Learn how to create recurring revenue in your business with subscriptions. Subscriptions help you scale faster and increase future business revenue and profit.
This guide will give you all you need to know to start adding recurring revenue to your business through subscription products and services.
Written by Onder Hassan & James Dyson
Published 26th May 2021
Would you like to add a highly lucrative income source to your business?
It’s a question that I'm sure many business owners will give a resounding Yes to, and one that many of us entrepreneurs will chomp at the bits on to know the answer.
If you’re reading this guide, then by the end of it, you’ll not only have the answer but will also be well equipped to start a recurring payments model yourself. Adding recurring payments to your business means you'll be on the way to building a highly successful business of your own that makes you revenue both profitably and predictably.
Now the last word “Predictably” provides a hint as to what this business model is…
… We’re talking about ‘Subscriptions’.
Subscriptions have been around in business for decades, ranging from traditional print, gym memberships to now modern day monthly rolling Internet & Mobile Phone contracts.
And it is quickly developing and transforming into more mediums...
environmental changes forcing more and more businesses to go digital.
Subscription based online coaching is fast becoming the de facto
business model for many.
It has proven to not only keep businesses afloat, but is also becoming a serious model to consider and continue using moving forward.
In short, the reason for its growing popularity is the predictability and sustainability it offers.
If you’ve ever sold a product, then selling to a customer for the very first time can be difficult and even more so when having to do it consistently when acquiring new customers.
Wouldn’t it be great if you were able to sell once only to continue getting paid month in, month out?
There are many benefits to this and why subscription-based businesses continue to evolve with no signs of slowing down.
Here at OptimizePress, we’re completely aware that you’re here to make sales or at the very least look to start a business and build something as close to having your own money tree as possible… Yes, the hype is real.
So this guide aims to provide you with a detailed overview of what subscriptions are, how they work and to break down exactly how they can benefit your business.
We will also provide you with a list of examples to use as inspiration to help you get started.
In short, a subscription is generally any offer that requires a customer to pay continually, whether it's daily, weekly, monthly or yearly.
Whether you're an established business owner or are just starting out, you will very quickly realise it is not always easy to get a prospect to buy from you the very first time.
And this is especially true when building a business from the ground up, where you start with little or no audience. As mentioned earlier, it takes a lot of time, effort and resources to make things profitable.
But you're probably wondering if it can be challenging to convert a customer into a buyer, then surely getting them to part with their cash every month would be just as (if not) more difficult?
Logically, this may appear so, but if you consider the modern trends of most businesses offering subscription payment plans, it's quickly becoming the norm for many customers and not out of the ordinary.
The growing trend of businesses using or switching to recurring payment models only helps educate your buying audience further.
According to a survey by McKinsey & Company, 46% of customers already pay for a monthly online streaming service, and 15% have subscribed to an e-commerce service within one year of the survey.
One of the companies at the forefront of the recurring payments buying habit is the popular TV streaming service Netflix.
Netflix made the process of purchasing a digital service subscription into an everyday thing.
Once they proved the pathway for large scale public adoption, more and more digital subscription business began to appear.
It is said that Blockbuster video (the once-thriving VHS tape business)
passed on the chance to acquire rights to Netflix, resulting in their eventual downfall. I bet they regret that decision now.
Suddenly, paying a small monthly fee for the privilege of having live access to a range of movies started to become the industry norm.
With the endless range of businesses that now use the subscription model, it's clear that subscription-based businesses are here to stay, and that's great for us as business owners.
It means predictable income on a monthly/yearly basis and freeing you from the need to keep obtaining new customers, allowing you time to focus on what matters most - promoting and building your businesses.
As mentioned, subscriptions provide a more predictable income, which will help you budget and plan ahead in your business.
But you may still be on the fence about starting a recurring payment business model yourself...
So what makes subscriptions so powerful? Here’s a few things to consider...
Now granted, there’s clearly no one-size fits all as all businesses will be different. But the question of whether subscriptions will be suitable for a specific type of business is slowly blurring as new types of subscription mediums are introduced.
It’s now simply a question of creativity and thinking outside the box.
With the continued shift to online purchasing and communication, many traditional business models are being disrupted with the introduction of new subscription-focused business models.
As you start to look around you at the businesses you purchase, you'll begin to see notice more and more subscription elements to their business models.
Here's a few examples of shifts to online subscription models:
Never run out of razors any more. With startups like Dollar Shave Club, Harrys and The Beard club you can now get regularly delivered refills for your razors and other male grooming products delivered direct to your doorstep on a monthly basis.
Businesses now need regular graphic assets for social media, blogs and other online content. With this increased demand, services like Design Pickle have sprung up to offer graphic design services on a subscription basis.
Put simply, there’s never been a better and easier time to start a subscription business than now.
To help put things into perspective, let's look at some hypothetical figures.
Let's look at selling a typical one time payment product first.
If you were to sell a small $20 product for a one-off payment, for example access to an online course, or small digital product.
