Recurring revenue is a dream for many entrepreneurs. A subscription-based business can provide a lifelong income. But is your business right for this model, how long can it take to reach that goal and how do you reach it? These are some of the questions we will be discussing on today’s show with some experienced subscription model entrepreneurs.
The Model
Subscription-based business models aren’t new in fact they started in the 17th century with book and periodical subscriptions and newspapers have used this model for more than a century. But recently there has been an explosion of new businesses with this model whether that’s a monthly box subscription, a web-based software subscription, or your daily delivered meals. Now to find the right business you’ll want to look at industries that are static but could really use retooling especially if they could better help small businesses or consumers. Timing is also very important. You might have a great idea that will one day make a lot of money, but if you are too early and there isn’t a marketplace the business won’t survive.
It’s a marathon, not a sprint…
Building a subscription business is a long-term objective. You’ll need to find investors that are patient enough to achieve that objective because it will take five to seven years to get to profitability. You will lose money until you find the right formula to attract, acquire and retain customers. You will also need to make sure that your burn rate is right because if it’s too low then you aren’t going after enough customers and it will take much longer to become profitable.
Timing is also very important. You might have a great idea that will one day make a lot of money, but if you are too early and there isn’t a marketplace the business won’t survive.
The Right Customers
For subscription-based businesses, it’s all about the customer. Do your homework to identify your customer and the way they want your product or service. Pricing is an educational guess, but customers also want transparency in pricing and they want to know what they will get for their money. You need a gross profit margin and then you need to know how much it costs to acquire and retain customers. This will help you find your Ideal Customer Profile (ICP).
Listen to the full session above!