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Why Startups And Agencies Need To Use Subscription Pricing

Why Startups And Agencies Need To Use Subscription Pricing

Is It Better To Own Products/ Services Or Rent Them From A Company?

SaaS products ruined everything online, or made it a million times better. Pick one. That’s the argument a lot of people are having. The argument stems from whether or not it’s better to own your products or services or — essentially — to rent them from a company that can choose whether or not you have access.

For me, it’s an easy pick.

The truth is, being able to access software on a monthly fee has been a huge win for so many entrepreneurs, founders, and startups, in so many industries.

When you look at the world before and after this came into effect, it feels so alien that we ever purchased software licenses, and then purchased them all over again a short time period later, but that’s exactly what we used to do.

Here’s Chuck Longanecker From An Entrepreneur

Since consumer buying habits are trending toward more simple and hassle-free shopping experiences, more and more companies are jumping into the subscription space and seeing incredible growth. Last year, Dollar Shave Club was expected to generate $60 million in revenue, nearly tripling its 2013 revenue. Even more impressive, Honest Company was expected to bring in $150 million in revenue in 2014, landing the business a $1 billion valuation.

The Dollar Shave Club are an incredible subscription success story, and they actually became a billion dollar company. By focusing on that recurring revenue model, rather than looking at becoming a simple retail store, they were able to build up a massive business at a huge valuation, with predictable returns and a dedicated audience of customers who were trained by the cyclical subscription nature of their business!

If you’d suggested that a subscription to razors would be a hit, even a few short years ago, it would have been unheard of. But today, it’s not only a distinct possibility in terms of your own pricing, it’s almost reaching the point where it seems crazy not to consider adopting that success story for yourself.

After all, that success story doesn’t have to be limited to a product company or a software company like Dollar Shave Club or Spotify — it’s a potential narrative for almost any company, whether it’s an agency or a hot tech startup.

The shift from one-off purchases to subscriptions has changed everything, and every single company needs to be looking at it.

What Changes Has This Shift made Possible So Far?

The shift has made a couple things possible that would never have been dreamed of before:

  • We can actually build companies with recurring and predictable revenue. That’s big because it means raising money is more possible and a lot more realistic, expending resources is more easily manageable and calculating value is easier.
  • We can make products and services more affordable than ever before, and open up the realm of possibility. For example, when I was growing up in rural Western Australia, being able to buy a Photoshop license so I could teach myself how to design something was a huge investment, and one that I almost couldn’t reach.

The most important part, from my point of view, is that the values and benefits of a recurring revenue model aren’t just aligned with the business. Subscription pricing is a huge win for both sides, and it levels the playing field.

How Do You Get Started With Subscription-Based Pricing?

You need to be able to find a product or a service that people need access to on a regular basis. For a software company, that could be an email platform. For an agency, that could be email copy and content. Either way, the need to send emails out to a customer base with regularity does matter, and people want to be able to do it.

So building a subscription product seems natural in this instance. Here’s how I’d go about it:

  • Work out what level of access a business needs to your product or service
  • Determine the useage of your product or service over a regular timeframe
  • Calculate the yearly cost of the outcome that your product or service were to provide, based on what it would cost the potential customer to DIY it
  • Divide it by 12
  • …you’ve just designed a subscription model

The shift isn’t a huge one from an administrative point of view. Not in a world where there are hundreds of subscription billing platforms ready to be used. The shift is in the paradigm that you, as a startup or agency founder, are adopting when you look into your pricing model.

At Speedlancer, we’ve taken a subscription approach to using freelancers that we know is an innovative concept, and one that allows businesses an unfettered access to the best talent we can provide, starting at around $500 per month. It’s based on providing folks with $500 in monthly credits to use on freelance tasks, with attached project managers.

That’s a pricing innovation that we’re proud of, and we know that it does benefit our customers as much as it benefits us!


[This post by Jon Westenberg first appeared on Medium and has been reproduced with permission.]

Note: The views and opinions expressed are solely those of the author and does not necessarily reflect the views held by Inc42, its creators or employees. Inc42 is not responsible for the accuracy of any of the information supplied by guest bloggers.

Author

A Sydney based writer focusing on creativity, technology and business.

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