When was the last time you purchased a music album? Years? And why is that?
Because we consume music now as a subscription, an income stream to the provider, and here’s why you should consider the same for your business, whatever industry you’re in.
Everyone who’s bought, owned or sold a business (or even shares for that matter) knows that the value of that business is generally based on the income stream of that business. If your business has a steady stream of income that’s reliable and repeating, then you’re in good steed for a solid valuation. This valuation mindset happens already in businesses like gyms and rental roles. But not everyone is thinking about how their business can create a subscription type of income, and they really should.
Before I get into some great examples and applications of how you might do this, let’s explore a bit more depth in the reasoning why a business should consider this, over and above the valuation reason mentioned above.
Administration
We all dislike it, but it comes with business, and these days administration is getting more hectic. Just think how much administration would be freed up if you could set and forget recurring automatic invoices or sales to customers and on that recurring receipts for those into your business. Yes there’s a bit of setup in the beginning, but then that drops away for the most part. The technology is out there and available to small businesses already.
Clarity of costs for customers
Customers like to know exact costs. How much clearer can it be for a set amount per month? When we choose a phone plan, that’s what we consider. Obviously you need to have clear parameters about what that includes, and likely options for add ons, but then again it’s very clear from get go. It also breaks costs down for a year to a more bite sized amount, and that may be the determinant that brings a customer on board. Psychologically consumers think at the margin for making a purchase decision, that is, the broken down amount per payment. A lower amount per month is easier to comprehend in making that decision.
Repeat business
We’ve all heard that saying about how much it takes to bring on a new customer as opposed to keeping an existing one. Financially and psychologically an ongoing subscription fences a customer in for repeat business.
Steady cashflow for your business
How reassuring would it be if you can predict your monthly cash inflows for your business all through the year, instead of being concerned about seasonal volatility? Much easier for planning isn’t it. And if your business itself is subscribing to costs such as software then your outflows are set per month too.
How can this apply to your business?
Probably one of the best examples I can give is my own professional practice. You wouldn’t think an accountant come entrepreneur could set an all-inclusive price per month for a year’s work but we do. Actually we do a lot of things differently you can read about on our home page. But for your own business, you need to think more about application, because there’s likely a good way. Some examples would be, for a café you could allow a plan for 1 coffee per day of any type, charge a direct debit per week or month for that, with a card to stamp off as the customer goes and give a bit back by allowing say 1 free coffee per month. You can have a few different plans but don’t make them so complex it counteracts the simplicity of a regular subscription model.
A similar example could apply to a barber shop where there’s 2 cuts a month included. If you love your technology and automation, you could pre-empt those appointments in your booking system with the customer’s favourite barber and have that system interact with the customer for changes while you chop away at someone else’s hair.
Another out of the box example is a car wash. I’ve actually seen this one around already, and I think it’s a great concept. A set amount of washes per month, simple ongoing subscription, linked up to the registration number of the vehicle on the subscription to avoid abuse. It fences in local customers, and if they don’t use it then you still get paid.
Of course as mentioned above, you need to have good systems and parameters in your business to provide great clarity to what is included for the regular subscription cost. You’d need to sit down and cost out what you’re offering, then take a bit off the top for loyalty and a sweetener to get customers on board. You also need to set good policies on when a customer wants to cancel. Personally I’d be cautious about a full year lock in, even if a customer pays it monthly. It’s not in favour these days, it’s quite antiquated like when mobile phone plans first appeared. No one wants to commit like that anymore, but they will if they just know they can opt out at any time. Amazing how the psychology of it works.
If this concept sounds of interest for your business, but you’re unsure how to connect what your business offers with a regular subscription model, then connect with me and I’ll be happy to brainstorm something suitable.
Meet the author
Dean Milner (Class of 2005)
Dean graduated from Griffith University in 2005, with a Bachelor of Business (Accounting). As the Business Development Account at Dean Robin, he now helps young and fresh businesses through their obligations and own objectives, in the most efficient and timely way possible.
