announced, to around $280 today. The graph looks like Mount Kilimanjaro.

    This, the pundits seem to think, is because investors perceive a successful subscription business model as a signal of stability and long-term viability, with less riding on the success of each big-splash product release.

    Toilet paper subscriptions

    In 2019, it’s getting harder and harder to buy one-off products or services in any field and you can choose to subscribe to almost anything you fancy, from vegetable boxes to bathroom supplies.

    Global online retail giant Amazon launched its Prime subscription service in 2005, offering perks such as free express delivery for members.

    A decade and a half on, Amazon Prime users get access to one of the world’s biggest libraries of exclusive streaming TV and video, same-day delivery in certain locations, and numerous other perks.

    Amazon Prime users can also set up product subscriptions: once a year, send me 12 tubes of toothpaste; despatch a bottle of Tabasco sauce once a fortnight; and I’ll take 45 toilet rolls every two months, with a 15% discount, please.

    But it’s not just Amazon. Firms such as Hewlett-Packard offer subscription services for printer ink, with its devices reporting back to the mothership when ink is low so a new cartridge can be sent out just in time.

    Again, this is about keeping income regular and repeatable, and reducing the number of opportunities for consumers to think: “Blimey – how much? No thanks, I’ll hold on until next month.”

    When ruddy-faced, outdoorsy young men approach you in the town centre trying to tempt you with the offer of a free apple, beware: they’re probably trying to sign you up to a recurring subscription for a box of organic vegetables.

    And your favourite gruesome true-crime podcast may well include multiple ads for one meal-kit service or another, promising to deliver everything you need to make a week’s worth of home-cooked meals in a single box, every week, forever. (Or so they hope.)

    For the time-poor and cash-rich, these kinds of service can work well, but they’re as much about selling an aspirational lifestyle as the product itself: you’re going to spend more time with the family, they say, and eat more healthily.

    The same goes for gym subscriptions, where anecdotal evidence suggests most people join in January, attend regularly for four to six weeks, and thereafter let their year-long subscriptions run out, unused.

    Could it work for you?

    The greatest potential for growth remains in digital services – if there’s no physical object, what does ownership really mean anyway?

    With a bit of imagination, the subscription model can be made to work in all kinds of sectors, from hairdressing to household repairs, from dog-walking to boxes of beer.

    If you want a slice of the pie, you need to ask yourself what you’re offering subscribers that they wouldn’t get without the commitment – perhaps a straight discount, or access to VIP-level services, such as free weekend callouts.

    And because a subscription is a bigger commitment, even if the initial outlay is often smaller, you’ll need sales people who can tell a convincing story about the benefits.

    Managing and billing for subscriptions also takes work, although online payment platforms make recurring payments relatively easy. (For a fee. There’s always a fee.)