Business growth

Recurring payments: How to build a failsafe business with subscriptions

By Heine Aaen Hansen
On 08 March 2017

Okay, how about this:

You sit in the shade sipping G&T’s while your business makes money for you. You okay with that? Good. I thought so. Let’s look into how you achieve this. The secret is a little thing called recurring payments.

You’ve probably heard of the so-called subscription economy. Basically, it’s a business model in which the customer pays a recurring fee for a service or product. The fee is paid automatically each month (or week or year – depending on the business), and thus, the business has a steady revenue from its members (or subscribers).

Think about Netflix, Spotify and similar streaming services. These companies are the embodiment of the subscription economy.

But wait a second. Is subscription exclusive to software companies?

Not at all, buddy.

You can sell everyday consumer goods on subscription as well.

The only criteria (I’d say) is that the product is something your customers will need in a new supply on a regular basis.

This could be coffee, books, toothpaste, socks, pet food – anything goes.

Lately, a number of companies have achieved success selling precisely products like these.

Let’s take a look at what you need to do to start a successful subscription company.

Here are three steps to ensure your success.

1. Find the right product

Obviously, you need to find out what you want to sell. 

And as I mentioned above, nothing is off limits: As long as it’s something your customers will need on a regular basis.

Now brainstorm. Think. Find your niche.

Also, you might want to take into account the weight of your product as shipping prices increase with more heavy products.

2. Decide on your pricing strategy

When you’ve found your product, you need to find out what to charge. 

Now, this is no easy feat, but here are two key aspects to note:

Offer different packages for different needs
People are different, and if you have only one price package (the one-size-fits-all strategy), you risk turning off potential customers who are interested, but find your prices too steep. 

You have to put your customers in control. Let them pick a price package that best suits their needs.

And don’t forget that you can apply other parameters than price. For instance, you could let your customers decide on the quantity and frequency of delivery.

Make an expensive option for anchoring
No matter what price you decide on, always – always – make a more expensive option.

The reason?

When there’s an extremely pricey option, your less-pricey options will look cheaper to your potential customers.

This is due to a cognitive bias called the anchoring effect, which describes the tendency to rely too heavily on the first piece of information offered when making decisions.

In short, this means that your first perception affects later perceptions and decisions. First impressions last.

(This psychological effect is also the reason you should present your packages in a way so the users see the expensive offer first – e.g. by placing the expensive offer on the left, and the cheaper options gradually towards the right.)

Even when you find your ideal price, keep your expensive option to make your ideal price appear more affordable.

3. Listen to your customers

Your goal is to keep your customers for the long term. You want loyal customers, not customers who leave after a few months.

For this reason, listening to your customers’ needs and creating loyal customers are crucial parts of running a successful subscription company.

A few ideas on how to create loyal customers: 

Keep a public roadmap
Keep a public roadmap where your customers can propose new features and vote on coming features. By letting customers have a say in which features you introduce, they’ll feel included and appreciated.

Deliver new features automatically
When you add new features automatically, your customers will feel that they are getting more and more value for the same amount of money.

Give up control
Let your customers control their own privacy and identity settings. Show them that you care about their security. 

Provide excellent customer service
Customers are not loyal. A study from 2010 showed that 3 out of 5 Americans were willing to try a new brand or company in order to have a better service experience.

Give something extra
Did you notice it when you received a parcel from an online store that included sweets? I know I do. They gave me a little extra something, and I – consciously or not – feel a bit more positive towards the company. This is called reciprocity. Use it. Give your customers something extra. Some would call this a gimmick. I know. But it works.

In essence, listening to your customers is all about giving your customers a voice and making them feel valued. 

If you manage to do that successfully, you’re destined for greatness. 

Then what?

Now comes the technical, boring part. You know, enabling your system to handle recurring payments and all that.

For now, let’s sum up the three first steps in starting a subscription company: 

  • Find the right product
  • Decide on your pricing strategy
  • Listen to your customers

That's it for now. Want more tips on payments and business? Head over to Facebook or Twitter and join the dialogue.

Heine Aaen Hansen

Marketing and content at Bambora. When not writing, I'm reading. Book aficionado, word nerd, and helpless dad.

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