Business

Business Models Based On Recurring Revenue

Posted on Thursday, June 1st, 2017 at 1:09 pm

Technology is very much prevalent in our society and has completely transformed our daily lives and culture. We now live in an age where we expect things immediately and at our convenience. Recurring revenue business models have taken e-commerce to another level. Just like a magazine, customers can now receive reoccurring packages and services from clothing, web design, dog treats, computer storage space, groceries, vegan makeup, and books!

There is a growing trend of people subscribing to receive items, packages, or services from brands of their choice! Some retailers and businesses even offer free shipping, hassle-free returns and the option to cancel anytime. Its success is due to the ease with which services and products can be purchased from the comfort of your own home and delivered straight to your doorstep. Major companies that have hopped onto the bandwagon include Microsoft’s Office 365, Amazon Prime, Netflix, and Salesforce.com.

Subscription-based business is a recurring revenue model and they receive guaranteed income for at least the first month of subscription when a customer signs up. This type of business model proves to be mutually-beneficial for both the customer and the company. It offers customer convenience. When a customer decides a product or service is worth committing to, they never have to remember to reorder every month when they are purchasing from a subscription-based business. These businesses also offer customers a much lower upfront cost, usually at a flat rate.

This business model is beneficial for companies as they can predict their monthly revenue through recurring sales which means their business may be more stable. The consistency in revenue allow companies to calculate and predict expenses, longevity of customer loyalty, manage inventory and much more.

Subscription businesses is another example of using increasing convenience to take over more traditional products and services. We have already seen companies like Blockbuster fall to ones like Netflix and Amazon Prime’s TV show and movie subscription service. Now, other industries, including automotive ownership and even grocery stores are being threatened by affordable car rental membership companies like car2go and Amazon Go, Amazon’s new and extremely successful brick and mortar store in which customers can walk in, grab what they need, and leave without cashing out.

So what are some predictions for the rest of 2017?

Before 2016, beauty and skincare subscriptions were amongst the most popular industry because they provided products that require replenishing. The apparel and food industry began to follow suit, companies including Trunk Club and Cratejoy being the most popular. The industry predicts 2017 to be the year of whole foods, including healthy organic superfoods.

Online influencers are being recognized for their power of influencing! These people have a large and oftentimes, loyal followers. While these influencers engaging in “unboxing” videos have been popular for a long time, companies are catching onto the trend of mailing these influencers a box of random products they want to showcase. Not only is it a cheaper way to advertise their products and services, but hopefully the influencer will give good reviews and raves and encourage their followers to check out the company’s website and increase traffic and sales.

What do you think of subscription services? Let us know in the comments if you believe it to be the new wave!


 

 

Veronica Pang | The Edge Blog

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