3 Questions To Ask Yourself Before Buying or Starting a Subscription Business

Subscription businesses are everywhere—and for good reason. If you’re an entrepreneur and you want to increase customer engagement while creating a stream of recurring revenue, offering a subscription could be a great way to grow a business.

You might be considering adding a subscription offering with your current products. Or, you could be on the lookout for existing subscription or membership businesses for sale. Either way, it’s important to know how the subscription business model works and how to decide whether subscriptions can help you reach your business goals. 

In this article, you’ll learn:

• The three different types of subscriptions you can offer customers
• How to know whether a subscription model is the right move for your business
• The way you can skip the subscription startup stress by buying a business

What is the subscription business model?

In a subscription business model, customers pay a recurring fee in exchange for your products or services. More than likely, you’ve already explored a subscription business from the customer perspective. If you’ve ever binge watched a Hulu series, downloaded an album on iTunes or received a regular shipment of pet toys that your dog destroys in .5 seconds, you’ve interacted with a subscription website or service. 

These days, there are subscriptions available for almost any product and service imaginable. Generally speaking, all subscriptions break down into one of the following categories: 

• Replenishment subscriptions
• Curated subscriptions
• Exclusive access subscriptions

Replenishment and replacement subscriptions 

While some subscription platforms entice customers with exciting new experiences and products, replacement subscriptions deliver the same or similar items at regular intervals. 

For instance, Harry’s is a company that delivers shaving supplies automatically on a schedule that the customer sets. Because razors and shaving cream are items that will need replaced eventually, replenishment subscriptions are the perfect solution for both the customer and the business. 

“There are subscriptions available for almost any product and service imaginable.”

Similarly, customers might take advantage of food-based replenishment subscriptions. Hello Fresh delivers step-by-step recipes and fresh ingredients right to customers’ front porches. And because the food is gone after the meal is cleaned up, customers keep returning for groceries. 

Personalized and curated subscriptions 

The subscription model has a long history. Back in the 1800s, customers could subscribe to everything from milk deliveries to newspapers. Today, the rise of curated subscription boxes kickstarted a new era of subscription businesses. 

In 2010, Birchbox became one of the first companies to offer a curated subscription box. Their monthly shipments of four to five curated samples of beauty products became the industry standard. With nearly 400,000 subscribers, their success drove many other companies to start offering subscription boxes. 

Now, customers can receive a curated subscription box for beauty products, apparel, edibles, and home decor. Businesses offer an element of surprise and a memorable customer experience. Companies like AllTrue are recognizable for their artistic packaging. Not only do existing businesses now offer subscription options, entrepreneurs have started businesses centered around subscription services. 

Exclusive access and membership subscriptions 

Membership and access subscriptions provide customers with access to content and connection with others. Some of the most recognizable subscription services like Netflix, Hulu, Spotify, and iTunes fall under the access category. 

Meanwhile, community building sites like Might Networks, MemberPress, and Patreon provide membership subscriptions. Digital access and membership sites regularly add value to their sites and focus on engaging their customers. 

Some businesses utilize subscriptions to offer their customers exclusive access to content. For instance, creatives connect with fans on Patreon, a platform where fans support their artistic work with monthly payments. Their supporters unlock early access to their work or access exclusive content. 

3 questions to help you decide if the subscription business model is the right move for you

There are many benefits to offering your customers subscription options. Customers experience a low and affordable point of entry to your business. For businesses, subscriptions add predictable and recurring payments to your business.

Because you’re building customer loyalty with each subscription you ship or deliver electronically, there are great opportunities for cross-promotion of additional products and services across a customer’s lifetime.

But if you’re a current business owner, you might be wondering if adding subscription options for your customers is a good move. Take a few minutes to think about the answers to the following questions:

• Do you sell products or services that attract customers who love to try new things?
• Are customers likely to come back to replenish a product or service they purchased from you?
• Could you build the community around your product or service by offering digital community opportunities? 
• Would your customers be interested in exclusive access to content you create? 

If you answered yes, then a subscription option could be a great fit. They can help you build customer relationships and grow your business. Here are some additional questions to ask yourself to help you formulate some practical next steps.

1. What type of subscription will you offer customers?

The subscription business model works well for a variety of industries. Does your business provide or curate a product that attracts the type of customer who loves to try new things? You could explore the idea of offering a curated subscription box that helps customers discover their new favorite product.

2. How will you source and store your inventory?

If your subscription includes shipping physical products, it’s important to consider how you will source, store, and ship those products.

You might already have a sourced product in mind that you want to ship customers regularly. If so, have you run into any supply chain issues in the past that would impact subscribers? Meanwhile, if your subscription is a curated shipment of new products, will you source your products from the same supplier, or do you need to build out your network of vendors?

Then, think about what happens after you get the shipments of those products. Where will you store the inventory? Will you store your inventory in the same place that you package the final shipments, or will that occur at another site? 

