We’ve talked here before about the benefits of a monthly recurring revenue model. With one-off selling, the customer pays you once and then you’re back at square one. But get them to subscribe and you get a steady drip of revenue.
Now obviously not every business can go with this model. But it’s worth asking yourself if there’s a creative way to get people paying you every month.
For example, nAscent’s Art Taster’s Circle offers up art subscriptions [via UD]. You pick a piece, they come and install it in your home. If/when you decide you’re ready for a change, they’ll come and replace it with another piece of your choosing. If you decide to go ahead and buy a piece, part of your monthly fee goes toward the purchase. No idea how large a market there is for this, but good for nAscent for experimenting with a new model.
You can sell bacon. Or you can start a Bacon of the Month Club. You can sell wine. Or you can offer a Monthly Wine Club. You can rent one movie at a time. Or you can be Netflix. Here’s a list of dozens of other things you can get by monthly subscription.
Any other interesting monthly subscription models out there that you know of?
mike
on 18 Dec 09Thanks for the post. Yes, getting dribs and drabs and finding ways to get repeat customers instead of one shots are key to staying in business. Leaving a great business card behind is another one.
Andrew Watson
on 18 Dec 09What we’re doing is a hybrid of that with my startup (othernum.com). We’re doing the Pay As You Go model where you fund your account and then the services you consume are deducted from that balance.
Since it’s a service we’re offering that (hopefully) people will like a lot and use daily then they will be “funding” their account regularly. Not at regular intervals perhaps but repeatedly.
I think people will like this approach because there is no contract, no commitment. If you run your account to 0 and you don’t want to use the service anymore, just leave it that way.
Rick
on 18 Dec 09These monthly payments you speak of are also the first ones to go when the consumer is looking to cut expenses. A yearly subscription is further away from renewal so by the time it comes around he or she may be focusing on something else or their finances are in better shape (after cutting all the monthly subscriptions).
Geoff
on 18 Dec 09“These monthly payments you speak of are also the first ones to go when the consumer is looking to cut expenses.”
That has not been our experience. While my company has negotiated lower fees from some of the vendors that support us - subscription or otherwise - we have kept every one of the vendors that brings us value. The vendors that we’ve kicked to the curb have been the inflexible ones that we felt were charging too much or not servicing us with the care we felt we merited. Granted, if we had been paying a “Bacon of the Month” club, that expense would definitely not have survived our frugal scrutiny—unless it was REALLY good bacon.
Whether subscription or not, to avoid losing a customer, the key is to provide a valuable service and care for your customers.
And to answer Matt’s question, our business is a subscription model business: Builders, remodelers, contractors, and real estate developers pay us monthly fees to survey all their customers and report to them how well they’re doing. We’ve been charging subscription fees for over four years, and we are about to wrap up our best quarter ever—top line and bottom line.
George
on 18 Dec 09Great idea. I think that transitioning to an ongoing service model is great for both the customer and the business.
It’s a win for the business because it generates recurring revenue. But it also raises the states and makes the business responsible for creating ongoing value. I think that it helps us create better businesses.
Personally, we are developing our business as a service, in an industry that has typically had a one off sale model. (It’s a software business.) But we see the benefits of an ongoing service for both our clients and ourselves, so we decided to take that route.
Ryan Heath
on 18 Dec 09I’m launching a Golf application in March, and at first my thoughts were to do yearly payments. A friend also pointed out that most people can’t golf in the winter, which would potentially cause people to cancel during those months. Honestly, I wouldn’t expect to get more than $60/year taking that route, since it’s a consumer product. However, setting it up as $5/month doesn’t seem that unrealistic, so I actually think I’m going to take the chance on monthly billing and see how it pans out.
Monthly payments would allow me to charge a low monthly rate to equal my maximum yearly rate. I think I’ll eventually come out on top in the end by doing monthly charges. And if it doesn’t work out, I can always change it later :-)
Daniel
on 18 Dec 09@Rick: Sure monthly payments may be the first to go -presuming of course, you can live without the services. I can see how you might cancel Bacon of the Month without upsetting your life too much, but your cell phone? Internet? Cable TV? Water? Power? Rent? Not that these are all necessarily incurred monthly, but they can be. And if they are, I still doubt many people would let them go.
It’s probably also a good idea to let people be able to cancel the subscriptions at any time. I might sign up for Bacon of the Month, if I know I can get out of it again. I wouldn’t sign up for Bacon of the Month’s 2-year contract, even if the payments are still monthly.
By the way, here’s another way to avoid selling once that some game companies have tried: They you sell the game, and then they sell you the game again when you want to play it. I think the case that was dicussed a few years back, was centered on EA’s Tiger Wood’s golf game for the xbox, where you bought the game normally at normal retail price, but you couldn’t play all the courses without first completing the game in tournament mode. However, you could purchase a code (a cheat basically) that would bypass that, and let you play the courses anyway. The courses were already on the game’s disc however, and were freely playable on other platforms or had free unlock-codes. But on the xbox, EA sold their game once but got paid twice by people who just wanted to play it casually. Now that’s a pretty good deal for EA.
So if you want to seriously antagonize your customers, you can try that strategy.
Daniel
on 18 Dec 09@Geoff: I took too long to write my comment (interruptions are the enemy of productivity… etc.) so I hadn’t seen your comment before. That we agreed that monthly payment are not necessarily thr first to go is one thing, but that we both used the bacon example is a little uncanny :-)
Jagath
on 18 Dec 09I live in Austin, and Greenling is an Austin based company that delivers fresh organic produce at buyer’s doorsteps. You can create a weekly schedule on their website and they will deliver it without you having to remember to re-order every time.
