How the subscription business model is different from the traditional model
The subscription business model differs from other, more traditional business formats. Rather than an emphasis on sales, per se, subscription brands need to channel their efforts into securing recurring revenue. Acquisition and long-term relationships play key roles in a successful subscription business model. While practices like these can benefit any business, those in the subscription sector rely on them to generate profit.
Recurring revenue is king
While it may feel great to see brand-new subscribers trickling in, those people are not the ones that pay a subscription company's bills. Every customer should be seen as a life-long partner, especially because each individual's lifetime value is so important.
What matters most is that each subscription company's customers generates revenue over a period of time. Signing up for a trial or a short subscription to a service does not translate to revenue for that service. In fact, your customers likely won't make you much cash at all until they've spent money on your subscription service several times over.
Retention trumps acquisition
Subscription companies need to prioritize customer retention over customer acquisition. No marketer will deny the value of retained customers, but it can be difficult to recognize retention's power. It's cheaper to retain customers than to acquire new ones. That makes retention a top priority, and yet many businesses refrain from properly analyzing retention.
Financing the marketing and sales efforts that result in retention takes some work. Subscription businesses should focus on retaining the customers that they already have. It's easy enough; marketers looking to advertise subscription services just need to be willing to get thoughtful about their work.
Long-term relationships are the priority
Think of a big-box store that you've visited to make a purchase recently. Do you genuinely believe that whoever manages the corporation that runs the store cares if you come back again? It would be great, for sure, but...
The fact of the matter is that many traditional businesses don't need to rely on anybody's repeat business. Customers who come back to a store over and over are a great source of income, but they aren't always necessary for success.
Subscription brands present an exception to the rule. If a subscription business wants to turn a profit, it's critical to form long-term relationships with customers. Subscription is all about building lasting relationships.