Subscription Services Can Revamp Business But Challenge Contact Centers
more stable income stream, and this type of model allows for just that, knowing that each month you're going to have X dollars coming in the door," says Marc Ostrofsky, author of Word of Mouse, a book about the subscription industry. "Because sales have already occurred, you don't have to resell the customer each and every month."
Subscriptions make launching a business easier and cheaper. Firms do not have to invest significant capital in office space, computer equipment, or fleets of vehicles. They avoid hefty upfront fees by renting needed items.
Becoming More Flexible
Organizations also gain flexibility with a subscription model. For instance, the software necessary for one stage of a company's life cycle may be outgrown as the business gains momentum and mass. A simple document storage system may suffice initially, but a more sophisticated solution may be needed as the firm matures.
Ideally, enterprises reap bottom-line benefits. Companies carry less overhead, so they are not tied to traditional business metrics for success. An e-commerce site typically needs a 2 percent conversion rate to be viable. The subscription model enables a firm to
make money even if its conversion rate is lower because its revenue comes in regular increments and its expenses are lower. The savings can be passed on to the client, which in turn makes the service or product more attractive to potential customers.
In addition, corporations are also able to pivot quickly in response to market changes. Nowadays with global competition intensifying, businesses need to adapt rapidly to dramatic market alterations. With social media being omnipresent and powerful, a trend may gain momentum over a lunch hour and businesses need to respond quickly. Subscription-based businesses enable companies to dial up additional services on an as-needed basis. Ideally, the improved responsiveness enables them to build lasting relationships.
Turning on a Dime
Flexibility extends to a firm's business model as well. With subscriptions, organizations have the ability to test pricing and packaging at a rapid pace. A company can easily alter its pricing tiers: It might target luxury buyers at the start but later switch to mid-tier consumers.
Wall Street likes the subscription model. "The financial industry believes that these types of revenue streams are very, very good investments," Ostrofsky says. Rather than make a continuing series of one-time sales, companies generate recurring revenue streams. Consequently, forecasting how much money the business will generate in the next quarter and next year becomes
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Understand the core concepts that make this model work.