If you’re thinking of launching a new venture, you’ll want to ensure that you find the right business model to suit your needs. While many companies focus on one-off sales and single payments, a subscription-based business model offers significant advantages. To discover whether this type of enterprise could be right for you, take a look at these five reasons to launch a subscription-based business:
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1. Reduced Acquisition Costs
Once someone becomes a subscriber, they’re effectively agreeing to be your customer until they decide otherwise. By offering recurring transactions via Yodlee ACH payments, for example, customers can pre-authorize a subscription transaction. ACH payments with Yodlee don’t just offer customers flexibility and security; they protect your business and reduce your costs too. As a result, you can cut your customer acquisition fees and focus on generating increased revenue instead.
2. Accurate Financial Forecasting
When customers subscribe to your service, it becomes infinitely easier to calculate your company’s expected monthly recurring revenue (MRR). This gives you extra clarity when it comes to planning your operations and implementing growth plans, as you’ll know how much revenue your business is likely to generate in both the short and long term.
3. Reliable Cash Flow
When you can predict your company’s income with increased accuracy, you can ensure that you’ll have a reliable cash flow to use to fund your operations. Cash flow issues are a significant cause of business failure, particularly for startups and small businesses that may not have large reserves to fall back on. With a subscription model, however, reliable cash flow is built into your company’s operating methods and provides extra financial security.
4. Reduced Price Barriers
A subscription-based business can enable you to attract more customers and grab a larger share of the market, simply because of the way you’re pricing your products or services. Charging a one-off fee of $800 for a product can dissuade customers from making a purchase because of the high price tag, for example, but charging $40 per month makes the purchase seem much more affordable to the average customer. This expands your target audience and enables you to increase conversion rates.
5. Increased Customer Lifetime Value
When customers need to continue paying a subscription to retain access to a product or service, it means that they are likely to pay significantly more overall than if they bought an item outright. Despite this, millions of consumers prefer to shop in this way and companies certainly enjoy the additional profits they generate! Providing you maximize retention rates, the increased customer lifetime value you’ll generate will enhance your company’s performance.
Is a Subscription Model Right for You?
With so many benefits associated with subscription-style businesses, it’s not surprising that so many entrepreneurs are choosing this model for their latest ventures. While it’s always important to do your due diligence when planning a business launch, the potential advantages associated with subscription-based businesses make this type of business model attractive to a wide variety of business owners.
