Key Benefits of Subscription-Based Business Models for Entrepreneurs

Key Benefits of Subscription-Based Business Models for Entrepreneurs

Have you ever wondered how easy it would be if you can make one thing and profit off of it for the rest of your life? Sounds like something a 10-year-old would dream of in order to not work for their entire life so they can waste their time playing Call of Duty. But no, it is not a fever dream, we see this business model in every aspect of our life. This business model is called SaaS( Subscription as a service). Autodesk, EA, Netflix, Amazon prime, you name it, everyone is doing this business model and they are killing it. The returns they offer are theoretically infinite.

The subscription-based business model has been of tremendous use to entrepreneurs of recent era, due to its simplicity. But it has its own fair share of troubles, like all business models.

Recurring Revenue

Due to its nature, you already have a finished product and the consumer has to renew their rights to use it every month/Quarter/year. Financial predictions can be drawn up easily based on the number of active subscribers they currently have. It is like a student capitalizing on their grade from the one homework they did at the start of their year and it’ll carry them for the rest of their year. This model ensures stability for the business

Customer Retention

If a customer is satisfied with the products they got from the same store for more than three visits, the chances of them being a long-time customer are high, it’s the same with subscription-based software/products. It is very common to see someone being a long-time user of Netflix or Amazon prime video, or a graphic artist a long-time subscriber of Adobe Suite. These products have cemented themselves as the best in their industries and people are willing to pay the price to keep them, while the companies can reap the return on investments for a product they potentially spend decades to develop and streamline.

Less Customer Acquisition Cost (CAC)

Ask yourself, would you pay $10,000 to own something, or $15 a month to use it every month. The latter is obvious. It is harder to sell a $10,000 product for permanent ownership rather than to sell a $15 product for a month. This business model lowers the customer acquisition cost, it is easier for them to market the second option, rather than the first option. Consumers are increasingly sceptical of spending things to own a product they may use for a year or two for a full price, so they opt to use it until the duration of their need.

Feedback Loop & Expansion

This model allows entrepreneurs to stick to a single product and can develop it over years while maintaining an inflow of income from said product. They can better the product from the input they receive from longtime users of the product. This allows them to live service and release updates over and over bettering the product with every update. This subsequently results in a growing audience base, which is relatively easier to work on compared to developing a new product from scratch.

Reduced Inventory

As we all know, this model is mainly used in software-related products. There is no physical inventory needed and the costs of this are drastically reduced. There is no storage required for Game CDs. No warehousing or logistical costs. No transportation costs. All the purchases are done online and they have to invest additionally for a cybersecurity infrastructure. This is relatively less compared to the physical real estate costs.

This model of late has received the wrath of the consumers. This has eliminated the concept of ownership, which has been abused by corporate, they have monopolized the market and are marking outrageous prices, and prices are getting hyperinflated. And most products are not witnessing any updates and are still given outrageous price hikes. This is seen as an abuse of existing customers. Though this model has been a good revenue source, the consumers feel cheated.