Aslan
on 19 Dec 09I have a totally unrelated question. In our company we are using ubuntu 8.04 which is the latest LTS. What has been the experience of community with ubuntu 9.04 or 9.10? Forgive me if this is not the right place to ask this question and please tell me where can I go to ask question from 37signal dev team?
Deltaplan
on 19 Dec 09I think a terrible pick for monthly subscriptions is everything that deals with clothing…
In France, there have been many companies these last years that have failed miserably, trying to sell subscriptions to receive each month one or several item of clothes. I specifically recall two of them, the first one was selling socks, the second one ties.
However, there are now more and more companies who are entering this kind of business, especially the way nAscent is doing it. I’m thinking of a company here in France that rents toys for children, you get one or several used toys, depending on your subscription level, that you can keep for as long as you want (and of course you can keep them definitively if you want to purchase them !). They guarantee pre-paid return of the toys as soon as you don’t want them anymore, and the toys are always disinfected before being sent to another child. This service is very popular among nannies, who need a lot of toys, and regularly updated, for the children they are looking after.
Paula
on 19 Dec 09I have set up a tampon subscription service so “that time of the month” is definitely apt for my business!
Matt
on 19 Dec 09At Haulix, record labels pay us a monthly subscription fee. Our system allows them to upload their pre-release promos, manage their media contacts and invite those contacts to download the promos. We employ watermarking and other security measures to discourage leaking.
Reason I’m commenting in this thread, is because of a new feature we launched last week that puts a little twist on the subscription model.
In understanding the nature of the record label business, it’s common to have “downtime” in between releasing packs of albums. Therefore, we allow our subscription customers to “Hibernate” their accounts for downtime. They still continue to pay a monthly fee that is much smaller than their regular fee, we store/backup their data and when they want to come back, they can “Un-Hibernate” and resume full services instantly with a couple clicks – going back to paying their original monthly fee.
We figure, that if there were customers cancelling their accounts just because of downtime, there would be a high percentage chance they wouldn’t come back – and if they did come back, they’d have to RE-register, enter credit card info, RE-enter their contacts, etc. With this model, they can feel good about not paying for services they aren’t using while retaining their account.
Carmen Krushas
on 19 Dec 09A business friend of mine, David Hauser has a really great tool called chargify for monthly web based recurring payments. I am using it for one of my new sites and it works very well. He’s also the guy behind Grasshopper.
Alex
on 19 Dec 09My wife loves the Chocolate Tasting Club that Hotel Chocolat do. You get sent a box of chocolates each month, with details on the chocolatiers who made each one, and a rating card.
Dick Kusleika
on 19 Dec 09@Ryan: Have you considered $10 per month for six months and $0 per month for the Winter? I’m not sure how that would work out from a renewal standpoint. One of the reasons I’m hesitant to join a private course is that I have to write that $400 check in January (in Nebraska). There’s something distasteful about paying for golf with a foot of snow on the ground. I know logically that it’s all the same on an annual basis, I just wonder if people would be more willing if they didn’t have to pay in the Winter.
TestCahicks
on 20 Dec 09Ive seen this model applied to toys, books, tools. But for anyone trying to apply this to a prodect/service you want to first find where your paying for something monthly
Mark
on 20 Dec 09What if we’re talking about a subscription service that is a far lower fee though? Like, if I was planning on charging $20-$30 a year for something, are you suggesting that I instead break that down into $2-$3/month payments? Thanks for any input that anyone may have on this…
pwb
on 20 Dec 09The same reason why business like recurring payments is why consumers don’t like them.
J
on 20 Dec 09pwb, customers I know love recurring payments because it means no big up front costs. they don’t like recurring payments when they are tied to long-term contracts with big fat cancellation fees, but monthly pay as you go is a friend to consumers.
Pierre Bastien
on 21 Dec 09You can even subscribe to salt.
Eric Carroll
on 21 Dec 09@Mark, I was considering a similar pricing approach and was curious as to the input on that very thing! I’m leaning towards a yearly subscription model, though.
The $2-$3 dollar transaction every month may wind up costing YOU more because of the cost in processing each transaction online.
I think it’s also easier to look at the product/service as having less value because of the low monthly price point and thereby easier to dismiss one month or another.
Those are the primary reasons why I’m opting for a yearly pricing.
Reed Botwright
on 21 Dec 09@ Matt – Great idea for the Hibernation. I think that every service-based business fears any attrition. I would LOVE to see cellular companies apply this technique when your phone breaks instead of charging you through the nose for a replacement or having to buy out your contract.
We are in the early stages of launching a service that helps businesses manage and map their distribution locations. This can be used as a tool for sales and for consumers finding places to purchase their products. We have received a lot of feedback from our initial customers and a lot of people are wary of the value of a service versus a product, especially one provided over the Internet. Even without a commitment, some people would rather “just buy it”. I think this is going to be a big hurdle to overcome for any service unless they specifically target the net-savvy.
JM
on 22 Dec 09@Andrew Watson You might want to try both…We’ve offer both pay&go and recurring plans at TellMyCell as it meets different needs of different users.
One tip – If would rather people on a recurring plan, make the plan worth more to your users – ie give them a discount over the pay/go model
Logan Koester
on 23 Dec 09Risk is another aspect of the yearly vs monthly question to consider. Only promising to offer a service for one month ahead gives you a lot more flexibility to change or discontinue the service.
When selling a full year, you could find a lot of customers expecting a large refund at the worst possible time.
Lenders refer to this as “contingent liability risk”, and proposing a lot of it can make it more difficult to negotiate a good deal on a merchant account.
This discussion is closed.