Four reasons why small businesses need to invest in the subscription economy

It's not just large companies that have shifted to a subscription-based business model. Here, Anne de Kerchhove explores why it can work for small operators.

The rise of the subscription economy has caused a shift in traditional business models. Four in five people now have at least one subscription service, but there are still many small businesses that are not aware of the subscription economy… and why they should care?

A subscription-based business model allows customers to have a continuous payment plan for the ongoing purchasing of a service or product. Well-known brands that have adopted the subscription model include companies like Netflix, and Spotify, Amazon and Apple who boast millions of users worldwide.

Due to changes in the demands of consumers, businesses have had to adapt to the new-age customer and their demands of what, when and how they want to consume. With the expectation of instant access at any time of day, providing a flexible service to consumers is required to keep up with these demands. This change in purchasing has created the subscription economy.

However, it is not just large companies that have shifted to a subscription-based business model. Smaller companies such as The London Sock Company, allow customers to have socks delivered to their front doors. Pact sends customers a selection of coffee on a regular basis and Willoughby Book Club provides customers with books for all ages. These smaller subscription-based businesses have all addressed the growing subscription economy and are reaping the rewards of its many benefits. So, why does this apply to you and your small business?

Receiving stable and predictable income

One of the advantages that comes with a subscription-based business model, is the predictable cash flow from recurring revenue, as opposed to one-off payment transactions. This can be helpful as the early stages of setting up your business can bring many concerns, one of the biggest being consistent and sufficient cash flow. Uncertainty on how well your product or service will perform in the market makes it difficult to forecast future profits.

As a small business, the assurance that you have a recurrent billing system makes a lot of tasks easier for you. For example, the recurring revenue will allow you to plan for the next stages of your business development and consider investments in addition to capital raising.

Cutting down on marketing and advertising costs

Securing returning customers can always be a challenge, and the costs of on-going marketing and advertising to acquire new customers can be a burden as a small business. However, operating on a subscription basis would allow you to have more freedom, to focus your marketing and advertising strategies on retaining existing customers and encouraging referrals. Selling products or services on subscription means that once the initial advertising investment has been made to secure a new customer, you will continue to make direct contact with existing customers on an on-going basis.

Increased intimacy with customers

As a small business, developing a strong initial relationship with your customers is a crucial factor in its success. 56 per cent of customers said that they would be more likely to use a company that offers personalised services, which shows it’s a key factor in building and maintaining the perfect customer experience. The unique needs of each customer are subject to change throughout the course of your relationship, and for this reason, it can be difficult to get the customer experience right. Managing these needs as a business can be made simple for you through repeated contact with customers, as the data created from their subscriptions shows their shopper behaviour. This not only allows you to get to know your customers better individually, but collectively as a customer base too.

Tapping into this data allows you to tailor your service to each individual customer, catering to every one of their needs, whilst developing and strengthening your business customer relationship. With 64 per cent of British consumers seeking to discover new things based on preferences, using data will help you to suggest products and services that are relevant to them. This will always go a long way, as customers love it when a business understands them.

While being in constant contact with your customers, you will remain in up-to-date with what’s going on in your business’ market. This will keep you current and allow your business to remain competitive as you are able to adapt to the differences in the needs of your customers, how they want their services and products provided and when they are able to have access. Evolving with your market will not only allow you to hit the nail on the head with current consumers, but it will allow you to surpass businesses that are not aware and up to date with the changes in the market.

Higher lifetime value of customers

Customers who make one-off purchase transactions can often be hard to read as there is no way of monitoring their long-term habits, and there is nothing to say that they will return to your business, even when the service you deliver is first class. With a subscription-based business model, the lifetime value of your customers is much higher, as long as they value the experience of your product or service.

The development of technology has increased the standards of customer service and shopping experience of consumers, and businesses have had to find new ways of packaging products and services to meet the needs of their customers. As a small business, tapping into the subscription economy will give you a head start in growing your company. Embracing it could be an additional factor in propelling your business into success, whilst keeping you competitive within your market. Not only does it create a better experience for your customers, but it has multiple benefits that can be game changers for the future of your business.

Anne de Kerchhove is CEO of Iron

Further reading on selling to customers

Ben Lobel

Ben Lobel

Ben Lobel was the editor of from 2010 to 2018. He specialises in writing for start-up and scale-up companies in the areas of finance, marketing and HR.

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