First steps to starting a subscription business
“Thanks to the proliferation of cheap, reliable, virtual technology, anyone with some spare cash and an idea can start a company…” To paraphrase the Economist’s Intelligence Unit , anyone and everyone can start up an online subscription business with ease. Whether or not you make money doing it is a different story.
Marc Randolph tells the great story of building Netflix and conversations with Blockbuster in the early days of subscription-based movie rentals in the Tim Ferriss Show podcast. The trial and error of Randolph’s work is a great reminder of what it takes to make something work. And, as we all know, his and his partner’s work paid off. Listen to the podcast here.
Like any business, success of a subscription business is dependent on the work done up front, including research, familiarity with target audience, and what’s already on the market.
Do you have a business idea circulating that would be a good fit for the subscription model?
Here are some first steps for starting up that subscription business:
Do the Research
Like any sound project, find out what the buzz is on the streets (or, in this case, the internet). Begin with thorough research.
Online billing company, Chargify, suggests to start by talking to your potential customers. Read online forums and communities. What are customers of other similar businesses saying about their experience? What are the potential additional verticals in this space?
Find out what keeps customers loyal in your industry. Are you promising to deliver something reliably the same, or are you giving customers access to the latest and greatest.
Who are your competitors?
Shopify blogger, Roxanne Voidoniclas, quotes a McKinsey study that says 15% of Americans have signed up for one or more subscriptions to receive products on a recurring basis...the subscription ecommerce market is projected to reach $473 billion by 2025, up from $15B in 2019.” That’s a lot of business potential! And a good reason to find out who your competitors will be in your subscription business space.
Who else is offering what you offer, and what does their branding look like? How will you distinguish yourself from what already exists, and how do you plan to do different and better for this customer base?
Chargify suggests that price should not be your competitive advantage. Don’t underestimate the quality or the value of what you are selling. If you believe in it and the demand, (which can be proven with pre-orders), price it right.
Know your target market.
Who are the people you want to sell to? Where do they live? What do they do for work, for recreation? What are their existing issues and pains? Chargify also suggests researching search terms and search engines, and the number of times people are looking for your product or service.
Don’t wait for all to be perfect.
This is one lesson Marc Randolph makes clear—the trial and error of a subscription service takes before getting it right. And even then, the needle is always moving because of advancing technologies and customer needs and desires. Not to mention competitors, in the case of Netflix, Prime, Crave, and Disney, entering the market space. The key is to always be in touch with your customer base. Get their feedback regularly to know what is working and what is not.
Employ a sound billing system for your product or service.
In other words, don’t lose a customer because the payment system didn’t work for them, or was too frustrating to access or navigate.
Protect yourself and other assets.
Like any start-up, it’s a good idea to inject some money into incorporating the business to protect other assets. If you are selling jewelry, hopefully there is no reason for someone to take legal action, but you never know. If your subscription idea is a “side” business to supplement income, or challenge your entrepreneurial spirit, it’s not a bad idea to protect yourself and your existing businesses, home, etc.
Wondering if a subscription business is for you?
There are definitive advantages, including moving away from one-time sales and into a re-occurring billing model. As well, a subscription model doesn’t necessarily have to rely on advertisers if you can find enough revenue through subscribers. This gives owners the freedom to offer what they want, without being attached to demands, needs of advertisers.