It seems like everywhere you look, more and more companies are turning to a services subscription model. But before you make that leap yourself, make sure you’ve considered the following realities that could sink your business.
The Pros:
Monthly, predictable recurring revenue
This is any business owner’s golden chalice. To know what revenue you’ll have within a reasonable measure. This is the primary reason most companies in the services realm move to a subscription model. It allows you to foresee growth and plan for the future.
Gain simplified pricing for your customers
When you move to a pricing model such as a subscription, you have to take the complexity out of your pricing so its easy to understand. Not that you have to use flat pricing, but you need to make the levels or engagements very easy to understand so that your potential customer can see the right fit for them.
You streamline your business model
When you move to a subscription model, your services become more readily streamlined due to the predicable sales and services needed. You’re able to focus on how to deliver the same quality time after time and that makes your company run like a machine. This is attractive to everyone in the organization.
The Cons:
Not every service is meant for a subscription
Subscriptions work best in commodity markets. You see this when you look at the most notable names in subscriptions. From Netflix, all the way to the Dollar Shave Club, they are all pedaling commodities, or close to it. So, how does that reflect on your service, if you unwittingly pigeon-hole yourself as a commodity? Beware of how you are positioning your subscription that it does work as close to a commodity without becoming one. If it’s a custom solution every time, it might not fit.
You change the focus to price
It’s very easy to start to line-item the services to the monthly cost, and you wake up three months later to realize you’ve just de-valued all of your services because they are focused on cost, instead of value. If you offer subscriptions, you still need to maintain the value. Subscriptions need to be pitched as a “retainer” versus some kind of bulk discount on a commoditized service.
But what about premium memberships, or subscriptions?
Yeah, we are talking about services, not commodities. So the equation does change a bit. You can expect a different flair from the subscription for services versus commodities, but beware of the spiral. Many companies in your space will try to follow suit, and then your pricing becomes public, and then the price war begins.
To maintain the premium for your service, you still need better positioning than your competition. You must not focus on price, but on value and how you can only get it here. The subscription then becomes a vehicle for continued services each month.
