A Chinese wisdom states: When is it a good time to plant a tree? 25 years ago.
What is the next best thing? Now.
If only we had started this business 25 years ago, there would be a beautiful tree now. But because we don’t want to wait any longer, we are doing it NOW.
And in fact, we had already unconsciously begun, over 25 years ago, to build up knowledge and experience. Those who worked in telecom, energy or media found subscriptions normal and thought no more about it. We come from the world. And we do think about it now.
But if you work in logistics, finance or culture, it is less obvious. Indeed, there, the regular model is based on transactions, on selling single products, a one-off order or ticket. Each time, a one-off transaction is made with a customer, and then the hope is for a new transaction. If it doesn’t happen, the revenues dry up, it’s as painfully simple as that. Wouldn’t it be nice to have a revenue stream that comes back every month? One that is predictable and takes away your worries as an entrepreneur?
Innovate your earnings model
Whoever starts this development of subscriptions now will be the winner of tomorrow. So it’s not about adapting your products, it’s about innovating your revenue model. Yes, that too is an innovation.
We are talking about subscriptions, rentals, leases, memberships. All forms in which the returns are periodic and repeatable.
Advantages of the subscription as a revenue model
We have already said that predictability of income is very nice for an organisation. The recent Corona crisis has made this painfully clear once again. Companies sometimes saw their customers, and with them their revenues, fall sharply. We list the most important benefits here:
1. Predictable income
Start each month with a fixed base of ‘recurring’ subscription income. Certainly now that it has become apparent that income from individual sales can disappear at will, recurring revenue is a blessing for organisations. Of course, subscriptions can also disappear, but usually at a much slower pace so that a decent basis remains for a long time.
2. More value for customers and by customers
Customers experience added value from attractive subscriptions and are often open to cross- and upsell offers. They may also want to use the cost of their subscriptions and make additional purchases. An example is Amazon Prime.
3. Higher appreciation of your company
Investors and investors value companies that generate predictable revenue from subscriptions, i.e. recurring revenue, 3 to 4 times higher than traditional transaction-driven companies, and this can even be a factor of 8.
4. Higher customer loyalty
Customer loyalty is not a matter of course with subscriptions, but it is ‘ingrained’ in the model. Whereas a webshop must work hard to keep customers coming back, this is not necessary with subscriptions. You still have to manage your customer turnover (churn).
5. Higher marketing efficiency
The Customer Acquisition Cost (CAC) is more easily recovered with subscriptions than with individual transactions, due to the often much longer duration of the customer relationship.
6. Continuous ‘market research’
Subscribers are continuous users and provide valuable information. Based on user data and feedback from your subscribers, you constantly listen to the needs of your best customers and learn more about those needs.
7. Sustainable and circular
The latter is an important one, because if we can contribute to sustainability and a circular economy, we are really working in a future-oriented way. Think of the shift from possession to use. A subscription to: light (so you don’t have to buy lamps), to driving comfort (and not buying asphalt) or protection of your car instead of buying paint.
A nice list of advantages. Of course, as in any model, there are also disadvantages. These will be discussed in another blog and the measures you can take to remove the objections or even turn them into advantages.
B2B market is promising
This decade offers the greatest opportunities for the business market. A subscription is not only something for consumers, it is actually promising between companies. Here, too, the established model of one-off transactions will shift to new service concepts based on subscriptions, rental, membership or (operational/financial) leasing.
But the main reason we are starting this business and want to help other companies is that we believe this is an extremely powerful new model. We get our energy from looking and thinking so differently that we see new opportunities for your organisation. Even if you think “no, can’t do it here”, we get excited and like to look for a possible form of recurring revenue.
We help you to think up, develop and set up new concepts. Services that ensure recurring turnover, greater security and enlightenment.
Let’s plant that tree together!
Auke van Stralen
Auke has been developing services for long-term subscriptions and contracts for over 25 years. He has done so in various management positions for listed companies in telecom, energy and waste. He continually strives to add value, so that both clients and companies benefit.