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Why Companies are Adopting Subscription Billing Models

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Volvo recently announced they will make their cars available on a subscription model
where consumers will pay one fixed fee per month for access to a car which includes
insurance and maintenance.

Everything from toothbrushes to flowers are now available with subscription billing.
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’s too rotten to sell.

    At H.Bloom, a subscription-based flower company that sells flowers to hotels
    and spas, say 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’s 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 On 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’s how Netflix knows which new shows to produce and
    which to kibosh.
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