Jesse Richardson
As a business owner, you often talk about your revenue coming from your customers – the people who purchase your product.
In a traditional sense of the word, “customer” doesn’t imply much more than that: a person who receives your goods or services in exchange for monetary or some other form of compensation. Little more is suggested here than a one-time purchase. Depending on your business, these can be normal consumers, businesses, or even government. Understanding who your customer is, in this sense, is mostly similar to the discussions we’ve had in the past.
But for subscription businesses, your customer means something more. A customer in your case is actually better described as a “subscriber.” Here, the single event of purchasing is replaced with a recurring set of purchases, based on a set schedule defined by your business. By and large, subscribers are much better to have than customers.
A Run-Down: Differences Between the Two Classifications
Let’s start with a breakdown of what makes these two classifications important to understand: it’s not just verbal word play.
What Are Customers:
- A single-purchase makes someone a customer by definition
- Less of a commitment for the buyer
- Customers who purchase repeatedly over time can be harder to track. In effect, Lifetime Value (LTV) can become muddier, putting more emphasis on total company revenue vs. individual customer value
- Difficult to assess demand
- Inherently fewer interactions with customers, and widely differing “types” of customers may be identified
- Fewer interactions means less chance for brand loyalty
The takeaway: Customers usually mean lumpier revenue that is harder to track, with customer-brand relationships that have fewer opportunities to grow loyalty. When it comes to valuation, businesses that primarily, or solely, work with one-time purchasing need to use specific financial tools to understand the value of their company. Cash flow, profit, and accuracy of projections become some of the most important assets of your company. These determine your company’s value. Even if you aren’t looking to be acquired, these become the instruments by which you understand your business: what is the year-on-year cash flow, at what margin, and by what growth?
What Are Subscribers:
- Subscribers sign up for recurring, automatic billing scenarios (this means repeat purchases are inherit in their definition, or at least more likely)
- Encourages commitment early on
- Easier to track and project LTV; easier to include these calculations in company value
- Easier to assess demand, with a smoother revenue schedule
- More opportunity to interact and assess your types of customers
- More opportunity to increase loyalty
The takeaway: Subscribers add stability in many ways. Businesses that primarily have subscribers as their customer base are able to leverage this phenomenon as an asset. Revenue, growth, and retention (aka, the how long the subscriber stays on board) because reinforced with hundred, or thousands, of data points. This allows you to craft more meaningful, data-driven valuations based on behaviors that are easily demonstrable – we have X many subscribers recurring on X schedule, with only a X% churn rate each month. Again, even if you’re not looking to be acquired, this makes forecasting growth and your businesses longevity profoundly more stable and understandable.
Subscriptions Are (Mostly) Easy to Start
With subscribers offering compelling advantages over the traditional customer, it’s a smart follow up question to ask: How can I start to get subscribers for my business?
With solutions like Cratejoy, it’s fast, simple, and straightforward to build a powerful subscription business. Even if you have an existing product offering, you should consider integrating subscriptions as part of your business. You can create a novel experience, using the mission and theme of your products to create a unique subscription, or you can simply enable your customers to get their product on auto-delivery.
Not much is needed to start gaining subscribers. Here are some simple, big picture things to consider:
- Billing and Shipping schedule: Make it clear to customers when they’re getting their product (do they choose the date, or do you batch process subscriptions once a month?)
- Customer Expectations of Experience: How is this different from your regular product? Are you providing smaller versions of your products to be sampled? What’s the new value proposition?
- Automating and thinking through your new customer service funnels: Make sure your team know how to manage subscriptions and handle new requests.
It’s also suggested you get crisp on the Key Performance Indicators (KPIs) for subscription boxes, some of which we touched on above. Soon, you’ll find that integrating subscriptions into your existing business model, or starting a new subscription business, is a rewarding endeavor.
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