Should your business move to a subscription-based model?

Should your business move to a subscription-based model?

Does your company offer services a client uses every month? If you do, have you ever thought about moving to a software as a service or monthly subscription-based model? With companies like Netflix, Spotify, and Google automatically charging our credit cards monthly, it shows how open we’ve all become to paying smaller monthly fees for an all you can use (or close to) service.

What are some of the benefits?

With a subscription-based model using websites as an example, you’re able to lower the point of entry for your client making it easier for them to be on-boarded without a large upfront payment. If the client is willing to pay a flat monthly fee for their website, this free’s them up to invest more money monthly for other services you offer. This also provides long term revenue in months where you might not be busy.

Another benefit to this business model is over time, you’re building a service-based business instead of being purely product-based. This helps build a relationship with your clients that lasts longer than a site launch or campaign finishing.

Let’s say you on-board 2 website clients a month at $300 per month. This would include the hosting cost, system maintenance, and initial design and setup. Your agreement should be for a minimum of one year (we’ll go over this in a minute) but right out of the gate, you’re guaranteed $3600 for that website baring anything extreme happening. If you are working with small businesses, this is a lot of money for someone to come up with at one time, and if they do, that might be their budget for the next 6-12 months. With a lower monthly fee, it makes it easier for the client to afford and it also makes things more manageable for their budget every month. How often do you pay for the full year with your subscriptions?

This might sound great for the client but you’re probably wondering what’s in it for you to take the money over a few months instead of all at one time. The answer is a steady income stream that grows with every new client without an increase in workload. For every client who you sign up to your website subscription service, you add $300 per month to your revenue stream. If you sign up 2 clients per month you would be at 24 clients for year 2. 24 clients x 12 is $86,400 per year in revenue with an overhead of hosting and your time invested for system maintenance that for the most part can be automated.

Some obvious factors could throw a wrench in these plans but with a realistic onboarding plan of 2 small business clients per month and the time to build and optimize their website, your revenue will continue to increase with a low increase in work required.

Sounds good, but what are some downsides?

There are always downsides to every business model. The biggest challenge for a subscription-based model is the first 1-2 years. It’s difficult to get those initial clients if you don’t have a lot to show off your capabilities. It also makes it tough that you’re not getting that large paycheck at first. It will take a lot of patience but the long term potential is there.

Another downside is will your clients stay on past the 12-month agreement. At the 12 month mark, you start to make a profit on top of what your initial investment would have been. If you’re finding that a lot of clients are terminating their agreement after the 12 months, consider adding incentives like a design refresh or bumping off some money form their monthly payment. It’s better to keep the client for less money than lose them entirely.

If you’re interested in this business model an want to bounce some ideas around, feel free to follow and tweet at me on Twitter @claytonjubb