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Everything You Need to Know About Buying a Subscription Website
By Quiet Light
As an entrepreneur, owning a subscription business is one of the best ways to earn predictable, recurring revenue. Last year alone, subscription brands grew their customer base by 31%. While some entrepreneurs choose to start their own subscription business from the ground up, others prefer buying a subscription website and making it their own.
If purchasing an existing subscription business interests you, it’s important to understand how subscription and membership sites work, where you can find one for sale, and what the acquisition process looks like.
In this article, we discuss:
- How subscriptions sites work and the major benefits of their business model
- The different types of subscription sites and what success looks like for each one
- Costs associated with running a subscription site
- The most important aspects of due diligence when buying a subscription website
What is a subscription website?
A subscription business occurs when customers pay a recurring fee and receive your product or services in return. If you watch a show on Netflix, listen to a new playlist on Spotify, or have your toilet paper auto-delivered to your doors so you never run out, you’re a customer of a subscription style business.
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. If your business provides a business or service that customers need replenished regularly, offering a subscription could be a great way to grow your company. Or, if your company thrives through customer interaction and community building, a membership subscription option could be a fantastic way to build customer relationships and grow your business.
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Subscription websites and businesses offer great opportunities for both the business owner and the customer. After subscribing, customers know that they can regularly receive a product or service they need. Different styles of subscription services also help customers discover new items that are curated just for them.
“If your company thrives through customer interaction and community building, a membership subscription option could be a fantastic way to build customer relationships and grow your business.”
Meanwhile, business owners experience many benefits from running a subscription model business, some of which include:
- A low point of entry for customers
- Predictable and recurring payment
- Opportunities for cross-promotion of additional products
Creating an easy access point for customers
One reason that subscription sites are a popular business model is because they create an easy entry point for customers to interact with your business.
Some customers might struggle to justify paying a high price for your product or service. Offering them a weekly, monthly, or yearly subscription makes it possible for them to budget the expense over a longer period of time. Also, buying a month-long subscription for your product or access to content feels like less of a commitment.
With a subscription-style website, you can offer free trials or discounted rates for customers. Because it’s easy to say yes to a free or discounted trial, your business can potentially save money on marketing because the experience of a subscription does the work for you.
Predictable revenue for your business
Another benefit of running a subscription website is the predictable revenue that your business will receive from subscribers. If you charge $30 a month for a curated subscription box and you have 1,400 subscribers, you can be confident that you’ll receive $42,000 each month in revenue.
While one time sales can be unpredictable or reliant on certain shopping seasons for customers, predictable income decreases the risks associated with building and growing your company.
When you’re making decisions about your business finances and goals, recurring revenue gives you an accurate picture of the available resources. If you’re thinking about selling your business down the road, predictable cash flows are an aspect of business finances that both investors and potential buyers find attractive in a company.
“While one time sales can be unpredictable or reliant on certain shopping seasons for customers, predictable income decreases the risks associated with building and growing your company.”
Opportunities for cross-promotion
If someone has a subscription to your service or site, you have the opportunity to interact with them continuously. This allows you to build a relationship through excellent customer support as well as build trust in your product or service. Marketing a new or additional service to a loyal subscriber requires much less effort than starting fresh with a new customer.
After a subscriber is used to seeing your subscription fee as part of their monthly or yearly budget, they are able to see the affordability of adding on an additional feature or service. And if your company helps a customer solve their problems, grow as a person, or learn a new skill, they’ll recognize the benefits that your new service or product can offer them.
Creating tiered pricing for your subscription also offers opportunities for increasing revenue. This can happen through upgrades when customers are ready to take the next step.
What success looks like for three different types of subscription sites
There are different kinds of subscription sites that you can choose from to build a successful business. Here are three that have consistently proven to be great opportunities for entrepreneurs:
- Curated subscriptions
- Replenishment subscriptions
- Community building membership websites
Curated subscription boxes
Back in 2010, Birchbox became one of the first companies to offer a curated subscription box. The company created a monthly subscription that included four to five selected samples of beauty related products. Today, Birchbox has nearly 400,000 subscribers. Their success has inspired many other companies to offer a curated subscription box..
