Building a business around a subscription revenue model is a seductive idea. For a while now it has been one of the hottest ways to sell products and services. The appeal is easy to see: with one click you can sign up a customer for a stream of payments. Yet, this revenue model has clear pros and cons - as several Chicago companies have found out. Choosing the subscription model because it is a fad may be a death-blow to your business. Yet, choosing the subscription model because it exactly what your customers need could be a boon.
Pivoting away from a subscription revenue model
Moxie Jean started out as a portfolio company within Chicago’s Excelerate Labs (now Techstars). The idea for the company focused on the growing pain of having to keep buying children new clothes as they grow. Why not offer a Netflix rental subscription service for children’s clothes? By offering new and lightly used clothes to parents Moxie Jean would not only save parents money but also attach itself to a reliable subscription revenue stream.
“Two years ago the subscription model was hot,” said Sharon Schneider, CEO and co-founder of Moxie Jean. “It’s attractive as a business model. The thing was, we weren’t getting subscriptions.
Rather then simplifying life for parents, Moxie Jean’s use of the subscription model had complicated life further.
“In our case it was the burden of care of returning the item,” said Schneider. The subscription model required too much of Moxie Jean customers. The business model didn’t solve people’s problems.
After confronting the problem, Moxie Jean decided to quickly pivot. No longer were they going to offer a subscription service, they would now sell clothes directly to parents. In doing so, they went from four subscription options to over 40,000 items offered today.
“I can’t tell you how many people who told us, ‘Oh, I like this so much better,’” said Schneider.
The revenue model switched help save their business and provided a valuable business insight: “You need to talk to people who don’t sign up for the subscription,” said Schneider. "And you need to ask yourself: 'Does the subscription solve my problem as an entrepreneur or does it solve my consumers problem?'”
Succeeding with subscriptions: it's all about discovery
Mystery Tackle Box is a subscription tackle delivery service geared toward bass fisherman.
“It’s a fun way to discover new products, new techniques. Our customers describe it as Christmas once a month,” said Jeremy Gwynne, CEO and founder.
“There is a lot of competition in the fisherman lure space. If someone walks into a Bass Pro Shop, there is an entire aisle of spinner bait. Unless you’re an expert, that can be overwhelming. We are experts in the field so we know what is hot, what is not,” said Gwynne.
Mystery Tackle Box sends a box to subscribers stuffed with new and assorted tackle. For $15 per month subscribers receive a box monthly. They can receive boxes less frequently for less money. Gwynne said all boxes are filled with at least $20 in value.
“The number one selling point is the discovery component,” said Gwynne. “It’s a cost efficient way to discover new products.”
And this is what makes the subscription model an ideal fit for Mystery Tackle Box. The subscription service certainly provides bulk discounts and feeds reoccurring demand for a rapidly consumable product, but its best value is the experts who pick the products.
The key differentiator between a subscription revenue model and one-off purchase model is: does your customer have the time and expertise to choose the best highly consumable products on a regular basis or are they paying you to do that on their behalf? If customers are subscribing to your service they not only are subscribing to steam of goods and services at a discount, they are subscribing to your expertise.