If you sell something your customers buy periodically, you have the perfect conditions to build a subscription business. Ignoring this opportunity could impair your growth and discount your company's value when it is time to sell your business.
Missed Opportunity: Tire Concierge
For example, last year we moved to Toronto where we need to install snow tires on our car every winter.
My wife discovered a local company called Tire Concierge (that's not their real name but I don't want to trash a good company so have disguised it) that offered to come to our house, remove our summer tires, and install our winter rubber. In the spring, they will reverse the process. It's a great service but they are missing one key element to their business model: we have to proactively call them every six months to arrange the swap.
Right now, we're loyal to Tire Concierge. They changed our tires efficiently for a fair price. But just because they do good work, it doesn't mean we'll stay loyal to them. We might choose, for example, to have our tires swapped out by the local garage if our next oil change happens to coincide with the beginning of a changing season.
If we saw a local company was offering a better price on a tire swap out, we may be tempted to try them. If I were handy (I'm not), I might even be tempted to try switching them out myself.
Locking In Your Customer's Future Loyalty
What Tire Concierge needs--and what virtually any company can benefit from--is a subscription business model, which locks in your customer's future loyalty.
For example, as happy customers, we would have gladly signed up for an annual subscription program from Tire Concierge if they offered to install our snow tires in the winter, store and maintain our summer tires, and reverse the process in the spring. By offering us a subscription, Tire Concierge would all but guarantee our future loyalty even in the face of other options. We would know that our tires were taken care of and remove the task of calling Tire Concierge from the list of things we needed to worry about every season.
I call this The Simplifier Subscription Model and it is one of the nine I've identified in the research for my new book coming out in February on the subscription economy. The basic idea is to think about your customer's "to dos" and offer to take a repetitive task off their list.
Protect Your Profit Margins
One of the main benefits of The Simplifier Subscription Model is that the customer stops shopping around on price. If we felt we were getting charged a fair price for our tire swap, we wouldn't even ask our local garage what they charge. As long as the Tire Concierge pricing seemed fair, the benefits of maintaining a hassle-free subscription would far outweigh saving a few dollars and risking an unreliable service.
From Tire Concierge's perspective, asking their customers to subscribe would have enormous benefits. I'm sure Tire Concierge is inundated with frantic phone calls on Toronto's first snow day every year. Most of us are busy and overlook important tasks until we experience the pain of forgetting.
When we forget to get the tires swapped before the first real snowfall, Tire Concierge gets backed up and likely overworks their installers just to meet demand. If they had their customers on subscription, they could smoothly schedule the tire swap before the snow starts in early November avoiding the need to overwork their installers and pay overtime to meet a surge in demand.
The Power Of Predictability
Tire Concierge would also be able to predict their business needs much more accurately. When you know how many subscribers you have, you can use the summer months to confidently train the right number of installers and buy the right number of trucks.
Not only will the predictability of a subscription business model lower your blood pressure; it will also juice the value of your company. Over at The Sellability Score we see a base of recurring revenue makes any business much more valuable when it comes time to sell.
If you offer a product or service customers buy on a predictable cadence, offering a subscription will not only make your customers happy, it will also make your business more valuable when it is time to sell--and a whole lot easier to run in the mean time.