Amazon announced on Friday that it plans to move its Prime Pantry service away from a flat fee of $5.99 per box to a $5/month subscription. It’s really no surprise Amazon believes in subscriptions because their Prime members spend an average of $600 more per year on Amazon products compared to their non-Prime counterparts.
This news comes at a time when the subscription business model is booming. Subscription-based businesses attracted more than 11 million U.S. subscribers in 2017, and the industry as a whole has grown at at 200% annually since 2011. In the month of April 2017 alone, subscription company websites had about 37 million visitors.
These numbers should leave every business owner stroking their chin in contemplation. Subscriptions are the hot thing right now and there’s a few reasons why. First, subscriptions are great for customer convenience. They have a “set it and forget it” simplicity that gives consumers the assurance that they’ll have their regular products and services right when they need them. Subscriptions also makes monthly budgeting a breeze.
Businesses, on the other hand, stand to benefit from regular and predictable revenue streams. According to John Warrillow, creator of The Value Builder System, “The more guaranteed revenue you can offer a potential acquirer, the more valuable your business is going to be.” There’s also a psychological lock-in that occurs when a customer pays for a monthly subscription – they want to make the most of it.
There are a few issues with the model, however, that all businesses should be aware of. Approximately 13% of businesses tracked by the website My Subscription Addiction have failed, and many more have lost their fortunes. The subscription model is saturated because barriers to entry are really low. In highly-contested markets, it’s hard to make a living on a subscription model.
Fringe and specialized markets have a lot more luck. Especially those who offer unique services. Considering the fact that 41% of revenue in retail businesses in the U.S. comes from repeat customers, it’s still a good idea for businesses to consider the viability of a subscription-based model in their specific market.