Let's be conservative and say you sell 2 products per day - this would roughly mean 60 sales per month.
In this example, you'll see below that you'd earn around $1,200 per month selling that one-time product. Obviously not a bad income for your business.
The important thing to note here, is that assuming you don't start making more than 2 sales per day, your income would be stuck at $1,200 per month...
As you can see in this example - your revenue after 12 months would be around $14,400 total for the year.
So now let's look at what happens we took that $20 product and turned it into a monthly subscription.
If you sold a $20/month subscription and made the same 2 sales a day, you could potentially earn a small fortune in your first year.
“How?!” I hear you ask.
Let’s break it down… (don't worry if you're not a stats person - we've tried to simplify the numbers here 🤓).
As you can see - the compounding effect of subscriptions over the year amounts to a significant growth in your end of year revenue.
This example clearly illustrates the difference to your business if you can create and sell a subscription product, or add a subscription element to your product pricing.
With just 2 x $20 sales per day - approx 60 sales per month, you'd be able to grow a business generating over $90,000 ARR (annual recurring revenue) within 12 months.
For full transparency - it's worth noting the example above does not account for churn (this is where people cancel their subscription).
Churn rates vary, but on average, churn rates are between 3-5%. The example above with 5% churn would leave you with around $89,640 for the year - still a huge leap from $14,400 with a one-time sale product.
At this point, you may be gasping whether all of this is really possible.
Even if you managed only 1 subscription per day at a $20 price point, if all things being equal, that would still make you $46,800 by the end of year 1…
Now of course, this all assumes that you’re able to maintain a steady stream of sales, and do not have higher than average churn, but this gives you a real illustration of how a subscription business model can work.
It’s really no surprise why more businesses are now adding subscriptions to their offering versus one-time products.
Now that you've seen the potential of building a subscription business, it's time to look at the types of subscription business models available.
In this section we'll break down the different business models you can consider for your business.
For each business model, we'll share recommendations on:
Who this might be best for: We'll share our thoughts on who this business model might be best suited to. This will help you refine the best business models for you to consider.
Tech Stack Recommendations: We'll look at what software or tools you might need and how you might consider implementing this business model from a technical standpoint.
Note: We're covering a wide range of subscription business models in this section, and many will not apply to your business. Try to focus on those which fit best with your existing business (if you have one) or your expertise.
Let's get started with the subscription business model types.
There are a range of membership site formats available if you're planning to create a membership to sell your content online. We'll cover them individually below:
If you're selling training online, one of the easiest and most popular formats for your selling your content is a membership site using the "Library" format.
This is a collection of all your training courses, videos, recordings and other content, organised into an online "library" that subscribers pay for ongoing access to.
This is sometimes referred to as the "Netflix" membership subscription model as you're selling continued access to a wide variety of content that a subscriber can pick and choose the content they want to consume each time they login.
If you have a digital training business that sells digital products, then this may open up options to sell a monthly membership on a premium area for paying members to access more exclusive content and training.
- If you have a range of courses already created and want to sell access to all of your courses or content through one membership. This works well if price your membership to encourage subscription to the membership rather than buying individual courses.
- If you have a successful physical product brand and could complement this with digital training. Alo Moves (example above) have done this successfully with their yoga training library.
- If your content is mostly video training, this membership format works well as the visual nature of videos can encourage consumption.
- If you're using WordPress, you can easily create your membership library using a page builder like OptimizePress. Videos could each have their own page, or could be loaded in a popup video modal.
- You'd need to protect your content with a membership plugin like WishlistMember.
- Create your checkout process to setup your subscriptions with OptimizeCheckouts.
Another membership site business model you'll likely be familar with is the "Publisher" model. This is a membership which contains regularly updated content (sometimes on a daily, weekly or monthly basis).
This content could be in the form of new training videos, business ideas, stock tips (like the example from stock trader Tim Sykes below), or any other content that is regularly updated.
You'll usually still get access to some kind of membership "hub" where the regularly updated content is published and accessible. You will also often have a library or archive of other previous content you can reference which provides an additional benefit to the membership.
As the creator of a Publisher model membership site, creating regular content not only keeps your members happy - but also builds out your archive which makes the membership even more appealing for new members.
- If you are great at regularly creating new content - perhaps you're a Youtuber and want to sell access to premium videos on a weekly or monthly basis.
- If you don't want to create a large amount of content up front. You can start your membership with just a small amount of existing content (perhaps 1 months worth or even less depending on the niche and time sensitivity of the content).
- Creating a membership site utilising the membership model can be as simple as a one page which is gated from public access. You can create the page with a page builder like OptimizePress.
- To accept payment for your subscription, you can use OptimizeCheckouts or a similar checkout platform
A community membership site focuses on creating an online space where people with a common shared interest can connect with each other. Most successful online communities provide some exclusive content and training, exclusive discussions, interviews or provide access to an authority leader through their interaction in the community.