Today, there are subscription boxes in almost every category, including beauty products, apparel, edibles, and home decor. Some other recognizable brands in the subscription box marketplace include:
- Stitch Fix, a personal styling service for men, women & kids that sends clothing to your door (with free shipping & returns)
- Book of the Month, a business that curates new books each month so bibliophiles can spend more time reading and less time looking for their next read
- Alltrue, a quarterly box that features full-size, socially-conscious products based around a seasonal theme
To run well, curated subscription boxes must offer an element of surprise and a great customer experience. Subscribers are looking to try new items that have been personally selected for them.
There are certain risks involved with offering highly curated subscription boxes. Because the unboxing experience is such a large part of the customer experience, businesses might see higher operating costs around packaging, branding, and shipping. If your subscription box features niche, more luxury based items, your profit margin might be lower on products you include in shipments.
Another risk that curated subscription box businesses run into is a high customer turnover rate. Because many subscription boxes are considered a splurge, they can be the first thing to get canceled in the case of a recession or a tight month in a customer’s budget. This issue can be combated with different levels of subscription prices. Or, by offering customers the ability to pause their subscription.
Despite these risks, curated subscription boxes can be a profitable and successful business model. Most subscription boxes can range in price from $10 to $100 a month, and promoting new products can lead to great business networking opportunities in your niche.
Replenishment subscriptions are services and products that aim to save customers time and money. Unlike curated subscription boxes where customers hope to discover something new and exciting each month, the replenishment subscription model regularly supplies customers with the same or similar items. Examples of replenishment subscriptions include:
- BarkBox, a customizable monthly subscription box of themed toys and treats for dogs
- Lovevery Play Kits, Montessori kits delivered twice a month full of toys that match children’s developmental stages
- Harry’s, a company that delivers shaving supplies automatically on schedules set by the customer
- Hello Fresh, a meal-kit company that delivers step-by-step recipes and fresh, pre-portioned ingredients right to their customers’ front door
Success for a replenishment subscription model involves retaining customers who value convenience and affordability.
One disadvantage in the replenishment subscription marketplace is that businesses must compete for customer retention with low prices and frequent discounts. To offer these prices, you’ll have to keep business costs low to be able to see a profit. Selling a large quantity of products can provide an antidote to this issue, but that can be difficult to realize in the beginning stages.
Despite the necessity of thin margins, replenishment subscription boxes have their advantages. The top advantage is higher retention rates. Replenishment subscriptions replace products that customers use regularly. Therefore, customer retention is higher than other subscription-based models. 45% of replenishment subscribers stay subscribed to the service or product shipments for at least one year.
“Success for a replenishment subscription model involves retaining customers who value convenience and affordability.”
There’s also a higher conversion rate associated with replenishment subscribers. 65% of customers who think about subscribing to a replenishment service end up signing up.
Membership subscription sites
Finally, the last category of subscription businesses is a membership subscription site. These sites provide subscribers with exclusive access to content as well as connection with other members. Some popular community building membership sites include:
- Mighty Networks, a site that combines community and course access (including live streaming) all in one place
- MemberPress, a plugin that allows a WordPress blog to monetize, create community, control access to content, and sell digital downloads and courses securely
- Patreon, a digital space for creators to build memberships by providing exclusive access to their work and connection with their communities
- Wishlist Member, a membership plugin that transforms WordPress site into a membership site complete with exclusive content, integrated payments, and membership level management
To be successful, a membership site has to have a service mindset towards their current members, be able to continually add value to their membership site, and a focus on membership retention and engagement.
Potential disadvantages of buying a subscription website
One disadvantage of running a membership subscription site is the continual maintenance and improvement required. Customers don’t only interact with static and evergreen content, they desire continual points of connection. This could be through the site itself or through external social media groups or forums. If a customer doesn’t see a well maintained community, they’re more than likely to end their subscription.
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Even though membership sites require ongoing maintenance, they do offer great opportunities to build customer connections. You’ll get to know customers through membership discussion, and their sense of community with each other and you as the business owner can grow.
