How to Build a Subscription-Based Business

Backed-up inventory, debt not paying itself off, head in hands wondering what to do — it’s a common experience among many business owners. At the end of the day, it’s really the most common reason any business ends up failing — because income isn’t thought out or protected, according to The Hartford. However, some business owners are changing their way of doing things. A more reasonable way to start a business may be with a subscription-based model. A subscription-based business model can save you money and eliminate risk. Now, it’s understandable if this sounds odd or deterring. After all, outside of something like Netflix, how many subscription models does the average person buy into or rely upon? Regardless of your lack of participation in such things, it may be a better idea than you think, and this is why.

Reducing Excess

With the subscription model, you can operate under lean manufacturing principles, only spending on what’s needed. This means that moreover, you don’t end up with as much inventory backup. It also allows you to not be in the financial hole as much, as you’re not waiting on purchases to cover what you put into a product. The idea is that people will have already purchased your product before it was made. This model counters product excess, and it’s not necessarily what we’re used to. However, it’s possible that many businesses could benefit greatly by, at the very least, experimenting with it for this reason. There are t-shirt companies, for instance, that have been trying to only print shirts ordered by customers. Potentially, this could affect a great number of industries.

Net Profit

As you’re aware, reducing excess may also reduce expenses. Putting in what may be assuredly less than what you’ll get out of it is something most businesses in the past could only dream about. But with subscription-based models, the balance between protecting your company assets and maintaining your bottom line is more possible to find. However, it’s not always easy. While switching between two kinds of models, it may be best for subscription inventory companies to use a hybrid accounting method, according to Maryville University. If you’re unaware, a hybrid accounting method combines cash method accounting (receipt by receipt) and accrual method accounting (analyzing quarterly or yearly income). This especially comes in handy when a subscription base starts growing rapidly. If you reach a point where you’re having to order products quickly because people are subscribing faster than usual, then it may be time to evaluate your expenses versus income. Some people hire management consultants from ASU or elsewhere to analyze their ROI in these cases, as well as to make sure they’re not ordering too much for the profit they’re making off sales.

Telling the Future

Correctly predicting consumer behavior is important. After being in the game for a while, you should be able to get a feel for what kinds of products sell and which don’t. However, you’ll also have to keep an eye on changes in the industry just in case. Consumer trends are rarely the same year to year. In some industries, such as the vinyl record industry, it’s actually possible to put in an initial inventory minimum order that you can change later, according to Intuit. Unfortunately, this isn’t the case everywhere, but if you do have this option, it’d be best to take advantage of it. If that is the case, though, eventually you may be able to gauge how much the initial inventory minimum order could be. From there, you won’t have to make as many changes to it until you grow substantially. Does your business use subscriptions? Have you had a good or bad experience with it? Discussion and opposition are the keys to truth. Feel free to share experiences — positive or negative — in the comments below!