Growing a successful community can take time and dedication, but once established, communities can have a great "stick rate" (low churn) due to members being fully engaged with their new online community which forms a soft of "support group" with friendships fostered within these groups.
Communities might also combine features such as access to specific training, tools, resources, discounts or live training sessions (e.g. weekly webinars for community members).
- if you're a thought leader or influencer in your market and have an existing audience. Monetizing it with a paid community can work well.
- Facebook Group (free): You could use a Facebook group and manually add customers after taking payment on your website via a checkout using OptimizeCheckouts. You have less control with Facebook groups and always risk Facebook removing your group without notice.
- Community Platforms: There are a wide range of modern community platforms. Circle has been gaining popularity as an easy to use alternative to Facebook groups.
The old way of monetizing a blog was to stick a tonne of ads on it and hope for the best. Ads are now not only the least profitable option, there are also far more smart, less intrusive, and profitable methods of monetizing your blog audience.
As well as considering creating a membership site which is promoted through your content on your blog (this option is definitely worth considering) you may instead choose to simply "gate" access to certain blog posts and charge for access to these.
This is what we call "Premium Content Access" or "Gated Subscriber Content.
The idea is that you create certain posts on your blog that are only accessible by paying members of your subscription. This might be a weekly, monthly or annual subscription which gives access to certain "premium" posts, as well as perhaps other added benefits (such as other premium content, posts, interviews, videos etc).
This can be a simple and effective way to monetize your audience - as long as your content is good. Ensure your free content is already worth paying for - and you'll find your readers are more likely to pay for that premium additional content.
- If you have a popular blog and regularly publish new content - charging for specific posts can work really well
- Great for bloggers and publishers who want to monetize their
content without creating a full scale membership. Often works best to
charge a annual fee for access to the content.
- Your blog is already most likely on WordPress, so you can use a plugin like Restrict User Access (free) to protect certain posts and create a membership tier
- Use OptimizeCheckouts to accept payment and setup your subscription - and then provide access to your membership tier via the direct integration rules.
If you don't want to create training and your content is not focused around education, a resources membership site might be the perfect option for you.
A Resources Membership Site is basically a membership where subscribers can access specific members only resources - often in the form of digital Downloads or digitally consumable content.
This can take a few forms, from selling access to a library of stock images or icons like Freepik, to providing access to inspirational "swipe" files of website designs and product interfaces like SaaSFrame.
The most popular setup with this model is that you will often create a site which does include a range of free resources or downloadables, with a premium tier which will offer access to premium versions.
Some websites using this model will also sell the items included in the membership individually - with the membership representing a much better deal if you're likely to access more than one or two items over the year. This is the case with curated design resources site UI8.
- If you are in the graphics, design or photography industries, this can be a great way to monetize your skills.
- If you already have a library of your own assets you wish to sell.
- If you don't want to create training or educational content.
- You could consider using a WordPress theme specifically designed for gallery or marketplace type sites. Subscriptions could be taken via OptimizeCheckouts and access to protected content limited with Restrict User Access
This is a relatively new category that was pioneered by author and Beer entrepreneur Dan Norris with the launch of his WordPress services company WPCurve (since acquired by GoDaddy).
The idea is to offer a subscription providing small, relatively simple tasks to companies and brands that perhaps don't want to hire or train a full time employee for those tasks.
Usually these new service as a subscription businesses offer unlimited "tasks" per month, but with certain thresholds (for example you can only have one job active at a time). You might also offer different tiers based on timescales or turnarounds.
To make this business model work, you'd need a well established team or very good team and project management skills if you were building out a remote team to handle workload.
You would also need to work out your pricing based on the thresholds so you can calculate the maximum number of "tasks" or "jobs" a subscriber could submit per month.
- If you have an existing agency or service business and looking to consider an alternative business model.
- If you are great at building remote teams and doing service arbitrage (buying services cheaper from service providers overseas and then selling them at a premimum)
- You're a project management pro - this would be essential in running any kind of service business like this.
- You'll need a checkout to take payment for your subscription - this could be done with a checkouts plugin like OptimizeCheckouts
- A tool for your subscribers to submit their design projects. This could be done through a simple form on your site - but you might want to develop something more custom so subscribers can see their current projects.
If you're selling any kind of software product, it's likely that you'll be using the subscription business model.
Paying a subscription to access a software tool is a logical solution for customers. If a tool is part of their daily workflow and proven to be an indispensable part of their daily activities, then churn rates for these types of subscriptions is generally quite low.
Software creation as a business is not the easiest option if you are starting an online business. Building a piece of software often requires initial funding or prior developer/coding experience.
- Software companies currently selling one-time that can switch their product to the subscription model (may require some additional features to be added or change in delivery model).
- Software developers that have some marketing experience (or can partner with a marketing professional).
- Established businesses that could add a software element to their business to complement existing products.
- There are a lot of components to building a SaaS business - but at the most basic, you'll need a way to accept payment for your product. This could be done through Stripe using OptimizeCheckouts.