Your membership site could also feature evergreen content and courses. Although you may have to spend time, effort, and money to create high quality content, your hard work pays off. Although you might spend weeks creating an online course, once the course is available for purchase, it becomes a source of passive income.
Membership sites can also offer customers perks such as discounts for future purchases, early access to new content, and first looks at new products. Because you’ve spent time building customer loyalty, members are more likely to take an interest in the new products or services that you launch.
How to make money by buying and operating a subscription website
Subscription websites and services can be a great way to grow a business. But before you purchase a subscription or membership site, it’s important to understand how both incoming revenue and outgoing expenses factor into your success as a business owner.
How subscription companies make money
Before we discuss the costs associated with owning and operating a subscription model business, let’s take a look at how these businesses generate income.
There are a few common sources of revenue for subscription sites, including:
- Paid memberships
- Access to digital content
- Additional one-time purchases from subscribers
The main source of income for a subscription business comes from recurring subscriber payments. Some subscribers pay a recurring fee for access to products. Or, customers could pay to access content such as music, books, or movies. Other businesses generate income by offering their subscriptions to their software (SaaS) instead of requiring one-time purchases.
Although a majority of the revenue for subscription businesses comes from recurring subscriber payments, one-time purchases are also a source of income. An example of a subscription business with one-time purchases is Stitch Fix. Stitch Fix is a curated clothing subscription. Their customers pay a fee to receive a box full of curated clothing items. However, if they decide to keep any of the items in the box, they pay an additional fee for the individual items they keep in their closet.
What are the costs associated with running a subscription or membership website?
When purchasing a subscription website, it’s also crucial to understand the costs associated with running the business.
The expenses you can expect when running a subscription or membership site include:
- Website domains and hosting
- Membership Site Software
- Payment processing
Website domains and hosting
The two main expenses related to owning a website are domain and hosting. A website domain is the url customers type into their search engines to find your business—essentially your online business address.
Meanwhile, website hosting is the storage and sharing of your website data. You’ll also need an SSL certificate to guarantee that any private data that customers share with you is encrypted. Most hosting providers have integrated SSL security or plans you can add onto your purchase.
Membership Site software
You have many options when it comes to how you want to run a membership website, but they can generally be broken down into two categories. You’ll either run your business on a pre-existing online platform, or have a self-hosted site.
If your membership site is based on providing content like online courses to customers, a pre-built online platform could be a great option. You can host your site on Teachable, an all-in-one platform that you can use to create and sell online courses, starting at just $29 a month.
The more features your membership site has, the higher the price tag for using a pre-built online platform. For instance, Your Membership, which includes many more features for members, can cost your business over $500 a month.
The necessity of accepting credit card payments online comes with credit card processing fees. As a business owner, you’ll pay these fees every time a customer uses their credit or debit card to make a purchase on your website.
The four most popular credit card brands are Visa, Mastercard, American Express, and Discover. Their average processing fee can range from 1.5% to 3.1%. Some businesses pay a flat rate through online processors like PayPal or Stripe that combines all of the required fees into one transaction fee.
One major advantage of purchasing an existing company is your ability to access an established customer base. For many entrepreneurs, this factor alone can make the acquisition worth the investment.
However, you’ll still need to take marketing expenses into consideration. These expenses can include things like:
- Customer research
- Affiliate marketing programs
- Influencer marketing
- Ad campaigns through search engines and social media platforms.
You might be interested in purchasing a subscription business that specializes in sending physical products to customers. If so, sourcing, storing, and shipping those products will be expenses you will need to consider.
When purchasing a pre-existing company, the previous owners may have spent time and effort building up relationships with their vendors. Those established relationships can help mitigate the costs of product sourcing. This can clear up funds for purchasing additional products for future shipments.
Due diligences when buying a subscription website
Once you’ve done your research, evaluated the marketplace, and identified a business that aligns with the dreams and goals you have as an entrepreneur, it’s time to purchase a subscription business! Taking over an established business offers some incredible benefits to you as a business owner. However, in order to recognize that potential, you have to conduct several important steps, including due diligence.
The due diligence process ensures that the business you want to purchase is as promising as the seller says. After all, running a business is a complex undertaking and not every detail is visible from just a surface level glance.
