Increase Customer Lifetime Value with Subscription pricing
Subscription-based pricing involves customers committing to recurring services and receiving the product or service at regular intervals. Some of the famous examples of subscription service businesses are Netflix and Birchbox.
Subscription pricing model is increasingly gaining popularity. According to a study by Gartner, by 2023, 75% of the companies selling direct to customers will offer subscription services.
One key reason why an increasing number of businesses are adopting the subscription model is that it boosts the AOV (Average Order Value) and extends LTV (Lifetime Customer Value). This, in turn, has a compounding impact on their revenue.
According to a recent study by Compass, companies with lower average order values gain the most from the subscription models. It was found that LTV was:
- 1.78X higher for an order value of less than $25
- 1.61X higher for an order value between $25 and $50
- 1.44X higher LTV for an order value between $50 and $75
- 0.85X higher LTV if the average order value was over $75
Here are 4 ways in which the subscription model boosts your CLV (Customer Lifetime Value) and Revenue:
1- Increases Loyalty
Subscription pricing offers convenience as well as personalization. The subscription revenue model is not only convenient for businesses but customers also.
No doubt, it’s easier to convince people to pay small amounts in installments than large upfront payments. Not only does it save the extra hassle of visiting the store, but also paying in cash every time.
The subscription model allows you to create personalized payment plans for different customer segments. With Subscribie, you can easily create private pages and make them visible to your subscribers only. This gives them access to a piece of exclusive information once they subscribe.
With customization and personalization served at their doorstep, it’s highly likely for them to stick to the brand.
Subscription services allow your customers to “set and forget” a recurring order based on their needs.
2- Attracts Investors
For businesses, having predictable revenue can be elusive.
However, if you’re looking to grow your business, you might be seeking investors’ help. Having predictable and recurring revenue becomes imperative in such cases.
As against one-time transactions, the subscription model provides your business a healthy ARR (Annual Recurring Revenue) which is often referred to by investors while assessing the health of your business. ARR also enables you to plan your expansion and expenses ahead of time.
3- Provides Upselling and Cross-selling opportunities
'Out of sight is out of mind' couldn’t be more true for one-time payments. Often, the customer pays and walks away, shutting the door for any future business transactions behind them.
The subscription service business allows you to provide opportunities for customers to upgrade or purchase add-ons. The subscription model helps you to gain their trust and open the doors to an incredible amount of investment they could be making with you with upselling and cross-selling opportunities.
4- Shifts the focus on customer relationship
The subscription model allows businesses to focus more on providing compounding value throughout their customer life journey.
It allows businesses to shift their focus from 'one-time transactions’ to providing a seamless customer experience that goes beyond the product and the core offer. It helps in building long-term relationships and reducing churn rates.
Conclusion
The subscription model is more than just a payment method. It builds a pool of loyal customers for your business. We already know that acquiring a new customer can cost five times more than retaining an existing customer, it becomes imperative to hold on to our customer base. Increasing customer retention by only 5% can increase profits from 25-95%. And a subscription model is a great way of doing that. Agree?
If you have any more questions about how to create a subscription website please visit Subscribie.