The Subscription Box businesses have experienced exponential growth in the ecommerce category in recent years.
A subscription box in general, is any company that ships out boxes of physical goods on subscription to customers, sold through an ecommerce website.
Let's look at the different sub-categories of subscription boxes or ecommerce physical goods subscriptions:
This is likely to be the category you're most familiar with if you've spent any time online looking at subscription boxes.
The replenishment subscription model works for brands that offer products which have a limited lifespan or require restocking (replenishing) on a fairly regular basis.
The applications of this business model range from brands in beauty, health, grooming, household essentials and many more.
Typically a subscriber will select their preferences in terms of the product in question e.g. razors - and choose the frequency of the replenishment, and those items would be shipped to them on that basis.
The main focus with any replenishment subscription box business is convenience - time saving and money saving.
Take a look at replenishment subscription box examples for more.
Curated subscription boxes offer businesses and DTC brands a great way to offer a range of their products to subscribers without having to offer the customization of a replenishment susbcription box.
A curated box subscription normally consists of a monthly, quarterly or annual subscription box which contains a range of products that are chosen (or curated) by the subscription box owner.
These products would be selected based on either preferences already obtained from subscribers (like Trunk Club do with their personal styling survey) or in it's most simple form, a selection of products deemed suitable for the specific niche audience of your subscription box.
- These subscription models can be a great compliment to an existing ecommerce store where you already sell products individually that are offered in a replishment or curated subscription box.
- If you have an existing audience (perhaps a popular blog) - a curated subscription box of products you recommend can be a great way to monetize your audience with a subscription.
This is a great subscription model to use if you’re starting out and want to add a quick and simple monthly subscription to your business.
What’s great about this model is it’s very quick and easy to set up and doesn’t require any major work to get started or anything too technical beyond a simple squeeze page for getting email addresses, writing the newsletter and delivering it to your customers.
Newsletters can easily be delivered to paying members through a link you include inside a dedicated email from your autoresponder service. Unlike having to build a membership area, which can be a technical roadblock for some people.
You’ll be surprised how many people are willing to pay a monthly subscription to stay ahead of all of the news, developments and industry chat around a popular niche.
- If you're just starting out and want to start a simple membership subscription business.
- If you're not technically minded and want to simply offer access to your premium content through a email newsletter.
- You'll need a way to take payment and add your buyers to a special list in your autoresponder or CRM. OptimizeCheckouts offers direct integration rules with over 40+ platforms to add buyers information directly to a list or campaign
- You will need a CRM or autoresponder such as ConvertKit to send out your newsletters emails
Exclusive premium memberships in the form of a mastermind are often used with many training based companies. Masterminds offer the chance to network with fellow members, organise retreats at luxury locations as well as other benefits.
Masterminds are often sold for high ticket prices on a monthly and annual subscription basis.
Masterminds are generally offered as product upsells and commonly offered to high paying customers.
Masterminds can also be a lead in from individual coaching programs.
- If you have an existing training business selling digital training, courses or memberships, this can be a natural progression to offer a higher ticket product.
- If you're a speaker, coach and already working with clients, this could be a good upsell option.
- You can maintain a mastermind with a relatively low-tech setup. You'll need a way to communicate with members - either via a private forum or something as simple as a Facebook group.
- You'll need to setup your subscription with a tool like OptimizeCheckouts to create your subscription.
Mostly seen used by software businesses, this type of subscription provides users access to the most recent feature updates and product support. A variant of this model is when a company includes a basic level of support with the original purchase and also offers a premium support level for a higher subscription fee.
If you’re selling software to customers, then offering premium support with faster response times or more personal custom assistance may be an ideal method for you to introduce yearly subscriptions to your business.
- Software companies that currently sell one-time products
- Software companies that offer a free software or tool. Offering premium support and service for a fee is a great way to accelerate revenues.
- Implementing charging a subscription for updates or support could be as simple as offering this option at your existing checkout. If you are not yet taking payments for your products, you could use a service like ThriveCart or OptimizeCheckouts.
The great thing about marketing a subscription product is that you have a few options when it comes to selling and delivering your subscription to customers.
The core ones are as follows:
As we’ve looked at the types of subscriptions you can sell and how to sell them.
We will now list some live examples of them in action in order to help inspire you when coming up with your own subscription offerings:
Masterclass is an online education platform that offers lessons from highly established authority figures.
It offers an affordable annual subscription, which includes a list of premium benefits for subscribers, which they can immediately access as long as they’re an active member.
As the Masterclass library of content grows, the membership becomes more valuable to its members, and it also becomes more appealing to new prospects.
Joe Wicks is a popular fitness influencer on Youtube and has since grown his brand to offer a free apple iphone app, which you can upgrade to a monthly/quarterly and annual subscription.
Offering flexible payment plans give prospects a choice of which payment frequency best suits their current finances. The Body Coach uses a highly effective pricing schedule that sees customers who commit to paying the full yearly billing upfront will receive a discounted membership cost. Using discounted annual pricing as an anchor against the more expensive quarterly and monthly pricing pushes more customers to choose the yearly plan, and that brings instant revenue and cash flow into your business.
