Vincent Tricarico is EVP for Twinlab Consolidated Corporation and NutraScience Labs and an expert in dietary supplement manufacturing.
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A subscription service—also called a continuity program—is one in which a buyer, typically a consumer, agrees to regularly receive a product or service (often monthly) or be granted regular access to merchandise or services indefinitely until cancellation.
Over the years, I have guided my teams in the rollout and management of highly successful direct-to-consumer (DTC) subscription service models. If built and handled correctly, having a subscription service can markedly improve the inherent and potential value of both your company and your customer.
While business-to-subscription services may be the first to come to mind—think business-to-consumer (B2C) companies like Netflix or regular delivery subscriptions to your favorite dietary supplements—there are many business-to-business (B2B) subscription services, too.
On the B2B side, think of website development and maintenance, e-commerce support, SEO services or access to stock images—which often revolve around regularly buying blocks of time, credits or services—or of software or platform services such as Google Workspace, Canva, MailChimp or Slack.
Since many readers are more familiar with the B2C model, I’d like to draw your attention to nine key reasons why a subscription service can be a game-changer for your company.
1. Subscription services increase the value of your company.
The larger number of subscribers you have, the more money you can expect to earn over time: The subscription model can do well to increase a company’s value over time. We like to call it building the long tail of revenue—the more value you can offer and the friendlier the experience is, the more likely a consumer will continue to pick the subscription service.
The benefit is that as your sign-ups increase, the subsequent expected recurring revenue pool from subscriptions also increases—and continues to build upon itself.
Having that passive revenue stream also increases the value of a company in the eyes of potential investors.
2. A subscription model increases the lifetime value of your customers.
Once you understand the value of your customer, you can be smarter about how much you are willing to spend to acquire that customer.
This can unlock growth potential that might not otherwise be realized, including the customer lifetime value (CLV) that comes from monthly recurring revenue (MRR).
3. Subscriptions can help you get a better handle on inventory, costs and required monthly staffing.
Achieving such value and business success, especially in today’s world, means understanding your input costs, overhead costs and required inventories.
Your business will benefit when you can accurately forecast your costs and inventory. And these are figures that can be much more precisely calculated and projected within a subscription service. You’ll neither overstock nor understock.
In fact, profitability flourishes when costs are known, expected and in line. When you must rush to build inventory, other associated costs arise that aren’t just monetary.
4. You can get paid automatically, thanks to payment automation.
With payment automation, there is no cash flow bottleneck. You won’t have to wait 30 or 60 days for your payments to hit your bank account.
Cash flow, as we know, allows for investment and reinvestment in what is working. Not having the cash to jump on an opportunity will hinder growth.
Additionally, being cash-flush will allow you to stay in good graces within your supply chain and other vendors—all of which help your business win—while those without that cash find themselves deprioritized.
5. You can draw more sticky subscription customers by maximizing convenience.
Stickiness determines the likelihood of a customer “sticking” to your brand or service by completing a purchase more than once. How you create it all boils down to user experience and value.
If you focus on optimizing ease of sign-up, no-friction order modification options and strong communication, you can be sure that you’re building trust with your customers.
Allowing your subscription program to be customizable is very important. Providing value is, of course, necessary. Why is this a better idea than just buying what I need when I run out? Is there a free gift? Is there free shipping? Is there a discount?
This should also go beyond creating value. How do you support the community and promote this through engaging social media?
6. Use samples to test new products.
One way to keep customers engaged and coming back for more involves offering special discounts that are only available to subscribers. Or perhaps you should consider including samples with subscription orders to allow customers to try different products.
Everyone loves samples. You might also use your subscription box to partner with companies who might offer complementary products your customers will enjoy.
7. Build a loyal customer base.
While a subscription service that is poorly designed and poorly executed will lead to a higher churn (unsubscribe) rate, creating a program that has value and speaks to your customer’s needs is the best way to build loyalty in any business.
8. Encourage customers to spend more by getting more.
We’ve seen ways that the biggest online marketplaces get those loyal customers to spend more—by offering something in return. Consider designating a minimum purchase order of qualifying products that will allow customers early delivery.
It’s about rewards. I believe humans are always looking for a deal and are highly reward-driven. If you can reward loyalty, they will return to seek more rewards and instant gratification.
9. Enjoy a steady stream of recurring income as a buffer in uncertain times.
When the economy is fluctuating, you must look for ways to focus on where you can make a difference.
Offering a subscription service creates a passive income stream that can help offset any hiccups in your traditional revenue streams.
All in all, subscription-based ordering is more convenient for customers and more profitable for the businesses that offer them.
Is a subscription model right for you?
By instituting a subscription service, you can shift your focus away from customer acquisition and toward customer retention. Allowing your team to spend more time and effort keeping your loyal customers happy and well-stocked will position your company for success.
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