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Is it really possible to incorporate a recurring revenue model into any business? We explore that question in this article, as well as the winning strategies you should implement once you’re there.
This article is for you if:
- You’ve done your research and know subscription business models are lucrative
- You’re considering diving into the subscription economy head-first.
- You’re skeptical about if there is a way to incorporate a recurring revenue model into your business and want to see examples of seemingly unlikely companies that tapped into subscriptions.
- You want insight into the best practices that will give your subscription endeavor the best chance at success.
What is a Recurring Revenue Business Model?
If you’re a business owner, you already know there’s a lot of buzz surrounding the subscription economy. There are several online data resources that make a compelling case for continuous, predictable revenue (Zuora, eMarketer and Statista are just a few of them).
For some industries — like software and streaming — a recurring revenue model is a natural fit. But what if you don’t fall into a typical subscription business category?
“I truly believe nearly every business can build a subscription within their brand,” he said, specifically pointing to landscapers, restaurants and auto mechanics. (We will continue to reference the episode throughout this post, and we highly recommend you tune in and listen to the valuable information presented).
Now, let’s dive into some examples of some tried-and-true recurring revenue business models.
6 Types of Recurring Revenue Business Models
The Subscription Box
Razors, groceries, dog treats, makeup — it seems there is a subscription box for everything these days. And the companies behind them are enjoying an ongoing stream of recurring revenue. The subscription box’s growing popularity makes it one of the best recurring revenue business models.
With memberships, a recurring membership fee is exchanged for a product, service or exclusive perks. The cost is be monthly or annually in most cases. Costco, Uber One, Amazon Prime and fitness clubs are all examples of membership-based businesses.
Subscribe and Save
Subscribe and save is a feature some businesses, like Amazon, offer. It’s when a business offers a discount to someone who subscribes to receive products in scheduled intervals. One-time purchasers pay a higher price for items than those who receive the same items on an automatic schedule. This is enticing for customers who purchase the same items time and time again.
Media and Streaming Subscriptions
Subscription-based media is delivered through print, broadcast and online. While publications were the first businesses to offer media subscriptions, Spotify and Netflix are examples of online recurring revenue business models that charge ongoing rates for digital media.
App stores are full of digital subscriptions. Technology has paved the way for solely digital companies like ride sharing and digital training platforms to emerge.
Software as a Service (SaaS)
SaaS vendors like Adobe license software through a cloud recurring revenue business model. In the old days, computer software was purchased and installed on a computer. Now, SaaS companies provide access to a product via a cloud network.
4 great examples of companies that took an unexpected turn into subscriptions (and why you can do it, too)
In recent times, even the most seemingly unlikely businesses have rolled out unexpected subscription offers, proving that incorporating a recurring revenue model is possible in virtually any industry. All you have to do is get creative.
From fast food to sports to the airline industry, many businesses are finding their place in the subscription economy. The following five brands are great examples of businesses that disrupted their industries by offering out-of-the-box subscriptions.
In 2019, fast-food chain Burger King announced its new coffee subscription service. Dubbed BK Café, subscribers are able to sign up in the restaurant’s smartphone app to redeem a daily cup of coffee for $5 per month. During the SUBTA podcast, George praises the fast-food chain for its out-of-the-box approach to subscriptions, pointing out that it gives people a reason to visit the store. While there, it is likely they will purchase a breakfast sandwich or other menu items.
The Oakland A’s, a minor-league baseball team, found a way to tap into recurring revenue in 2017. They are another business George called out in his podcast. For $19.99 per month, fans could purchase the A’s Ballpark Pass that allowed them access to every regular-season home game at the Oakland Coliseum.
The A’s didn’t stop there. In 2019, they updated their subscription offering to include assigned seating and the ability to congregate in coveted social spaces (such as The Treehouse). As an added perk, members also receive discounted concessions and merchandise.
There is a place for recurring revenue in the commercial airline industry after all. Flyline began offering two annual membership levels that help people save time and money when booking flights. The company’s specialty is finding the best rates on one-way flights from different airlines to give customers the most economical round-trip scenario.
At $49.99 per year, the basic membership offers travelers flight searching/booking, automatic check-in, a maximum of six bookings and deal alerts. The premium membership, priced at $79.99, offers the same perks but comes with unlimited booking and the option to add a companion account.
Access by BMW, BMW’s luxury vehicle subscription service, exclusively serves customers in Nashville. The service includes three monthly tiers (ranging from $998-$2,699) that give customers a variety of models to choose from. The vehicles are cleaned and delivered by a concierge and can be swapped out any time.
BMW is just one of the many car brands that have embraced subscriptions in addition to traditional leases — including Cadillac, Ford and Mercedes Benz. Enterprise Rent-A-Car also offers monthly subscriptions in certain states.
