18 tips for running a successful subscription business
While subscription businesses share some characteristics of other types of business, they also have unique benefits and challenges.
The following tips will help you to plan, build and then run your subscription business profitably.
1. Probe your market for sub-niches
When researching the market, it makes sense to focus on current trends such as snacks, beauty products and crafts. However, the deeper you can go, the more likely you are to unearth a lucrative sub-niche with minimal competition.
Here are some ideas for gathering useful data for finding your niche:
- Organise focus groups and talk directly to potential customers. Find out what specific pain points they are looking to address.
- Visit forums related to your subscription idea. What are people talking about? What products or services are they crying out for?
- Use a keyword research tool to find out the number of searches for terms related to your idea.
- Look into what your competitors are doing. Is there a gap between what they are offering and what your potential customers are looking for?
The more research you do, the better. It will help you to define your audience, build your brand, inform your marketing campaigns and provide evidence should you need to raise capital from investors.
2. Provide high quality customer support from day one
In the early growth stages of a subscription business, it is easy to focus too much attention on securing new customers rather than looking after the ones you have. This is a costly mistake because acquiring a new customer is much more expensive than retaining an existing one.
Invest sufficient time and money to ensure you can provide a reliable, timely service from the start. Happy customers will become advocates for your brand, giving you free marketing!
3. Understand unit economics
Unit economics are a set of metrics that can help businesses, particularly startups, to assess viability and investment potential. Popular metrics in unit economics include customer lifetime value (LTV), customer acquisition cost (CAC), monthly recurring revenue (MRR) and churn rate.
Once you have achieved favourable unit economics, you will be in a strong position to grow your subscription box business. Crucially, investors will want to see this data and to know that you understand the factors that drive each metric.
4. Set a high starting price
Competing on price is always a risky strategy in business and subscription box businesses are no exception. Whereas you can always improve on quality or add an item, engaging in a price war becomes a race to the bottom as you focus on saving costs.
Coming in at a high price point increases the perceived value of your subscription box. If you are concerned about turning custom away, consider offering a free trial.
5. Launch early for maximum learning
Although market research is vital for success, there comes a point where you just have to get your product out there. While it can be tempting to add extra features in order to create the perfect subscription box service, this can increase your losses if the product fails.
Eric Ries popularised the idea of the minimal viable product (MVP). This is a basic version of your product or service which can be used to test the market and learn about what your customers like and dislike. If the MVP is a success, you can introduce extra features to bring in more sales.
6. Choose a tech solution that will scale
There are no hard and fast rules as to whether an off-the-shelf or bespoke subscription platform is best for a business. Some companies enjoy great success with a commodity subscription platform while others find that their business outgrows their initial solution very quickly and they end up spending a lot of time and money switching to a bespoke platform.
The important thing is to look ahead and make sure that the tech solution you choose is flexible enough for your future plans. A good agency partner will support you in making the right decision based on your priorities.
If you create an MVP, always consider data ownership so that you can migrate your first group of customers to a new platform in future. Some subscription platforms do not provide the facility to export customer payment details, thus requiring customers to resubscribe, a process which inevitably leads to significant churn.
7. Get some money on the table
The most savvy business people know that they don’t have to have a product ready to ship before they sell it. There are two key advantages to offering paid early access to your subscription service:
First, you are qualifying your prospects. Revenue is validation and those customers who are willing to pay before receiving their product or service are clearly interested in what you are offering.
Second, you are starting with a positive cash flow which is clearly an advantage for any new business.
8. Keep it simple
If you already run a subscription business, when was the last time you walked your customer’s journey with them? From navigating your website to leaving a customer review, it is important for you as a business owner to try out the process for yourself every now and then. Your goal is to remove all obstacles that prevent your customer from carrying out their task.
From Amazon and Netflix to Graze and Expedia, all of the top online businesses make it as simple as possible for customers to do business with them.
9. Be selective with customer requests
When customers ask for specific items in their subscription box or extra business features, it is only natural to want to please them. However, any changes need to be carefully considered. Is there a widespread demand for the requested feature? Does the request align with your wider goals? How will your workflow be affected? Will you be able to sustain the changes in the long-term?
More choice may bring in some new customers, but too much choice can add steps to the checkout and decrease conversion. When you are adding extra choice, try and move some elements after the checkout.
10. Consider recurring billing technology
As a subscription business owner, you will appreciate that a predictable, regular monthly income with minimal churn is necessary for a healthy cash flow. Recurring billing technology will automate this process, simplifying the process and saving time. It is also now possible, through technology, to automatically update expired payment cards.
The best choice of billing technology will depend on your business model and the flexibility you need to charge customers each billing period.
11. Stay flexible and attuned to the market
Even the most popular subscription boxes will eventually give way to new market trends. Business owners and marketing teams should engage in continuous market research and testing so that they are in the best position to adapt.
Products are not the only factors that can change. For example, a new online payment method could become popular with your target market and you could gain an advantage by integrating your website with it ahead of your competitors.
12. Reward commitment
Some customers will try out our product for a short while, others will stay with you for several months. A special few will stick with you for the long-term. To attract more of these high value customers, it is a good idea to offer discounts or a series of gifts for long-term commitment. If customers see a reward on the horizon, they are more likely to stick around.
13. Partner with a mentor
Working alongside a mentor with experience in the subscription box sector will accelerate your learning and help you to avoid making common mistakes. Mentors can be found anywhere but good places to track them down include networking events, startup incubators and social networks.
Do not under-estimate the benefit that experience brings. As well as positive advice about what works and how to plan for the unexpected, a mentor with experience of a subscription box business will be able to warn you from making the same mistakes which they made.
14. Freely share your knowledge
Why should a customer come to you instead of one of your competitors? One way to differentiate your subscription box business is to become a thought leader in your sector. Whether your business involves crafts, cooking or computing, consider setting up a blog, creating videos, offering to speak at industry events and engaging with potential customers on social media.
15. Know your influencers
Whatever industry segment your subscription box business covers, you are likely to find experts who stand out for the number of social media followers they have and their level of engagement. These people are known as ‘influencers’ and some wield a lot of power in the social sphere. If you can connect with them, they could help you to reach a much bigger pool of potential customers.
16. Take the GDPR seriously
A large part of your subscription box business will involve collecting and storing the personal details of your customers. As a processor of personally identifiable information, you will be legally obliged to follow the GDPR.
17. Use brand consistent packaging
Whatever type of product or service you provide, think carefully about how the customer will respond to your packaging when your box arrives at their door. If you are selling something exotic and high-end like expensive perfumes or delicacies from around the world, your customer will probably expect a unique and sophisticated box. If you are sending out eco-friendly products, your customer will expect the box it arrives in to be biodegradable.
18. Embrace failure
This final tip applies to all businesses but is worth adding because it will help you to survive the rollercoaster ride you are set to embark on. Two famous quotes sum up how successful people think about failure:
“I never lose. I either win or learn.” - Nelson Mandela
“I have not failed. I've just found 10,000 ways that won't work.” - Thomas Edison
Topic: Subscription websites