Subscription is not a new way to sell your products or services. But it’s a business model that in the past decade has taken the world by storm. The sustainability of subscription in a time of crisis could be your life saviour.
Subscription – The three Major Drivers
Three things in particular have helped to accelerate growth in subscribtion business:
- We decreasingly want to own things like cars, furniture, software, music, etc. Instead, we’d like to access these things through a monthly or yearly subscription. This gives us full flexibility in terms of being able to change as often as we want. As well as getting rid of all the disadvantages of owning: Binding of the money, services and welfare, flexibility, loss of value, etc.
- For more than 100 years, companies have made a living selling their products and services, and naturally the focus has been on sales. But going forward, you don’t sell by only shouting “buy”, but by creating relationships. When you succeed in creating long and deep relationships with your customers, you sell much more. The relationships are created by converting them from customers to members.
- The subscription models often provide members with great benefits in the form of: Convenience, discounts, services, inspiration, etc. But the companies have equal advantages in the form of: Greater growth, additional sales, greater customer loyalty, less sales and marketing costs and a stable and predictable flow in the form of the ongoing member payments. It is therefore a concept that is both a win for the members and for the companies. That’s why it’s strong.
Subscription Provides greater Resilience in Times of Crises
Subscription as a business model also provides greater financial resilience and resilience when crises occur. For example, the corona virus crisis in 2020. The ongoing automatic membership income ensures a continued cash flow in the subscription companies, even if all new sales stop.
The customers who have signed up for a membership do so with the long-term glasses on: They want to have a relationship with you and your company in the long run. If they experience a shorter period where they may not use their membership and thus do not get value from it, does not mean that they resign. Especially not if you’ve remembered to reward their loyalty. I.e. has given them more benefits the longer they are a member. No one wants to lose the benefits they have laboriously earned.
Should the crisis be of a duration so that members do not get value from their membership for an extended period of time, it can hardly be avoided that resignations take place. But the loss of revenue occurs much later and gradually. Not as in business models without a subscription, where a crisis can lead to 0 dollars in income from one day to the next.
Examples of Subscription Retailers’ Performance during the Corona Crisis
I am engaged in five subscription businesses as an investor. Therefore, I have seen first-hand how they are doing during the corona crisis here in 2020.
And given the scale of the crisis, it is very positive to see how well they are coping with the crisis. Many traditional businesses and stores have to close, scale down, send employees home or even lay off employees. “My” businesses are running pretty much as usual. A few have had their turnover reduced slightly, but not much. There have not been as many new memberships, but the automatic membership payments are ticking in as before, and there have been very few withdrawals.
One of the companies has even increased its turnover here during the crisis. And as one of the founders wrote to me the other day:
“We haven’t found it necessary to cut anywhere. On the contrary, we focus on continuing forward unabated, off the course that had been set: the world needs our subscription more now than in the past. And we are HAPPY that we converted to online teaching and subscription in time, so we can now focus on further development and sales.”
We are HAPPY that we got converted to online teaching and subscription in time
I think that statement very well describes how much it means to run a business based on a subscription model. Both in good times and not least in bad times!
Data Supports Robustness
88.6% of subscription businesses are growing or unaffected during the coronavirus crisis. That’s the conclusion of a new big analysis from ZUORA!
The analysis from ZUORA shows that
- 22.5% of subscription companies have had increased growth during the crisis
- 12.8% continue to grow but to a lesser extent than before the crisis
- 53.3% of subscription companies have had no significant change in their revenue
- 11.4% have started to see subscribers drop off
Previously, CEO Thomas Jensen from QuickPay, has delved into the numbers and has found that the subscription stores in Denmark are running steadily on: Member revenues are largely ticking in as they usually do.
We have focused on EFFICIENCY in the companies, but according to Niels Lunde from Børsen, ROBUSTNESS in the business is becoming an increasingly important parameter.
You can see the full analysis from ZUORA here
To learn more about how to create a succesfull subscription business, take a look at my Best Seller book. You can order it right here
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