Subscription Marketing: How to Build a Successful Subscription Business Model

The subscription business model refers to a recurring marketing strategy designed to retain long-term customers while attracting new ones. As per the subscription business model, the customers pay a fixed fee on a weekly, monthly, quarterly or yearly basis to subscription businesses in exchange for certain products and services.  

In the year 2020, the global subscription e-commerce market was valued at US$ 34.7 billion. It is expected that the market will reach a staggering US$ 2,643.6 billion by 2028, which is an explosive 72.9% CAGR. 

The reason behind this rapid growth is quite simple – customers find subscription e-commerce convenient, given they aren’t required to make the purchase over and over again. And for companies, the subscription business model provides a steady recurring revenue.

But, it is worth noting that building a successful subscription-based business model doesn’t happen overnight. You will require –

• Building a relevant subscription model
• Market the model
• Focus on customer retention and growth.
• Face common challenges this business model has and overcome them.
• Measure key metrics
• Address concerns and make relevant changes to the model wherever necessary to yield the success you are behind.  

Are you stressed already? Well, don’t be!

In this blog, we will navigate you through all the steps involved in building a successful subscription-based business model. So, dive in!

In this article

1- Building a Subscription Business Model

1.1- Identifying your target audience

Before you proceed with anything, it is crucial that you find your target audience, which, of course, is one of the challenging tasks. Besides, frequent evaluation of this business element is crucial, given there is always room for improvement.

Listed below are some expert tips on determining the ideal target audience for your subscription business –

• Speak with your own network – Talking to people you know may help uncover a target market you never thought about offering services to before. In fact, family and friends can give you a more rounded understanding of the potential customers. 
• Study the competition – There is nothing better than examining your competitor to yield valuable information. From their marketing pricing and structure to consumer feedback, reviews, social media interactions and so on, they can help develop individual strategies to better identify the target market. 
• Evaluate demographics and psychographics – Even though there are various elements to factor, demographics and psychographics remain crucial ones. They help comprehend existing customer characteristics and personal qualities, respectively.

1.2- Choosing a subscription model that fits your business

There are three extensive subscription models, including replenishment, curation and access. All of these models have their fair share of perks and downsides. Hence, choosing the right model boils down to the type of digital and physical product you wish to sell, your business goals and ideas and your capacity.

• Replenishment business model – This business model focuses on convenience and cost savings and can be automated for the purchase of essential products at a discount. However, not all products may require to be replenished regularly. If you deal with commodity and convenience items, then this model is for you. Besides, this model has a higher conversion and retention rate. 

• Curation business model – The curation business model is the most common business model and is often termed a subscription box. They are designed to offer a highly personalized experience with surprising and delightful products. If you own a business that sells food, apparel or beauty product, this model will work best for you. 
• Access business model – Access business model subscribers are required to pay a monthly fee to gain members-only or lower-price perks. The primary value of the access business model is offering exclusivity to the customers.

1.3- Setting subscription pricing

The next step is setting a subscription pricing strategy, which may depend upon your product’s nature and the goals you had while creating a subscription model. For example, if you wish to sell more user seats, you are better off with a per-user pricing model. It also offers subscription discounts to businesses with multiple users. 

Next, proceed with creating subscription levels and packages. For instance, if you wish to keep things simple, create a single package that can kickstart a subscription-based revenue model. Down the line, when you gain added information about your existing customers, you can create different packages and levels based on preferences and serve different segments accordingly. 

2- Marketing a Subscription Business

2.1- Developing a strong value proposition

With a compelling value proposition, you can demonstrate to your subscribers that you have unique benefits to offer, your products help find solutions they need and how choosing your services over others will benefit them. 

Also, it is important to note that value propositions differ from organization to organization. Hence, it should be crafted carefully and should be revised periodically. 

Here are some tips for building a strong value proposition –

• Customers and members tend to be biased towards an organization that offers them tangible value and makes their job productive, better and easier. Your notion should highlight the sense of belonging in your subscribers. 
• Consider offering subscription services or products that meet the actual needs, thereby boosting the subscriber rate. 
• Gives answers to important questions, including “What makes your association different and better from others?” “What makes your subscription services and offerings unique?” The notion is to become a recognized authority or representative of a profession or trade. 
• Demonstrate what value you will add to the member’s life who wishes to subscribe. 
• Lastly, deliver on the promises and commitments you have made, and deliver as per the subscriber’s expectations.  

2.2- Creating a customer-centric marketing strategy

You may have the best product to offer, but that won’t assist with the success of the subscription marketing business if you cater it to the wrong people.

Hence, it is crucial to understand your customers and step into their shoes throughout the communications to determine what they want, their needs and how they view your brand. It is important for creating a customer-centric marketing strategy and customer acquisition process. 