What does due diligence involve when buying a subscription website?
Due diligence is the part of the purchasing process where you learn as much as you possibly can about the subscription business you want to purchase. If you skip over this part of buying a subscription website, it’s possible that you could encounter some not-so-pleasant surprises down the line.
There are a few areas that you want to make sure to look at when purchasing a company, including:
- Accounting practices
- Financial statements that are third-party verified
- Business trends
- Key seller metrics
- Supplier agreements
“If you skip over the due diligence process, it’s possible that you could encounter some not-so-pleasant surprises down the line.”
Buying a subscription website? Keep an eye on these metrics
Every subscription business is different, so you always want to take the time to understand how a specific business operates before moving forward with the purchasing process. If the seller has done a good job in preparing their business to sell, they’ll have well-organized procedures and documentation to make it easy for you to step in as the owner.
When you’re looking at subscription sites for sale on the marketplace or with a broker, pay attention to these metrics that will impact the profitability and success of the business:
- Churn rate
- Committed monthly recurring revenue
- Life time value of a customer
- Trial to paid conversion rate
- Traffic volume and source
Even if a business is gaining new paying customers at a low cost, business growth will be stunted if they’re experiencing poor customer retention. Looking at a churn rate shows you which paying subscribers are canceling their subscription plans.
“Low churn rates reveal a stable customer success strategy.”
To calculate a churn rate, take the number of customers who cancel their subscription in a given period and divide it by the total remaining customers. Many SaaS experts say that maintaining a low churn rate is the most important metric to keep an eye on.
Ideally, a business is working to engage users, seek feedback from their subscribers, and keep their churn rate low. Low churn rates reveal a stable customer success strategy.
Committed monthly recurring revenue
It’s important to understand a subscription businesses’ monthly recurring revenue (MMR). Recurring revenue is essential for subscription business success. But to get a more accurate picture of the business’ financial health and growth potential,
CMRR takes into account future events like committed price increases and churn rates. If you want to be able to increase the value of a subscription business after acquisition, focus on finding ways to increase the CMMR.
Lifetime value of a customer
Customer lifetime value refers to the value that a subscriber provides to the company over their entire relationship with your business. Calculate customer lifetime value (LTV) by taking the lifetime revenue that a customer generates and subtracting the costs associated with acquiring them as a customer.
Seeing a customer’s lifetime value can help you discover other key metrics, including the acquisition costs, the retention rate, and general customer happiness. A low lifetime value can reveal a customer experience problem in the company you’re hoping to acquire.
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
Website traffic is a crucial factor to take into consideration for any ecommerce business. You can take a few different approaches to evaluate an ecommerce business website traffic volume. Platforms like Google Analytics can give you key insights into website traffic. When reviewing reports from analytic platforms, look to see if the information you’re seeing in those reports lines up with the numbers the seller provided.
Pay attention to how a customer lands on the subscription website. Do they find out about the business through effective marketing? Or is a majority of the clicks coming from paid ads? Learning more about how a business acquires customers can help you identify both the strengths and weaknesses of the subscription or membership site.
In the perfect case scenario, a website has a great variety of traffic sources and doesn’t rely on just one. You don’t want your only customers coming to you through Instagram ads. Instead, great sellers have stable businesses with diversified traffic sources.
The many advantages of purchasing an existing subscription business make business acquisition a great choice for entrepreneurs. While there are no guarantees of success, pre existing businesses pose less of a risk and boast a shorter start up time than starting a business from scratch.
After you close the deal, you own an established business that has a reliable source of revenue from subscribers. You also get to start out with an established customer base right out of the gate.
If you’re interested in purchasing a subscription business, the next steps are to define your budget, purchasing criteria, and business strategy. Once you know what you’re looking for and how much you’re willing to pay for it, you’re ready to start looking at listings that can help you achieve your business goals.
At Quiet Light brokerage, we love helping entrepreneurs skip the start-up grind and buy profitable online businesses. You can always request a summary on any business without further obligation.
Buy a Profitable Online Business
Outsmart the startup game and check out our listings. You can request a summary on any business without any further obligation.