Copyblogger utilise a "hybrid" or combination model of membership site susbcription ideas - with a library of foundational content, as well as monthly advanced masterclasses added to their Copyblogger Pro membership
Marketing expert Corey Haines has created Swipefiles.com a popular membership site that centers around weekly marketing updates and ideas, and a private community of marketers and entrepreneurs that share ideas on all things marketing.
He also includes a range of swipe files (hense the name) of marketing campaigns for subscribers to get inspiration from for marketing their own business.
Corey also offers a premium "All Access" annual plan that includes additional video courses that can be purchased separately for a similar price to this annual plan (making it a no brainer offer).
The Makerpad community is a community centered around creating software and apps using "no code" which means you don't have to be a programmer to create them.
This "no code" movement has become highly popular in recent years as technology advancements have made it easier to create advanced functionality by combining tools available without the need to learn programming.
As well as a free community and a significant amount of free training content, there is a paid premium level to the community membership which brings additional benefits.
Friend of OptimizePress James Schramko has created a highly popular membership community as part of his SuperFastBusiness business growth training website.
As well as an active community, the SuperFastBusiness forum houses a range of courses, and new premium webinars are hosted monthly as a benefit of being part of the membership.
Personal development author Mark Manson has created a successful subscription side business on his blog through charging for certain premium posts and other content access.
This is unintrusive on his blog and doesn't affect the value of his other content, and no doubt leads to more subscriptions from the popularity of his other free content.
Icons8 is a rapidly growing website that offers icons, illustrations, stock imagery and more. As well as selling their items individually or with limited licensing agreements, visitors can subscribe to monthly plans for extended access to downloadable content.
The number of premium downloads per month is limited but provides assets use without the need for attribution which is key for business users.
UI8 is a site offering user interface kits, wireframe designs, illustrations and other graphic design assets.
As well as offering individual items for sale, users can purchase an "all access pass" which gives access to all content for 3, 6 or 12 months.
The different tiers available also have different daily download allowances which encourages subscription of the higher priced annual plans.
Design Pickle were one of the earlier companies to start offering unlimited services (graphic design in this case) to digital marketers and small businesses.
They offer a range of services now including graphic design and custom illustrations, all based around the concept of an unlimited supply of graphics for a set monthly fee.
WordPress services and customizations is another area that has been infiltrated by the "services as a subscription" business model.
Following a similar concept to Design Pickle, WP Tangerine this time lets customers submit wordpress custom development tasks, maintenance updates and support assistance for their WordPress issues.
The Video Creators provide a number of unique videos or video editing services per month for a set fee. This gives companies that need professional video editing and production a way to manage their costs and ensure on-time delivery without using an external agency.
This is great for providing users with a taster of what the software can do, which will most likely incentivize and encourage them to purchase a paid plan.
Loom provides the ability to capture screen recordings, which you can free use and distribute. It’s simple to sign up and has a free tier that is limited to the length of recording.
A paid tier is also available offering longer record times as well as a free-trial for testing the software before committing to a full subscription.
Free trials are great for getting people into your subscription with zero barriers to entry. New customers can test out the product and incorporate it into their life or business without the initial commitment to pay. When you offer free trials, it is highly important that you actively onboard your new customers as this will help increase the conversion to paying subscriber.
Grammarly is a free online grammar correction tool that provides suggestions to spelling mistakes and other grammatical errors using your web browser.
Grammarly offers a free to use platform that has a limited set of features and controls. Then they have upsells built into their software that prompts their users to upgrade to get access to more advanced options and clarity improvements.
In-platform upsells can increase your average revenue per subscriber, so worth testing if you have this type of business model.
Ahrefs is a popular SEO and keyword research software tool that provides everything you need to improve your business SEO and grow your traffic.
They offer a range of tiered pricing plans depending on number of users, crawl credits (number of searches you can do for certain data) and number of keywords tracked.
This tiered pricing allows businesses of different sizes to find a plan that suits them, and also ensures Ahrefs get rewarded by the heavy users such as enterprise businesses and agencies that have larger requirements.
This tiered pricing allows businesses of different sizes to find a plan that suits them, and also ensures Ahrefs get rewarded by the heavy users such as enterprise businesses and agencies that have larger requirements.
Basecamp was one of the early adopters and pioneers of the SaaS movement, and the first project management app to gain widespread traction.
They have tested different pricing strategies over their business journey, but currently offer an interesting alternative to tiered pricing - essentially a "flat rate" pricing no matter how many users, projects or features you have.
Their $99/month (at time of writing) plan covers everything you need. This will appeal to growing businesses that might be weary of other platforms that might rapidly increase in cost as their team numbers grow.
These examples show that even within each subscription business model, there's significant room for testing and trialling different pricing models. Don't feel you're locked into doing your pricing the same as everyone else - but always remember that pricing should be simple to understand.
