Why Companies are Adopting Subscription Billing Models

Written by Dr. Nolan Duck

Dr. Nolan Duck is a Board Certified Broker with the Texas Association of Business Brokers (TABB) and a licensed Commercial Real Estate Broker with the Texas Real Estate Commission. Nolan is also a Certified Value Builder, Certified Exit Planning Advisor and member of the Alliance of Merger & Acquisition Advisors. As a business coach, author and public speaker, Nolan enjoys sharing advice and consulting with business owners seeking to grow, expand or exit.

Why Companies are Adopting Subscription Billing Models

Oct 3, 2019 | Value Builder

Why Companies are Adopting Subscription Billing Models

Companies like Fair and Flexdrive, have cars available through a subscription model where consumers pay one fixed monthly fee for access to a car which includes insurance, maintenance as well as car washes & detailing services.  Customers are offered the ability to change vehicles throughout their all-inclusive subscription on terms of monthly, quarterly or as often as they would like in some cases.

Everything from toothbrushes to flowers are now available with subscription billing.Why Companies are Adopting Subscription Billing Models

Could you offer some sort of recurring plan to your customers?

Here are six reasons to consider offering your customers a subscription:

1.  Predictability

When you have subscribers, you can plan what your business needs in the future. For example, the average flower store in America throws out more than half of its inventory each month because it is too rotten to sell.  At H. Bloom, a subscription-based flower company that sells flowers to hotels and spas, they throw out less than 2% of their flowers because they can perfectly predict how many flowers are needed to fulfill their orders.

2.  Eliminate Seasonality

Many businesses suffer through seasonal highs and lows.  In fact, a whopping thirty percent of a typical flower store’s revenue comes on Mother’s Day and Valentine’s Day – ultimately leaving them to scramble and make a sale in November.  By contrast, H. Bloom has a steady stream of subscribers that pay each month.   At Mister Car Wash – where they offer a subscription for unlimited car washes – they receive revenue from customers in November and April even though very few people in the Northern east wash their cars in rainy months.

3.  Improved Valuation

Recurring revenue boosts the value of your business.  Whereas most small companies trade on a multiple of profit, subscription-based businesses often trade on a similar multiple of revenue.

4.  The Trojan Horse Effect

Once you subscribe to a service, you become much more likely to buy other things from the same company.  That is one reason Amazon is so keen to get you to buy subscriptions to things like Prime or Subscribe & Save. Amazon knows that once you become a subscriber, you are much more likely to buy additional products.

5.  The Sale That Keeps Giving

Unlike the transaction business model where you have to stimulate demand through advertising to get customers to buy, with a subscription-based model, you sell one subscription and it keeps giving month after month.

6.  Data & Market Research

When you get a customer to subscribe, you can start to see their spending and consumption habits.  This data is the ultimate in market research. It is how Netflix knows which new shows to produce and which to pull.

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