Will you use your current business branding for your new subscription offerings, or is this a good opportunity to shake up your marketing? Some subscription boxes are immersive customer experiences, involving intricate packaging and explanatory pages. What do you want your customer to think and feel when they open a box from your company? 

3. What will you do to get the word out about your new subscription offerings?

You can put incredible intentionality into launching a subscription service or product, but the idea won’t be profitable if no one knows about it! How are you planning on spreading the word about your new subscription options?

Think about your specific subscription as you’re putting together a marketing plan. For instance, you might want to offer curated subscription experiences. Do the subscriptions only feature your items, or could you partner with other businesses and feature their products as a cross-promotion campaign?

You might conduct customer research to hear exactly what your customers are looking for in a subscription. Or, you might invest in an affiliate marketing program so that loyal customers and influencers alike can share about your products. You could also run paid ad campaigns through search engines and social media platforms. 

“You can put incredible intentionality into launching a subscription service or product, but the idea won’t be profitable if no one knows about it!”

Skip a stressful subscription startup and buy a pre-existing subscription business

If you’d rather skip the often-stressful beginning stages of owning a subscription business, you might be interested in learning how to buy a subscription business. 

Buying an established subscription company means that you hit the ground running with a proven business model and an established customer base. That frees you up to focus on making the business your own and launching additional services or subscriptions. 

Where to find a subscription website for sale

After you’ve determined your budget and know what type of subscriptions you want to offer customers, where can you find a business for sale? And once you find one, what does it look like to contact and negotiate with a seller? 

While you could turn to a variety of online marketplaces to browse business listings, often you’re not getting the full picture. It can be challenging to know whether a business owner’s asking price is the product of an accurate valuation, or whether the seller is trustworthy. 

The best option for many entrepreneurs is hiring an experienced business broker (or Advisor) to navigate the complex buying process with you. Not only can a business broker help you locate a business for sale within their network, they can be a guide through the negotiation and due diligence process. 

Business brokers will also help you prepare all of the financial documentation you need to buy a business and work to ensure a smooth end to a deal. 

“Buying an established subscription company means that you hit the ground running with a proven business model and an established customer base.”

What to keep in mind when you’re browsing business listings 

Browsing through a list of businesses for sale can be overwhelming, especially because every subscription business is different. 

Whether you’re looking through subscription sites for sale on the marketplace or with a broker, you’ll want to keep an eye on these subscription business specific metrics: 

• Churn rate
• Committed monthly recurring revenue 
• Trial to paid conversion rate
• Traffic volume and source 

Churn rate

The churn rate of a business is calculated by taking the total number of customers who canceled their subscriptions over a certain period of time and dividing it by the remaining customers. This number reveals whether or not a business has a stable customer success strategy.

You want to purchase a business who is actively working to engage customers, gather feedback from their past and current subscribers, and keep that churn number low. 

Committed monthly recurring revenue

Monthly recurring revenue is critical for subscription business success. But if you want an even more accurate picture of a business’ financial stability, look at their committed monthly recurring revenue (CMMR). 

CMMR takes things like price increase and churn rate into consideration. Does the business you’re considering purchasing have room for growth? If you want to grow a business after purchasing it, you will want to focus on ways that you can drive the CMMR number up. 

Trial to paid conversion rate

Simply put the trial to paid conversion rate is the percentage of people that signed up for a free trial but never converted to becoming a paid subscriber. When that conversion number is low, it reveals issues in overall company health.

Is the company not engaging with their customers through marketing campaigns? Are there problems with the product or service itself? There could be holes in the onboarding process, or problems with the pricing strategy for the subscription.

What does the experience of a customer who signs up for a free trial but never converts to a paid customer look like? Spend the due diligence time period learning more about the reasons for lack of conversion. 

Traffic volume and sources

Where are this business’ current customers coming from? Is the current marketing plan that the owner is implementing successful? Learning more about how a business acquires customers can help you identify both the strengths and weaknesses of the subscription or membership site. 

Spending time looking over platforms like Google Analytics will give you insights into web traffic. When reviewing analytic information, note whether the numbers you’re seeing accurately reflect the reports the seller provided. 

Although you can always change and grow a marketing strategy, the business you buy will ideally have diversified traffic sources. 

Conclusion 

Starting or purchasing a subscription business is a great option for many entrepreneurs. If you’re interested in purchasing a subscription business, the next steps are to decide how much you’re willing to invest, define the kind of business you’re looking for, and nail down your business strategy. Then, you’re ready to browse business listings and purchase one that helps you reach your business goals. 

Here at Quiet Light, we love meeting entrepreneurs who are ready to buy profitable online businesses. After browsing our current listings, you can always reach out and we’ll send you a no-obligation summary on businesses of your choosing upon signing an NDA.