Once you know your repeat customers, you can –

• Produce the marketing strategies based on the properly segmented target audience 
• Fix stages of touchpoints in the sales process
• Determine what makes you unique among competitors
• Help you upgrade your offerings and add features wherever required

Keep in mind happy customers will likely come back for more. Hence, focus on nurturing customer relationships at every chance to receive. 

 2.3- Leveraging social media for subscription marketing

Social media marketing is crucial, even for your subscription marketing business. To properly use social media in assisting with business growth, you must –

• Although there are multiple social media platforms at your aid, remember you don’t have to be on all. Be where your target audience is. Similarly, every social media platform has unique features and tools, spend time determining which will suit your needs best. Also, don’t forget to focus your resources and time on channels that will drive the highest ROI for your business. 
• Once you have chosen the right platform, select the content that best suits your chosen platform. For instance, with YouTube and Facebook, you can benefit immensely from video content. Similarly, an eye-capturing static image will have a huge impact on Instagram. 
• When posting on social media for marketing purposes, it is important to be consistent. Also, ensure that your consistency expands to brand messaging, aesthetics and tones across all social networks. 
• Meaningful interactions are always superior to likes and followings. Hence, find innovative ways to engage with your customers. Perhaps hosting live sessions with top subscribers can be turned into a Q&A session, too. 
• Keep in mind organic reach takes longer to show impact. Consider investing in paid marketing tactics.
• Lastly, maintain a balance between helpful and promotional content. 

3- Customer Retention and Growth

3.1- Managing customer churn and retaining subscribers

One of the biggest fears of subscription businesses is losing repeat customers. Thankfully, there are various ways to prevent customer churn rates and retain them for the long term. Here are some tips –

• Balance the value-cost equation – You need to offer the best value to your new customers. Your products’ engineering quality must be excellent and you must offer features your subscribers may need. Never compromise on quality and value.
• Maintain a customer-first approach – It is easy to say, “We are a customer-first brand,” than be one. In fact, almost every organization has its rule book when it comes to a customer-first approach. Remember, your customers are your biggest asset. Hence, focus on things that eventually improve customer experience, especially if you wish to be a customer-first brand. And by doing so, you will gain the respect of your customers, reduce churn rate and earn brand advocates. 
• Offer exceptional customer services – When your customer support is excellent, amazing things will happen to your business. For instance, with reliable, prompt and quality customer support, you can increase both brand value and product/service value. This can be achieved with efficient cloud phone systems that offer streamlined communication. These systems strengthen the customer service experience by facilitating prompt and clear dialogues.

3.2- Building a loyal customer base

There are a variety of things you can do to improve a loyal customer base and earn advocates for your brand. Here are a few –

• Be available around the clock to deliver flawless customer service. Offer multiple mediums like Email, Live Chat, Video and Voice call options to allow your new customers to get through. 
• To improve the customer base and retain their loyalty, consider seeking out customer feedback. Send surveys, ask questions on calls, track ratings, etc., to determine your strengths and weaknesses and work on those accordingly. 
• Create a community for your subscribers and allow them to interact with each other, thereby encouraging user-generated content. 
• In the process of acquiring new customers, never overlook the existing customer base. Nurturing existing customers is key to success.

3.3- Strategies for growing your subscriber base

• Cross-selling and upselling are crucial for boosting average order value or AOV and customer lifetime value or CLV. Both of these tactics can assist with boosting the value of a customer’s order via targeted product suggestions.
• Ensure you optimise your subscription catalogue so the subscribers can find relevant products and purchase options, thereby boosting subscription sales. 
• Avoid making the customers feel locked into the subscription by preventing them from customizing things. You can lose both the subscription sale and the subscriber. Instead, make your offerings flexible. This can help sweeten the customer’s trust in the brand and encourage them to spend more. 
• Incentivizing should not always cost the subscribers. Sometimes it is okay to offer benefits even with minimum spending. And ensure to be as clear as possible about such benefits to entice the customers into spending more down the line. 

4- Common Challenges of Subscription Marketing

4.1- Managing subscription cancellations and refunds

The subscription model comes with a recurring process, which means –

• The customer data is required to be kept up to date at all the times
• For each customer, the billing and invoicing may be different – weekly, monthly, quarterly or annually.
• Communication needs to be done effectively to maintain a lasting relationship with the customers.
• There may be instances of cancellations and refunds to take care of 

With even the slightest inaccuracy in the management of customer data, you can risk damaging relations with the customers.

One easy way to handle subscription management, cancelling and refund is by using an effective subscription management system that is capable of categorizing customer journeys. And in case if the software has the self-service portable capability, then it can assist the customers in taking care of their subscription info, too. This means the customers can easily –

• Update billing details
• Migrate seamlessly between available plans and levels
• Access invoice
• Cancel subscription
• Or request refunds 

4.2- Dealing with seasonal fluctuations

Seasonal fluctuations are inevitable, but there are ways to tackle them effectively by creating a seasonal sales plan, of course.

