The subscription economy has been growing steadily in recent years, with the global market estimated to reach $263 billion by 2020. However, there are many pitfalls to avoid when starting a subscription business. Here are 9 ways you can tell if your idea is successful or not.
The how to know if your business idea will work is a question that many people ask themselves. If you have an idea for a subscription company, here are 9 ways to tell if it’s going to be successful and profitable.
Our product LivePlan is subscription software that helps you create a business plan, therefore we’re huge supporters of the subscription business model here at Bplans.
However, as popular as the subscription business model is, it is not without flaws. It’s still feasible to come up with a subscription company concept that fails miserably.
So, how can you know whether your subscription company concept is a good one? We asked the experts at the YEC for advice on determining if a subscription business concept is worth pursuing.
Read on to see whether your subscription company concept is one that consumers would pay for, or if they will cancel their subscription.
1. Determine if you’re addressing a genuine problem.
Simply said, your company should be meeting a genuine need for your consumers. That is self-evident.
But, before you start your subscription company, be sure the need you’re thinking people have is genuine.
Call Loop’s Chris Brisson agrees: “Here’s the deal: You only take Advil when you have a headache,” he adds. “So, before deciding whether or not to start a subscription business, look into the market and see whether there’s a genuine pain point that your recurring business can address.”
Don’t jump to conclusions and presume that you know precisely what the problem is that your company concept is attempting to address. Spend some time early on doing market research and verifying your company concept to ensure you’re addressing a genuine, common need.
2. Determine whether or not there is a steady demand for your product.
Aside from determining if your subscription business concept is really addressing a real need, you must also evaluate whether there is sufficient demand for your product or service on a regular basis.
“If the product is a specialized item that is in great demand and can be flexible as the market changes, your concept would make a strong subscription company,” says Bryanne Lawless of BLND Public Relations. “It may also be beneficial if the product is a typical item that has been upgraded and is very easy to buy and use for consumers.” Consider the Dollar Shave Club as an example of this kind of company.
You may have a great concept that addresses a problem, but if there isn’t enough demand for the product or service on a consistent basis, you’re out of luck. The key is to identify a market segment that is both in demand and addresses a need in which your company can compete. “Find a niche industry that is beneficial to customers and has little competition,” Lawless advises.
3. Think about the benefits of selling a service rather than a product.
We often conceive about subscription business models in terms of items that have traditionally been provided through subscription—for example, periodicals. Alternatively, we may consider software-based subscription services such as SalesForce or Basecamp.
The subscription business model, on the other hand, may operate for companies that aren’t product-based. “A subscription company requires you to offer ongoing value, and your customers must trust you to provide what they require,” says Andy Karuza of FenSens.
A hair salon, for example, may not seem like a suitable fit for the subscription business model. Vive Salons, on the other hand, has wisely chosen to structure their company on customers’ demand for recurrent hair treatments, and therefore offers a membership program that allows clients to get blowouts all around NYC. It’s a service that’s ideal for the subscription business model since consumers will require it again and again.
With this example, Karuza concisely explains why services are frequently a better match for the subscription business model than products: “Business analytics are a service because companies want constant access to them with the option to turn them off at any moment; a toothbrush, on the other hand, is a product that consumers would want to purchase once and own.”
A subscription service that sends a new toothbrush every few months, on the other hand, isn’t a terrible concept.
4. Determine the point of saturation
“As far as we know, when we started in 2013, our firm was the first city-themed subscription box,” explains Sam Davidson of his company Batch. “No one else was doing what we were doing, so ours stood out even as the market became flooded with concepts.”
That isn’t to say that the only field worth joining is one where there isn’t any competition at all (spoiler alert: this doesn’t exist), but it is a good idea to have an idea of how tough the competition will be.
“With more participants, you’ll need a distinctive narrative, product, or viewpoint to stand out in a crowded market (that’s just becoming busier),” Davidson says. If you want to establish a subscription company in a highly crowded sector (for example, beauty subscription boxes), you’ll have to work even harder to stand out from the competition.
5. Take into account typical user usage patterns.
Is your subscription business concept one that people will really utilize on a daily basis? Amerisleep’s Firas Kittaneh adds, “Brands like Quip and ButcherBox have done an amazing job of finding out precisely how frequently consumers need new goods and creating perfectly timed delivery schedules.”
Kittaneh advises taking a close look at your subscription business’s existing consumption patterns. He asks, “How fast do customers use your product?” “If the response is monthly or quarterly, there’s a good probability they’d want the convenience of a subscription service so they don’t have to worry about personal inventory replenishment,” he says.
6. Conduct a survey of your target audience.
Getting out and engaging with your target audience is an essential part of the concept validation process. This may help you pinpoint precisely what your consumers expect from your business and give you a better idea of how to effectively address their issue.
According to Drew Hendricks of Buttercup, you may obtain this information by having members of your target demographic fill out a survey. “Find out whether they’re interested, what kind of price they’re prepared to spend, and how long they’re willing to stick with it,” he adds. This will provide you with insights into their purchasing patterns and thinking process that your best guesses will never be able to provide.
7. Use Google Adwords as a test bed.
Aside from personally contacting prospective consumers, there are other more passive methods for gathering information on your target customer group.
“Investing in a testing budget utilizing Google Adwords, where you may have a big test pool if you designate a significant budget, is the greatest method to evaluate whether the concept is solid,” explains Marcela De Vivo of Brilliance. “You can set up an Adwords campaign in a day, and if your audience sample size is big enough, this test may provide valuable information about a company’s viability.”
Whether or whether this idea will work for you is dependent on the size (and available financing scope) of your company, but it’s worth investigating since you’ll be able to receive input that you wouldn’t otherwise have.
8. Create a focus group
While sponsored testing may be a wonderful method to obtain input from a bigger population that you wouldn’t have had access to otherwise, Chatter Buzz’s Shalyn Dever advises asking for feedback from “actual people” in the context of a focus group.
“I propose organizing a focus group session with your potential target audience before investing in paid advertisements or testing a tiny online market through advertising,” adds Dever, who suggests forming a focus group of 10 to 20 individuals and asking for their feedback.
“Reach out to your family and friends to save money,” she advises. “If they don’t believe your subscription business will succeed, they should say so.”
9. Begin a VIP early-admissions program.
Vik Patel of Future Hosting recommends creating a landing page with an early-access registration form if you’ve researched the industry and believe you have a solid concept. “Advertise the page on social media and via Google AdWords, and track the results.”
This approach allows you to evaluate if there is sufficient interest in your product or service without spending too much time or effort. “You’ve proven that there’s some interest in the concept with a minimum expenditure if enough people share and join up,” Patel adds.
Have you ever considered starting a subscription business? What criteria did you use to evaluate whether or not your concept was viable? Tell us about your experience by sharing this post on Twitter or Facebook!
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