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A Brief Guide to a Successful Subscription Model for Tech SMBs

27 January, 2017 | Article Source: Rob LaPointe  |   (No Comments) | 14,182 Views

Subscription Model for Tech SMBs

Most of our clients come to us because they want to make money. Sure, most of them are also excited about their new business, and many of them want to improve the lives of others as well as themselves. But, as is so often a tenant of tech enterprises, it’s hard to get to substantial revenue generation.

 

Many tech businesses, like apps, websites, and software don’t reach monetization like brick and mortar businesses. Think about it: SnapChat was just valued at somewhere between $20 and $25 billion. Its revenue, while substantial (about $100 million in 2015, and an expected revenue of $300 million) is hardly worth a 25 billion.

 

SnapChat is worth so much because of the number of daily active Users. The company is worth so much because it represents access to 140 million plus people. But having a massive userbase isn’t the only way to make money in this business – in fact it’s one of the hardest. While it’s doable, it requires constant vigilance and a wellmade, long term viral marketing plan.

 

There are some other common tricks to monetization as well:

 

♦ Ad Modules;

 

Ad modules, while legitimate ways of making money, can be annoying (especially if you don’t have a good design team) some users. Plus, it typically generates only a small amount of data. This is best used in conjunction with other methods, or with a very light hand.

 

♦ In-app purchases;

 

In-app purchases are an excellent way of making money. If you have an exceptionally engaging app (like a Game App), in-app purchases are one of the best ways to make money. However, it can be unreliable and is no way to ensure a consistent revenue,

 

♦ Selling Anonymized User Data;

 

This is another common way to make money in our world and can be an effective way to make some cash, especially when you find the right buyer. However, even the most secure systems make users nervous and can actually deter both other users.

 

But the big one, the unsung hero of the tech world is the Subscription model. Subscription models can, when done right, make website and app owners buckets of cash. There are several key benefits to a subscription model:

 

• Consistent, reliable, substantial revenues. Unlike in-app purchases, you’re guaranteed a certain level of monthly income. This is especially important to bootstrapped startups that need the revenue to keep going.

 

• Businesses that plan on offering a subscription-based model, need to offer a top notch service, or offer something that users can’t find elsewhere. Either way, Successful subscription based companies become something of a Gatekeeper within their own community. This helps not only build your brand (and attract more users through brand recognition) it can also help open the door to other future business opportunities.

 

• When people are willing to pay for a subscription, they talk about it to their friends. This is even more true in a world where most apps and websites are free (for at least the base level). Paying for an app/web service sticks out; so subscription models can generate a buzz, creating a constant referral system – for free;

 

Of course, the trick is to make a subscription model that will get people to actually to subscribe. So let’s take a look at some tricks on how to make money with a subscription model.

 

The Freemium Tier

 

For most Entrepreneurs and Business Owners, the idea that the majority of your customers will be using your service for free hurts. However, the unfortunate truth is that for most businesses, a freemium tier is a necessity. And moreover, most users will never progress beyond that phase. This isn’t a nail in the coffin though, because a percentage due convert, and that percentage is more than enough to make a substantial income.

 

The secret to the Freemium tier is to offer services that can’t be too generous, or too conservative. You have to reach that sweet spot, where people find your product useful enough to do some work, while being tantalized by even more advanced service. Plus, a good design can herd a user through the conversion process, making the process simple.

 

Trial Periods

 

Some services are highly valuable, especially those that are business-to-business. For those businesses, Trial Periods can be very effective. The trick is to not just offer a taste of your services, but to follow up with a rigorous (but not over-the-top) marketing campaign. You need to remind them of how effective your service was (via emails as well as through pop-up notifications) and how effective it can continue to be – if only they were to subscribe.

 

Higher Tiers Mean Higher Services

 

If a business wants to convert freemium or trial users into paying members, it needs to offer new or expanded features of greatly increased value. It has to make the need to sign up for a subscription more attractive than not signing up. Trial periods can help drive people to mid-level subscriptions, but in order to get top-tier subscribers, the service needs to be very valuable.

 

The best way to do this is to offer an expansion in Capacity and in Capability. Capacity could be anything from allowing more users to allowing more projects in the system (depends on the service offered). Capability means that the service offered has more features or better analytics, or really any new or improved feature that allows a user to do more with the offered service.

 

So want to start your own subscription-based website, SaaS, or app? Give us a call at 408.805.0495/408.621.8481 – or click to contact us!

 

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