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Why Does Moving To A Subscription Business Model Initially Decrease Revenue And Increase Expenses?

Many companies and businesses are adopting a subscription business model. But this doesn’t come without some downfalls. This blog aims to answer the burning question – why does moving to a subscription business model initially decrease revenue and increase expenses?

First off let’s start by delving into what exactly a subscription business model is. Understanding more about this specific type of business model allows us to further grasp why they, at first, decrease revenue and increase expenses.

What Is A Subscription Business Model?

A subscription business model is when an organisation charges a recurring fee in exchange for frequent delivery of its products or services.

This business model, although not a new concept, is becoming more and more popular for both customers, due to convenience and for companies, due to predictability and sustainability. 

Sure, there are several reasons why investors love a subscription business model, however, it is important to note the initial decrease in revenue and the large number of expenses these companies pay out in order to reap the rewards.

The Initial Decrease In Revenue And Increased Expenses Of A Subscription Business Model

‘Initial’ is the keyword here. Those companies that adopt a subscription business model are faced with a large financial outlay in the early stages. Investing in a large number of products, without knowing the amount of customers they will receive is the first way in which companies experience a large number of outgoing expenses.

We appreciate the importance of a customer base’s loyalty to these companies, making back the initial losses is important in order for these business models to succeed. Particular companies that adopt this business model, such as Fabletics and JustFab have been faced with scrutiny, due to the difficulty of customers being able to leave their subscriptions.

Keeping customers loyal is a key way of earning back the expenses made to start up the business’ subscription model, this doesn’t however mean preventing inevitable cancellations.

The initial decrease in revenue is among one of the few disadvantages of a subscription business model.

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Initial Expense On Marketing For Subscription Business Model

A subscription business model heavily relies on digital marketing strategies to increase awareness and develop customer loyalty. With a number of industries joining the subscription economy, it’s important for us, as a digital marketing agency, to explore strategies from which these businesses’ will most widely benefit.

The initial cost of marketing will again lead to the company experiencing a decrease in revenue and increased expenses, spending large amounts of money on campaigns to get people signing up in the first place.

We appreciate that marketing efforts are a significant financial outlay for a business and so we aim to advise on the most beneficial marketing strategies for those companies who use a subscription business model.

Digital Marketing For A Subscription Business Model

As with any business with an online presence, SEO is a fundamental element of marketing for those with a subscription business model. Especially due to the initial decrease in revenue. It’s important that those customers find you!

Working on ways to move up the rankings with strategies such as keyword research, competitor analysis and content is crucial for developing the much-needed trust of potential clients.

Take a look at our SEO services at GrowTraffic!

Social proofing is a vital element of any business and something that is becoming more and more recognised with the emergence of social media. The things we see others doing, and enjoying, we are more likely to engage with!

Social media holds a huge presence in any business. Bringing a customer base in from a number of different platforms is another way of developing loyalty, something that is essential for a subscription business model. Managing social media platforms is a great way of attracting customers and increasing revenue.

Marketing At GrowTraffic

Keeping on top of a subscription business model, and working towards reversing the initial decrease in revenue can be complex. Knowing what you need to do to succeed with this type of business model is one thing, doing it is something entirely different!

We understand the complexity of keeping on top of digital marketing efforts alongside running your business, so why not leave it to the experts?

At GrowTraffic, we strive towards creating digital marketing campaigns that benefit you and your business, driving traffic to your site, and keeping them there!

If you want to outsource your digital marketing and work with an agency that understands the subscription business model – get in touch! We can work alongside you to increase revenue and develop a loyal customer base!

Call us today on 0161 706 0012.

Alternatively, email us at info@growtraffic.co.uk.

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