Attract Investors Using a Subscription Model Would switching to a subscription model work for you? If yes, jump at the chance and do it right.
By Peter Figueredo Edited by Dan Bova
Opinions expressed by Entrepreneur contributors are their own.
Assuring investors that your business model is viable is the hardest challenge that you'll face as an entrepreneur. Investors want proof you can deliver on your promises; and the option to switch to a subscription model will do more for you than just alleviate investors' concerns. It will also stabilize your revenue stream.
Related: Planning a Subscription Business? Here Are 3 Tips to Streamline Shipping
After all, revenue streams can be uncertain: When you build your retail business plan, you make assumptions about average order sizes and repeat purchases. Yet even your best guesses on future sales numbers can be uneducated.
That's why subscriptions work; they remove the uncertainty. Once you can project your number of new subscribers each month, you just have to estimate retention rates before presenting dependable revenue numbers that both you and your investors can trust. Investors love businesses with long-term customers, and the best way to demonstrate the viability of your business is a long list of happy subscribers.
Opportunity abounds.
The subscription space is ripe with opportunities and flush with models. Dollar Shave Club achieved rapid success by making a simple promise: to provide a high-quality product that would be delivered directly for a low price. It worked: The Club has been so successful that Gillette began a subscription service of its own, to compete.
Other companies, such as Graze, have created lunchbox or snacking services. The consumer, product and lifestyle categories all have a few players, but most of them are in the early stages, and they haven't yet established themselves as the premier option.
Everyone needs something, and everyone loves convenience. If you can provide a high-quality product and bring it to consumers while making their lives simpler, you have a viable idea.
Related: 10 Subscription Companies to Start Now
Subscriptions, relationships and how to get it right
When subscription services fail, it's usually because they don't develop relationships with their subscribers. It's one thing to get people in the door and signed up, but the next goal, which is harder, is to convince subscribers to upgrade subscription levels.
Creating better clients and brand ambassadors demands that these companies create relationship-centric content marketing and identify potential upsell strategies. Those talents mark the difference between the disruptive subscription services that succeed and the ones that fade away.
One of the best companies in the subscription space, Birchbox, continues to grow by focusing on customers and rewarding engagement. Getting that first "Subscribe!" click isn't enough. To establish continued success, you must incentivize upgrades and become not only customers' supplier, but also their trusted partner.
Because the subscription space can be so consistent -- and because so many opportunities remain within it -- make this option a prime consideration for your business. If you do decide to jump in, follow this advice:
Related: Why the Subscription Model for Ebooks Doesn't Work (at Least Not Yet)
1. Don't chase investments.
It seems counterintuitive, but chasing investments may prevent you from building a solid foundation. Decide how much growth you're comfortable handling, and use that knowledge to choose either minimal investment and slower growth, or maximum investment and explosive growth.
2. Get real consumer data.
You may love Picasso-themed wristwatches, but that doesn't mean other people would subscribe to a monthly wristwatch delivery service. Gather hard data about your target audience both qualitatively (consider focus groups) and quantitatively (consider third-party research). Ask questions that are relevant to your brand.
3. Know your enemy.
The subscription space isn't saturated, but it's not vacant, either. Identify the current players in your market. Then, emulate what they do well, and improve upon what they neglect. Netflix is a cliche example for all things subscription, but think about how hard it had to study Blockbuster to understand how to do things better.
4. Be great at something.
The most successful subscription services do one or two things extremely well and focus on those. SoulCycle, for example, didn't try to improve spinning classes, yoga, Pilates and Zumba. It stuck to cycling and perfected it.
5. Upsell, and reward loyalty.
Extend the length of subscriptions for a discount. Offer multiple tiers. Monetize product community. Birchbox users post videos reviewing their monthly deliveries and are often rewarded that move. Get people excited to talk about what you have to offer.
The subscription model is potentially lucrative, and the space is growing. Would switching to a subscription model work for your business? If the answer is yes, jump at the chance and do it right.
