The subscription based business model is constantly gaining traction, as all sorts of industries are changing from a one-time-off business model to a subscription based business model.
In this post I’ll explain why many companies are changing to a subscription based business model and what this means for your business.
The subscription based business model.
The subscription based business model did not start with the internet revolution. However, it definitely went viral with it.
Previously, if you wished to use Adobe Creative Suite’s Photoshop, InDesign and Illustrator you would purchase it for $1299.00.
Currently, you can get it for $52/Month.
Do you see the difference?
Why would a business go subscription based?
In reality how could charging customers $52.00 versus $1,299.00 be more profitable?
Actually, It is. Let’s do the homework.
Previously, when starting a graphic design business you had two options: 1. opt in for a Photoshop alternative or 2. get a pirated version. Both were unfavorable for Adobe.
Purchasing Adobe’s Creative Suite was virtually impossible for those who were just starting out.
That is when the big change happened:
Since its transition to a subscription based model,
Adobe’s market cap has increased by more than 87%.
While someone that starts out his graphics design business can’t afford $1,299.00 he can surely afford $52.00 a Month.
Is this the only reason?
Poor freelancers wasn’t the only reason Adobe changed to a subscription based business model.
When you start doing the math you’ll see that Adobe is now earning much more than $1,299.00 on a single user.
The average Adobe user will sign up for years.
In other words, a single user pays $1,872.00 in subscription fees for Adobe in the course of 36 months.
Although, Adobe will earn this amount in a longer stretch of months, their customer lifetime value has increased way more.
Just imagine someone using Adobe for 10 years… (do the math: equals to $6,240 – WOW)
To sum it up, by switching to a subscription based business model Adobe removed the big ticket fee from new users, increasing a new bunch of customers and simultaneously expanded the customer lifetime value of all their users.
The customer viewpoint of a subscription based business model.
If a subscription based business model increases business profits at such a large scale, how do customers feel about it?
Well, they love it!
In mundane life purchasing for ex. a camera will grant you ownership of the camera and the seller ownership of your money. However, when subscribing to a product, you get the product as a service, thus inventing the SAAS terminology – Software As A Service.
A subscription is not just a one-off buy. When you subscribe to a product you will get serviced as a valued customer. Therefore, subscription based businesses always have top customer service, support and automatic system updates.
Prior to Adobe’s subscription based business model, you were stuck with the original version you purchased.
Currently you sign up once and your software gets updated automatically every so often – without you even noticing it.
Are subscription based business models limited to software?
The subscription based business model has been a huge success in the software industry.
It is expected that 80% of all software will be sold on a subscription based model in 2020.
But, is this limited to just the software industry? Absolutely not.
Many serviced based businesses and even some in the retail industry are transitioning into subscription based business models.
For example, the IT industry.
For a business owner, having problems with the business servers could be very annoying and pick up unexpected large expenses.
Contrary, your IT guy is in need of a server to go dead in order to get some income. When everything is working just fine they could simply close shop.
That’s where the subscription based business model came to rescue.
IT guys are currently switching to a subscription based business model and charge a flat monthly fee for their clients.
Simultaneously, introducing a secure client with constant service in case anything goes wrong and the IT guy is now secured with a steady predictable income.
How Amazon’s Subscribe & Save is changing shopping
The subscription based business modal did not stop at software and service based businesses.
Some in the retail industry started introducing products at a monthly subscription with the most known being Amazon.
Amazon has introduced its Subscribe And Save features back in 2007 but it is getting more and more momentum every year that passes.
Why should I have to reorder my Starbucks coffee beans every month when I could get it automatically with Amazon’s Subscribe and Save plus a 5-15% discount?
That’s exactly what I did and I love it.
As the trend keeps growing try figuring out how you can make use out of it in your business.
A subscription based business modal is a virtual guaranty for steady income and increased customer lifetime value.
Is a subscription based business modal right for your business?