On the surface, the industries above don’t scream “subscription-centric.” However, their solutions make so much sense that you are probably asking yourself, “What took them so long to jump on board?” Now, it’s time to put on your thinking cap and start brainstorming your new recurring revenue model. If they can do it, so can you.
Best Recurring Revenue Business Model Strategies after Joining the Subscription Economy
Now that we’ve discussed some different types of subscription models and companies that have leveraged them, it’s time to think about recurring revenue business models strategy. The following are proven value drivers in recurring revenue business models. Prioritizing them will set you apart as a subscription business.
1. Have an upsell strategy
Upselling is an art, and it is something you can master if you implement the right techniques. The reason upselling is so important is because there is a 60-70% chance your existing customers will buy from you (compared to a 5-20% chance that a new customer will). There are many ways to upsell, including offering upgraded products or cross-selling complementary items.
One of the best ways to win at upselling is by choosing an e-commerce platform that comes equipped with cutting-edge product recommendation technology. Our favorite is Magento because product recommendations are powered by an advanced artificial intelligence engine called Adobe Sensei
Optimizing your online shopping cart is another way to supercharge your upselling strategy. Learn about four ways to do that in our previous blog post.
2. Explore Loyalty Programs
A good subscription strategy gives priority perks to recurring buyers. After all, who better to reward than those who are already doing business with your brand? Give customers a reason to continue indulging in your subscription services by offering them exclusive deals.
It is known that recurring revenue models already increase customer lifetime value, but loyalty programs are a smart strategy for keeping them around even longer. If what you’re offering is stellar enough, your patrons may even recruit their friends. In our previous blog post about customer loyalty, we give stats from the Bond Loyalty Report to back this up the impact loyalty incentives can make.
- 73% of consumers are more likely to recommend brands with good customer loyalty programs.
- 78% are more likely to continue doing business with companies that get it right in this department.
- 66% of consumers modify their brand spend to maximize customer loyalty benefits.
- 65% of Gen Z and Millennials are highly influenced by customer loyalty programs.
3. Get (and stay) organized
As your business grows, so will the responsibility of keeping up with orders, payments and shipments. If you let any of these areas slip, be prepared to watch your customers churn right over to the competition. Investing in robust subscription management software is a must, but you have to find one that meets your unique needs. Our previous blog post shares what you should look for and the questions you should ask when shopping for subscription management solutions for your business.
How to be Successful with a Recurring Revenue Business Model
The best way to be successful with a recurring revenue model and to boost monthly recurring revenue is to know your customers on a deeper level. It’s so important, in fact, that we have called it out into a separate section (rather than lumping it in with the items above). If you want to be wildly successful with your recurring revenue model, you must understand that the subscription economy is also the relationship economy.
One of the best ways to get to know your customers and truly understand their needs is through customer relationship management (CRM) software. CRM implementation has been a game-changer for many businesses.
Our top CRM pick is Salesforce because it provides a valuable 360-degree view of every single customer. By collecting data throughout their journey with your brand, Salesforce generates a snapshot outlining every interaction a customer has had with your business over time. This includes details like emails they have received, products they have purchased and deals that are on the verge of falling through.
Putting the customer at the center of absolutely everything is essential to subscription business success. Leveraging CRM technology puts companies at a big advantage in this department because they are able to quickly access key information that enables them to personalize interactions. More than ever, today’s customer must feel heard and understood.
Investing in a well-rounded business strategy is well worth your time, and you must think long-term. Having a recurring revenue model will not only keep profits ripe in the moment, it has the potential to pay off big time in the event that you sell your company.
George pointed out how businesses that have a recurring revenue model are actually worth more than those that don’t. He explained that MVMT Watches, a non-subscription business that generated $71 million per year, sold for $100 million. Compare that to the $200 million a year subscription-based Dollar Shave Club, which sold for $1 billion. The drastic difference in business valuation is attributed to the fact that subscription businesses are bringing in a continual stream of recurring revenue.
If you’re still not convinced a recurring revenue model is possible for your business, why not run your thoughts by an e-commerce expert? PowerSync loves to help businesses craft individual strategies built for endurance. Schedule a risk-free, complimentary consultation with us to learn more about what’s possible.
We’ve touched on six of the best recurring revenue business models in this article. They include subscription boxes, memberships, subscribe-and-save, media and streaming, digital subscriptions and SaaS.
The first thing that needs to happen is a great idea. Can you glean inspiration from the four businesses mentioned in this article? They each found creative ways to fit into the subscription economy.
If you’re still unsure, schedule a risk-free conversation with one of our ecommerce experts.
Only you can weigh the risk and rewards of transitioning to a recurring revenue business model, but we hope the insight presented in this article helped open your eyes to what’s possible.