If you need more examples of SaaS businesses - you can check out Producthunt.com where you'll see new SaaS businesses being launched daily.
Dollar Shave Club provides customers the ability to create a bespoke shaving solution. Offering shaving products that get delivered direct to their door each month.
When you first click on their website, you’re asked a series of questions.
Depending on your answers, you are shown a list of product subscription plans to select from. Once you’re happy with your selection, Dollar Shave Club goes ahead and sets up the payment plan for you.
Offering personalised packages are great for really connecting with your customers and allows them to feel a sense of care and attention, which will increase trust and the likelihood of being a repeat customer.
Using the same subscription model as Dollar Shave Club. Union Coffee offers customers with a quick questionnaire, which depending on their answers, tailors their order with the exact products they’re looking for as part of their subscription.
Upon selection, Union Coffee will then go ahead and list the recommended products for purchase and offer a range of subscription plans to suit your needs.
We could not have written this guide without mentioning Amazon. Offering a huge range of products to choose from, they have since added the ability to provide monthly subscriptions to products that require refills.
Similar to Dollar Shave Club and Union Coffee, this is a great way to offer payment plans if you’re a physical product business.
Amazon also offers additional subscription products such as their Prime annual subscription for free delivery and their monthly cloud storage services.
If you’re a gin lover, Craft Gin offers a choice of your favourite gin along with other complimentary treats delivered straight to your door each month. You are given the choice to pay monthly, Bi-Monthly or Quarterly.
Offering multiple options is a powerful selling technique. If you have one product option, then the prospects options are "do I want this product? Yes or no". However, if you have a few product offerings or payment plans, the prospects mindest changes to "which package do I want". We highly recommend you test offering a range of packages and payment options to see if it increases revenue and conversions.
Note: It's important that you do NOT confuse visitors with your package and pricing options. We recommend offering 2 to 3 options maximum.
Pasta Evangelists allows you to pick from a choice of pasta dishes each month that gets delivered straight to your doorstep.
If you’re a pasta lover and want the finest pasta direct from Italy, then this service will be highly attractive.
They offer simple options to get prospects to commit to subscribing, and then they attempt to upsell buyers to increase their portion size. This type of volume upselling is very effective and an easy way to increase each subscription's profits. To sell a "double portion" does not require double the production, marketing, and delivery costs for the business, so the double portion profits are much higher.
It's worth considering if you can offer increased volume upsells in your products if it fits your business model.
Silly Greens provides an interesting and novel approach to growing your own greens. By selecting the greens you would like to grow, you will be sent a box at a predetermined duration and at a fixed monthly price.
As we have discussed, offering a range of order frequencies, product volume, and product types can increase your conversions. Notice in this example how easy Silly Greens makes it for customers to select their subscription frequency.
You should always try to make purchasing from your business as easy as possible for customers.
As we highlighted earlier in the guide, monthly newsletters provide a great starting point for startups looking to quickly make a residual income. It’s very easy and fast to set up and doesn’t require a lot of time or resources.
In this example, Further.net offers a free weekly email newsletter providing tips and advice for people in midlife on how to live their best life.
Using this model, you will not only have access to a highly engaged email list, but will also be able to monetise them by promoting paid offers later on.
Earlier in this guide, we briefly mentioned Scott’s Cheap Flights as an example of offering paid newsletters. We decided to include it again due to how effective this model is.
In addition to it’s easy setup, if you’re in a niche that contains a hungry audience who are willing to pay a monthly fee to gain access to the latest deals, then the low monthly subscription angle will be perfect.
Here, it’s clear that many people will want the cheapest and best deals for flights and holidays. And with a service like a paid newsletter, it cuts out all of the time and research required to find your own deals manually, offering great value for money.
Investor’s Chronicle is a community for investors who are looking to expand their portfolio. It offers a monthly subscription in different tiered groups and pricing structures. Each offering more premium content depending on the tier selected.
In the pricing table below, you can see they offer four packages and a range of pricing options. Such a high range of options could lead customers into confusion and be harmful to conversions. However, Investors Chronicle provides a highly detailed level of financial analysis, so they likely serve an above-average intellect of customer that is not overwhelmed with the range of package options. We can't be sure for certain, but we can assume that they have tested this product and pricing matrix, and it has proven highly effective for them.
NBA Weekly Stats
If you’re a basketball fan, CleaningTheGlass offers a monthly or annual subscription that delivers detailed breakdowns and stats of each game. The perfect tool if you would like more detailed and accurate information on your favourite team.
This example shows that you can create an information/newsletter subscription in almost any niche. For the most part, this information can be found and collated by anyone; it just takes time and effort to pull all of the data, stats and details together. People who are interested in a niche topic are willing to pay for the information to be collated into an easy to digest format for them.
If you have the time and the know-how to get the correct information, this type of subscription can be one of the easiest to create and deliver.
War Room Mastermind is a premium subscription for a select group of entrepreneurs and business owners who meetup every quarter at a plush and lavish location in order to share their latest ideas and insights from their businesses.
