The way we buy is changing.
Currently, there is an ongoing shift away from making individual, one-off purchases for goods and services, in favour of a subscription (or reoccurring income) model. This model has expanded from its roots in magazines, music, and streaming to now being commonplace in industries such as software, automotive, fashion, and many more.
For example, with our motor vehicles, many of us now enjoy the ease and reassurance of a ‘just add fuel’ model, where we pay a fixed monthly fee that covers everything except our fuel.
This allows us to drive a more expensive vehicle than we would otherwise be able to, while the vendor has the opportunity to offer us more frequent upgrades, as well as to virtually guarantee our loyalty for vehicle servicing, parts, insurance, and repurchases.
Why Adopt This Strategy?
There are several reasons to consider using a recurring payment or subscription-based model for your business. Here are just a few of them:
- It’s popular with customers! By spreading payments across a period of months or years, customers can plan ahead and avoid nasty surprises
- It allows businesses to plan. Having a predictable cash flow and profit margin for your business means you can invest in equipment, stock, and/or employees with confidence that the expenses will be covered
- The recurring revenue business model helps to create a deeper relationship with customers and improves retention rates
- This model is more resilient than those based on customers making ‘one-off’ purchases, as ongoing contracts are less likely to be cancelled during unusual events such as a pandemic
- It is easier to upsell additional goods or services to customers. For example, you can offer them a range of extras that will complement their initial purchase
The Types Of Subscription Model
Here are some of the most common types of recurring revenue models:
- Fixed Contracts – this is where there is a fixed price based on receiving a specific amount of a good or service on a regular schedule. Think of your monthly broadband subscription, for example
- Usage-Based Subscriptions – under these arrangements, the customer agrees to a payment plan but is responsible for the overall usage, either through a variable payment or a reconciliation. Utility bills are a good example of this type of contract
- Tiered Billing – here, the pricing structure has several tiers. Once a customer exceeds the quantity allowed in one tier, they move to a higher (and more expensive) tier
- Per-Seat Billing – the customer is billed based on the number of users that access the product or service
- Hybrid Billing – where two or more revenue models are combined
- Freemium – where access to a limited form of the product or service is provided free of charge, but charges do apply if the user requires additional or advanced features
Subscription Billing For Your Business
Almost any business can utilise a subscription-based model, and we have helped companies as diverse as theme parks, heating engineers, hairdressers, beauticians, nightclubs, and restaurants to successfully introduce them.
Want us to do the same for you? Get in touch! We’re happy to help.
Tim Peniston-Bird, MD of Orangutan, has worked with large and small businesses to help them develop subscription models and loyalty programmes.
He specialises in boosting business profits through greater client retention, generating referrals, optimising sales channels, and improving the customer acquisition process.
Tim has worked with brands like AIG, BMW, Centrica, Compaq, Ford, Goldfish, Gucci, Honda, Hugo Boss, Microsoft, Orange, and P&G.
Mobile: 07710 763566