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How Startups Lose Money With Subscription Model

Launching a subscription-based product or service seems so easy. It is like instant monthly recurring revenue, just add customers. Although there is a problem with the subscription pricing model.

It is no secret that consumers are increasingly adopting the subscriber model for products and services that they used to make requests on demand. These days, Amazon will sell you a subscription to your Coffee Pods at a full price discount. Or you can run a Porsche of your choice for just $ 3,100 a month.

On the startup side, service subscription companies everywhere are springing up under the sometimes two-way market model, other times as an alternative to traditional service offerings with a no-frills approach to offset costs and increase demand.

I have a long history of launching subscription services ranging from my first self-established startup to my most recent self-established startup and a few more well-funded dramas in between. A few months ago, I wrote a post on how to correct the subscription pricing model. None of that experience came overnight or without too many mistakes along the way.

So talk about your vast experience with getting the subscription price model wrong. Subscription pricing does not work for traditional products and services.

When a startup tries to slap the subscription pricing model on an existing product or service, a large number of mistakes are made. The hard truth is that this offering has gone through many changes - everything from how it is delivered to how it is done - to become a completely different product or service.

I get a lot of inbound from startups who are trying the subscription model and failing with it. They find that there is no demand, no margin, and what they hoped would become a stable pipeline is even more chaotic now as their customers start and unsubscribe at a rate equal to or greater than their rate. Booking services or purchasing products outright.

Molding a product or service to fit the subscription model, the provider must separate the least valuable and most expensive elements of that product or service, package the rest in a completely different way, and only then A subset of the traditional customer base has to be addressed.

If neither of those things happens, the results will be tragic, and a lot of money will be lost along the way.

Subscription pricing does not work when it outlines the demand. Many subscription startups are set up on an idea similar to this:

"If people like getting a massage, I mean if they like it so much, why wouldn't they pay less per massage and get one massage every month?"

Even if a product or service conforms to the mechanics of a subscription pricing model, there is a set of customer demands to make a subscription valuable.

The success of the subscription pricing model is not based on how much the customer wants or needs a product. It has everything to do with the time at which they want or need it.

I'd like my morning coffee. I'd like my morning coffee. I was lured into Amazon's subscription model for my coffee pods to save cash. The first time I needed more coffee and did not have a delivery for a few days, I canceled the subscription.


Subscription pricing does not work when it supplies

One of the reasons that Teaching Startup works as a subscription model is that it does not matter if you use the product immediately or not. This is why the membership model has always worked for content. If the customer monitors the cover of an issue and wants to consume it right now, it makes them happy. If not, they put the issue in their pile for later reading, which makes them happy later.

Back to the Amazon Coffee Pod example. For products, customers will be happy to pay when they don't need them, up to a point, as long as they believe they will get value in the future. If I'm behind from using my shaving blade, well, I'll meet them.


That membership is axing until I grow a beard.

On the service side, there is no forgiveness, and this is something I have learned the hard way. Unlike products, services have a very short shelf life. Your pricing model may include backup plans and rescheduled plans which can be complicated. But still, the first time a client goes without their massage for a month, they are more likely to cancel the membership than to do the massage again.


Membership models do not work when they do not remove friction

The major selling point of a subscription is so that both parties can set-and-forget. But on behalf of the customer, a subscription cannot just be a product or service that becomes easy when you set and forget, it should be something that hurts you when you set and forget.

This is the opposite motivation, which goes wrong. Curation subscriptions, be it curating a good plumber, or a good investment or a good recipe, have a hard time with this, as their value prop eventually works against them when they try to be all things to all people. They have to go from Must-to-Good, which is the death of any product or service, subscription or not.


Membership models do not work when they do not set a price

A free trial is a great way for customers to understand and conform to the membership model. It can be a free estimate, a free evaluation or just free limited use of a product or service.

Here is the killer. To change from paying customers for free is harder than converting from nothing to paying them.

To counter, the trial has to provide the trial user with a taste of the full value without giving it a full price, because when you give something to someone for free, you immediately devalue it, and you give them to ruin it. Allow a subconscious.

If you do not correctly define the line between taste-value and absolute-value, economics will never work.

Membership models do not work when they do not provide value

This may sound like a clear statement. Here when it's not often the membership pricing model is an attraction for both parties because it allows a product or service to be offered at a lower price point. It was all the rage with mobile phones for some time when, to get the concept of a flagship phone to go mainstream, the market had to be able to offer a $ 1,000 device at $ 50. And the mobile phone subscription model worked at one point.

But consumers are far smarter than this, and as we see the number of days of $ 1,000 flagship phones, it is clear that they will only accept punitive contracts and gross payments for so long.

And this last mistake kind of summarizes the root of all mistakes.

The customer is always in control, whether they agree with the membership model or not. If the subscription pricing model has to be discontinued or offset in a way that penalizes the customer, it does not take long for the customer to rebel.

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