It has a very expensive yearly fee, but offers the chance to gain access, network and rub shoulders with the world’s best leaders in the industry.
Masterminds allow your audience to meet with like-minded people and connect with individuals of influence.
If you’re a business owner with access to influential people in your industry, then setting up a premium mastermind would be indispensable to your business and your customers.
Get The Guy
What’s interesting about this is Matthew Hussey has added a new program that brings his live retreats to your home.
Offering all the benefits of a physical retreats without having to leave your home.
Now of course, it will not have the same benefits of actually being there and to be able to network with fellow members. But it may be a worthwhile solution in cases of a worldwide pandemic and people being forced to stay at home.
This example teaches us to think outside the box for ways to deliver subscription product content.
So far, we’ve covered what subscriptions are and discussed why they’re so powerful with some examples of how you can begin using them in your business.
In this section, we’re going to discuss the terminology you’ll need to know to begin managing your subscriptions correctly.
But before we do, we must cover some questions to know our subscriptions are running effectively.
Here’s some things to consider:
This is important because if you get this wrong then you can end up losing money with every new sale you make.
This will allow you to accurately budget your advertising and promotion campaigns as well as be able to see how much you could potentially use to continue building and developing your business and product lines.
This is important to get a feel for how much income you could be making in the future, again allowing you to budget and decide on how much to spend on advertising and promotions.
Without knowing this, your subscription can very quickly come crumbling down. It stands to reason you need to be adding more subscribers than you are losing each month.
With these questions in mind, let’s now go over the key stats you’ll need to be looking at in order to ensure that your business is heading in the right direction.
So let’s briefly take a look at the following terminology:
IMPORTANT NOTE: The terminology and statistics below are the essential details you ideally should understand about your subscription products.
However, a lot of subscription businesses have launched and grown without even knowing any of these metrics. Don’t think you must know these stats about your offering before you start it.
The most important part of your subscription is having a product that your audience wants and that providing it is profitable for your business. Knowing the following metrics will help but don’t let fully understanding them stop you from launching your subscription product.
Now that we’ve listed the key terminology we’ll be using, we can now begin calculating the important metrics in our business.
So let’s take each metric and look at how it’s done...
If we were to look at the general overview of what CAC is, we could say that it’s simply the costs of advertising divided by the amount of new customers.
So for example:
If your advertising spend for the month was $1000
New customers acquired for the month would be 20
$1000/20 = $50 CAC
So with this simple calculation, we now know that it would cost $50. And if your average sales were greater than $50 per customer, then you would know that you’re in profit.
This would provide you with the green light to either continue with the advertising at the current budget, or if you wanted, use the revenue generated to put back into your advertising and slowly increase the budget.
However, in reality, there will of course be other factors to also consider with additional costs in your business.
But this will give you the foundations to begin managing the ongoing costs of your business, allowing you to grow both predictably and profitably.
So let’s take another example to drive this home...
Let’s say you have a sales page built with OptimizeFunnels that is live and running. You discover that your page is converting at 15% on a $5/month newsletter. Which technically means for every 100 visitors, 15% of them will buy.
We can then do the following calculation:
100 Visitors x 15% Conversion Rate = 15 Sales per 100 visitors.
15 Sales x $5 = $75 sales revenue.
So if all things being equal, you continue to make 15 sales with every 100 visitors, we now know exactly how much we’ll need to spend in order to get a sale.
In this case, the cost of the subscription is far lower than the sales revenue. If it’s less, then we make a loss.
Taking it a stage further. Let’s say we wanted to know how much we should pay for our cost per click value:
$75/100 = $0.75 max cost per click.
A simple calculation, but also very powerful. Using this simple calculation, you now know exactly how much CPC you’re willing to pay when using an advertising platform like Facebook, Twitter, Google or Youtube.
Now of course, your CAC will fluctuate. But being able to calculate these key elements will allow you to keep on top of your advertising and ensure that you’re continually bringing in new customers at a profit.
Looking at this stat simply, your MRR is basically the cost of your monthly subscription that you’re offering.
Calculating your MRR however may not be as straightforward if you’re offering an annual subscription.
So to get your MRR, you will simply need to divide the cost of your annual subscription by the number of months in a year, which is 12.
If your annual subscription was $100, you would then calculate it as follows:
Annual Subscription $100/12 Months = $8.33 MRR per customer.
Now of course, you may decide to offer a weekly or quarterly subscription as part of your payment option. In which case, you will divide it accordingly.
As you begin getting more and more subscribers into your subscription, what we want to look for is for your MRR to increase as this will again allow you to set a bigger budget in your advertising.
If you have multiple subscription payment options on offer, then the calculation will be a bit more tricky. This is where we want to calculate the Average Revenue Per User (APRU)
This will allow us to take all of the income received from all the different subscription options so that we can calculate an average income amount.