• Always review the prior year’s sales history to make adjustments and allowances.
• Forecast how the seasonal sales would be based on current trends and reading of the sales potential of that category.
• If you have collected data throughout the year, use it for your benefit now. Conduct location-based advertising or based on other demographics to lure customers.
• Find ways to differentiate your business from competitors. Let the customers know why you are better and why purchasing from you will be beneficial.
• Shift your working hours as per customer availability. For instance, many retailers have started working on Sundays to serve customers better.  

4.3- Addressing customer complaints and issues

The way you address your customer complaints and issues can either make or break the business. Listed below are a few strategies to effectively address customer complaints and issues –

• Reach immediately to the concerns your customers have. Even if you don’t have an immediate solution, making the customers know that their complaints are taken into account will make them feel heard and valued. 
• No matter how rude or angry your customer behaves, always maintain your calm. If possible, listen without interruption. Avoid taking things personally. Instead, let the customer speak and express his or her frustration. 
• Once the customer is done talking, ask them questions to get facts and details right. Ensure to not sound robotic. Try dropping formalities whenever required. This could be your chance to start meaningful conversations and build customer trust. 
• Acknowledge the problems and take responsibility. Doing so is a way of showing compassion and understanding the customers’ feelings. 
• Focus on helping the customer once all facts are at your disposal. And don’t forget to thank the customer, no matter how unpleasant the situation was. 

5- Measuring Success in Subscription Marketing

5.1- Key metrics for tracking subscription success

Measuring certain metrics not only assists in tracking the subscription’s success but also assists in determining places that need improvement. Here are a few key metrics worth tracking –

• Monthly Recurring Revenue (MRR) – This metric refers to the total revenue a company generates monthly from various subscriptions. It is an important metric popular among recurring businesses. 
• Annual Recurring Revenue (ARR) – This metric helps gauge a business’s recurring revenue every year. If you offer annual subscriptions, then this is the key KPI for you. 
• Churn Rate – If you wish to determine the rate at which subscribers are terminating subscriptions to your offerings, then the churn rate is something you should measure regularly. The data collected can be used to lower the churn rate. 
• Average Revenue Per Account (ARPA) – With this metric, you can monitor every user account’s monetary contribution. ARPA can help determine how many subscriptions are coming from cheaper and more expensive packages. 
• Customer Acquisition Cost (CAC) – With the CAS metric, you can determine how well you are using your budget for resources. This KPI is key to identifying the impact of every marketing method you use. 
• Customer Lifetime Value (CLV) – This metric offers insight into how much total revenue can a client bring to your business throughout the subscription’s lifetime. CLV will give you details of the most valuable customers, allowing you to focus on retaining them.

5.2- Analysing subscriber data and feedback

To yield the benefit from subscriber data and feedback, it is crucial that you analyse it first. Here are five stages to effectively do the same –

• Before you do any type of analysation, ensure to collect all the data in one place. Even if the data is incomplete, ensure to collect it. 
• Once you have all the data in one place, it is time to categorize it based on the type of theme. For example, sort them into negative, positive and neutral feedback. Other ways you can categorize the data include pricing, features, customer services, etc.
• The next step is to read through the data and develop feedback codes for every data row. A data analyst could prove a saviour during this step. 
• Once the data is coded, proceed to measure the amount of feedback every code has. This can help with scanning patterns and sorting the data based on code, type and theme, as well as highlighting any repeating patterns. Doing so should provide information on common feedback and specific patterns. 
• You can also use relevant data analytics tools to easily analyse customer feedback. 

5.3- Adjusting your subscription marketing strategy based on data

Before you can adjust the subscription marketing strategy based on data, you need to go through three essential stages, including –

• Find root cause – Not for the positive feedback, but you definitely should find the root cause for the negative and neutral feedback. Check for any repeating patterns and identify if the customers are talking about the same thing and issue. 
• Plan actions – Now that you know the root cause, proceed with planning on how to resolve the same. Your aim should be turning negative feedback into positive experiences for your customers. 

• Alert the team – Once you know what actions you wish to take, it is time to work closely with your team and let them know about new procedures. 

When it comes to creating data-based subscription marketing strategies, always align them depending on your goals and needs. 

Here are some ways to incorporate marketing in your subscription model business –

• Offer excellent customer support by being prompt and helpful.
• Know what your customers need and want
• Determine best customers and potential upsells

To summarise, 

To put together a great picture, you need to use a bunch of puzzle pieces. The same concept applies in terms of the subscription-based business model, too. In order to create a successful strategy, you will require investing your time, effort and money in various pieces. 

The good news is this blog already gives an in-depth idea about the pieces and strategies to effectively weave everything together. So, go ahead and put all the gained knowledge to use. By the end, you will have a subscription business model that leads to satisfied customers, greater retention rates and business growth. 

And perhaps if you find the information listed above a little intimidating to work on, consider hiring experts. Sortlist’s huge archives are a perfect place to find seasoned experts who can help you with building a subscription business model as per your needs and budget.