The subscription business model has grown rapidly in recent years with e-commerce (Birchbox), entertainment (Spotify and Netflix) and media industries all adopting it as an alternative to one-off purchases. Here are guidelines for small business owners on running a successful subscription business.

From Netflix to Dollar Shave Club, monthly and annual subscription services are all the rage right now in the industry. Consumers get convenient access to unique products and services where they don’t have to pay upfront, and businesses get a recurring source of revenue and potential to serve long-term customers.

The subscription business model itself has been around for decades – paying weekly rent is a good example – but many traditional product-centric industries are moving to subscription models whereby customers pay a recurring fee to get new items sent to them. Today, subscription business models are used to purchase everything from music to pet food.

Subscription businesses have been going on for decades in one form or another, but it depends on whether the payment process is seamless and on the definition of ‘subscription’ itself.

Many industries are not doing it, but probably should as the definition of subscription is ease for the customer – you have one problem and that is sorted by a subscription. One day you will be able to subscribe to ‘short grass’ and lawnmower businesses will be able to track weather and growth rates to keep the grass short.

Steer the Subscription Benefits

What’s making subscription business models all the rage right now? The lure of a steady stream of recurring revenue is proving to be very attractive to business owners.

Subscriptions are great as it is all net positive cash flow as you always have cash to buy things and do things it is the easiest model to get a business off the ground.

Retaining customers can be up to nine times cheaper than acquiring new ones and at that nine times metric you don’t need to scale a sales force to keep up with revenue growth.

Another significant advantage of subscription business models is the high level of customer intelligence vendors can obtain.

Bellabox, a subscription business that sends out product samples from make-up companies has become so focused on follow-up questions it has created marketing reports “worth millions” to get feedback on products.

Avoid Pitfalls by Putting Customers First

A subscription business has many benefits; however, it changes the way business owners need to think about selling as retaining the customer is much more important for success.

You need to make sure everyone is happy and make sure every interaction – from social media to the delivery package – makes everyone happy. Traditional business models are more about sales than about how to keep customers happy.

Err on the side of caution. Giving away a free subscription due to a problem is worth it to keep your customers happy. The first rule is be fair – if you were on the other side what would you expect?

Some customers won’t know they have subscripted to a recurring billing service so vendors should give these people a refund and let them keep the product they have been sent. Keeping multiple communication channels open is also a must.