If we look back on our CAC calculations that we did earlier, we looked at the conversion rate per 100 visitors at a 15% conversion rate:
100 Visitors x 15% Conversion Rate = 15 Sales per 100 visitors.
15 Sales x $5 = $75 sales revenue.
$75/100 = $0.75 max cost per click.
So from our previous example, we would be happy to spend $0.75 for our maximum cost per click, with anything less giving us a profit.
However, this will not be as easy to calculate if you’re offering multiple subscriptions at different price points.
So knowing the ARPU would be more helpful, because some of your customers will take one option with others taking a different option, which will change your cost per click value.
So let’s look at the same example again, but this time make the assumption that your 15 customers are split into 10 monthly subscribers and 5 annual subscribers:
As you can see, that $20 figure is a much lower figure than the previous example of $75, which would result in a max cost per click of around $0.20 ($20/100)
With the example above, it’s clear how crucial it is to calculate the average revenue if you’re going to be offering multiple subscription options, as it will affect your overall advertising spend moving forward.
However, the good news is, since they’re your paid subscribers, you can eventually sell them other products when you go on to selling them.
So let’s now say you’ve got an additional product that you’re also selling as part of your sales funnel for $27 at a 20% conversion rate. The ARPU would then rise.
So using the previous example:
15 Subscribers x 20% back-end conversions = 3 back-end sales.
3 sales x $27 sale price = $81 back-end revenue
$300 Subscription revenue + $81 back-end revenue = $381 Total Revenue
$381/15 = $25.40 ARPU
As you can see, by adding in back-end sales from your sales funnel, the average revenue increases, which in turn increases the amount you can spend acquiring the customer.
One last thing to point out is that your subscribers will also remain in your subscription for multiple months, which will also result in your ARPU increasing over time.
Now, with a recurring subscription, you would be forgiven to think that the lifetime value of your customer will be the price of the subscription multiplied by the number of months they typically stay for.
So if they stayed for 6 months, then the calculation would be as follows:
$5 Monthly Subscription Amount
6 Months Average Subscription Period Per Subscriber
$5 x 6 Months = $30 LTV
However, the reality is (and if you really want to increase your income) you will be using your subscription as the starting point of your sales funnel in order to give you that monthly recurring income.
But then you will be selling additional products alongside it and as part of your funnel.
Earlier, we looked at the average revenue per user with the key takeaway that the more additional products you sell, the higher the income you’re going to get from your subscriber.
So in calculating your LTV, you not only need to take into account your subscription sales, but also the number of additional products you sell to them in that time frame.
So for example, let’s say that the customer also buys an additional 3 products from you in that 6 month period that cost $10 each. The LTV will then double.
$5 Subscription x 6 Months = $30 Subscription Revenue
3 Product Sales x $10 = $30 Back-End Product Sales
$30 + $30 = $60 LTV
As you can see, just from selling a few extra products at a small price, you can literally double your LTV of your customer during the lifetime of your relationship with them.
Knowing your LTV of your customers is vital because it really helps you make decisions on the amount of money you’re able to spend when paying for advertising.
This stat is pretty simple to calculate but also comes with a few questions, which we must also ask ourselves as business owners.
Put simply, churn puts the percentage of lost subscribers and then calculates it on a monthly basis using the MRR which we covered earlier.
So looking at the following example:
Start of the month: 500 Subscribers x $5 Subscription Price = $2,500 MRR
18 people leave during the month: 18 x $5 = $90 Lost MRR
($90/$2,500) x 100 = 3.6% Churn Rate
Some take home points to remember regarding churn is that you will always have some customers leaving - It’s not a character assassination and is simply part of doing business.
However, it’s important to monitor your churn on a monthly basis. If it increases each month, then you may be required to ask some following questions:
By looking at Churn, it will be a nice indicator to be able to answer these questions and to begin looking at solving them. Especially if your churn is growing each month.
As we’ve now looked at each stat, it’s important that we use them to form a bigger picture of what’s going on in your business.
So as a rule it’s generally considered healthy to have an LTV to be at the very least a 2:1 (2x) ratio of your CAC.
This basically means you get 2 or more times the amount of money back in revenue over the customer’s lifetime that it costs to get that customer in the first place.
So doing a quick calculation:
Cost of acquiring the customer = $10 CAC
Lifetime value of the customer = $40 LTV
$40 LTV/$10 CAC = 4:1 (4x)
So in this example we have a 4:1 ratio, which is a great ratio to have in your business.
Lastly, the other thing to consider is how long it takes to pay back the customer acquisition cost. Again, looking at a quick example calculation:
Cost of acquiring the customer = $10 CAC
Monthly subscription revenue = $5
$10 CAC/$5 = 2 Months
This is especially important when you're first starting out as it can potentially have real consequences if you’re operating on a tight budget.
But you can start to see how you can use these figures gathered from the statistics above to begin making further calculations in your business.
So to sum up, the things you should be aiming for are to:
Following these stats, you will not only build a profitable and predictable business, but one that will continue to grow for years to come.