Annual Subscriptions: Are They Right For You?
With over 78% of adults around the world currently having an active subscription, it’s clear that this business model has huge potential. While a large segment of that figure is made up of payments for a service, subscriptions can be an incredibly useful tool for any business that sells a product.
For companies that have decided to offer products on a regular basis, determining a suitable length for subscriptions can be tricky. There are many time periods to choose from, with some businesses offering weekly, bi-weekly, monthly, and yearly options, alongside others.
In this article, Upscribe will be delving deep into annual subscriptions. We cover what they are, the benefits, drawbacks, and ultimately, help you to decide whether or not they are right for your business.
With a quick and easy setup process, Upscribe can help you to offer a better subscription experience for your customers. Create a checkout page that not only looks great but is responsive and free of lag. Learn more about how we can help your business today!
What Are Annual Subscriptions?
An annual subscription is a recurring contract between a business and a customer that lasts for a minimum of 12 months. All of the funds are paid in full upon signing up, with the business providing a service or product for the next year.
Some great examples of businesses that offer annual billing include:
- Sock Panda
- Ready, Set, Food!
- Coffee And A Classic
When entering an annual subscription with any of the businesses above, you will be given products on a regular basis. This is often weekly or monthly.
You will also likely receive a personalized selection of goods, with each company asking you certain questions before displaying recommended packages.
Should Your Business Offer Yearly Subscriptions?
Annual payment options are suited to a large variety of businesses that offer products through a subscription service. If you’re not sure, here is some criteria to consider:
If you are new to subscriptions, the frequency of your product deliveries is something to think about. Does your business make or source products that are needed on a regular basis?
Think ingredients, items of clothing, beauty products, and other consumables. Any product that can reliably and consistently be used within a specific time period will suit an annual subscription model.
This can also be adapted to other products. Many businesses will have accompanying items that are typically used as an upsell. For example, if you sell kitchenware, then you could provide your customers with expert cleaning solutions and equipment. As these will be used regularly, you can deliver them monthly and charge annually.
As humans, most of us tend to get bored fast. In order to sustain a yearly subscription, offering a good variety of products will keep your customers interested.
For businesses that sell items such as food: Do you have a large enough range to send out different products every month? If the answer is yes, then a yearly model could work. Keep in mind that this doesn’t apply to necessity goods, such as shavers.
Giving your buyers flexible options is another way to keep them engaged. Perhaps you offer them personalized products, or simply send them an assortment of goods each month. In short, keeping things fresh can be crucial with annual subscription services.
Regardless of your business model, customers should always come first. So, will offering them an annual subscription benefit them in any way? This could include:
- Discounts for longer commitments.
- Exclusive items for yearly subscribers.
- Convenience of being billed annually.
- Express delivery times.
No matter what the incentives for subscribing are, these should clearly be shown within your customer portal.
With Upscribe, this is made easy. We know that getting new subscribers is important, but creating relationships that last is even better. All of your customers will be able to access our detailed but simple dashboard. From here, they can easily manage their subscription, while also staying in the loop when it comes to important updates.
The Benefits Of Using Annual Subscriptions
Of course, charging on a yearly basis has a handful of benefits over monthly alternatives. Some of these advantages include:
Access To Revenue Immediately
As previously mentioned, running this business model can give you access to a year’s worth of funds straight away. For those who budget correctly, this could be hugely beneficial.
By spending this money on acquiring new customers, you can quickly grow your business. If these new customers also opt for yearly payments, scaling can be done at an exponential rate.
Keep in mind that you should reserve a good portion of funds for maintaining daily operations. You will still need to spend throughout the year in order to fulfill each subscription. Even if you already have a large inventory, delivery costs and other fees can add up fast.
Some customers may use monthly subscriptions like a trial. If they aren’t impressed immediately, then they may cancel the renewal. However, longer subscriptions give you more opportunities to impress with your products.
It’s no secret that when it comes to running a business, mistakes happen. Products can get damaged and deliveries can be late. With an annual subscription, you can still win back customers by using a variety of methods:
- Offer them superb customer service.
- Send replacement products.
- Give them an additional month of products.
- Remind them of the value proposition.
A study conducted by Wonderment states that 64% of respondents feel more connected to a business that offers a direct subscription. For any company that makes its own products, or ships to the customer without using a fulfillment center, this is a promising sign.
Receiving a payment for a year’s worth of product can really assist with cash flow calculations. It allows you to prefill a segment of your yearly revenue.
You can also calculate the costs for the next 12 months. This can be done by adding all of the active subscriptions and multiplying it by the cost to source or make each one. Knowing this information in advance will also assist with inventory management.
Finally, predictable revenue is a trait that gives confidence to many investors. If you’re looking for an injection of cash into your eCommerce business, then mentioning these figures in your pitch could be highly useful.
When some executives approach investors, they can only give predictions for the next year. By using a 12-month subscription model, you can share your minimum revenue earned to date.
The Drawbacks Of Using Annual Subscriptions
Now the advantages of annual subscriptions have been covered, it’s time to look at some of the potential drawbacks. We have also included some possible solutions to the problems listed below!
Sure, your customers may be saving money when opting for a yearly subscription. However, sometimes the convenience of paying in smaller increments can seem more appealing. This may also be the only choice for a customer if they do not have enough money available to commit to a 12-month subscription.
When paying monthly, you also have the option to cancel your installments at any time. For first-time buyers, this is an appealing prospect.
To counteract this, your longer subscription periods should be as incentivizing as possible. Customer portals should clearly display the prices of yearly vs monthly packages. The potential savings should be made crystal clear to the customer.
This business model will require in-depth planning. While you can accurately predict revenue with annual subscriptions, some businesses may struggle if they only receive payment on a yearly basis.
In addition to this, the price you pay for products may increase throughout this period of time, decreasing your profit margins as a result. In fact, it could even lead to you turning a loss, as the business will need to comply with the annual subscription contract.
With a monthly subscription in this instance, you could simply notify existing customers that a change in pricing will occur. They will have the option to cancel or agree with the adjustments.
Losing a few customers is bad, but operating at a loss can cause some serious issues.
Planning effectively will allow you to stay on top of daily operations. Keeping enough money in the bank can also tide you over, should an unforeseen event happen.
Give Customers the Freedom to Choose
To wrap up this article, we would like to point out that offering both yearly and monthly plans is another option working well for businesses. Giving your customers the freedom to choose is almost always a positive thing. Providing discounts for longer subscriptions can also increase customer loyalty, average order value, and lifetime value.
Upscribe can help you to increase the conversion rate and subscription duration of customers. We deliver a seamless experience for both businesses and customers. By improving the experience of each visitor, we can help to ensure that buyers return time after time. Get in touch with a member of our team to book a demo or gain access to our comprehensive tools today!