It is perhaps the holy grail of online business: finding customers that come back and purchase your product or service on a regular basis. Even better is if you can get them to sign up to a membership where they pay a monthly fee for access to your product or service via an auto pay or monthly automated credit card instruction. Once it’s set up, very few people change or cancel their membership; it’s just too easy to let it roll on.
The beauty of this type of customer? They are predictable (monthly purchases), profitable (monthly revenue), and generally more loyal than other customers (think about the last time you changed your gym, or your mobile phone provider).
The challenge of course is the competition; your competitors know the value of gaining one customer and will probably be willing to pay good money to acquire them and their Customer Lifetime Value (CLV). For example, if a monthly subscription is $10, gross profit is $5, and an average customer will be subscribed for 18 months, you could value that customer’s CLV at $90 ($5 x 18). Knowing this, you might be willing to invest up to $90 in CAC to acquire each customer, in the knowledge that over time this will be a profitable equation.
1. Business Idea: The Subscription Box
A popular business model over the past few years, the subscription box has had a variety of product formats, from wine to cosmetics to health snacks. The basic concept is the same; customers sign up to a regular box in the mail with a new selection of products for them to try, and pay a set monthly fee through a recurring billing arrangement that they agree to. Customers who like certain products in the box can then be sold more of that product in future, or be directed to purchase at other businesses in return for affiliate fees.
Find the right concept, and setting up a subscription business is relatively simple; if you use WordPess and WooCommerce, you can use a plugin like Subscriptio (http://codecanyon.net/item/subscriptio-woocommerce-subscriptions/8754068) or WooCommerce Subscriptions (http://www.woothemes.com/products/woocommerce-subscriptions/) to enable you to automate your customers’ payments on a monthly basis. Build a good size customer base and your business then becomes a valuable asset, with predictable sales and sticky, repeat customers.
2. Business Idea: Selling Information or Software as a Service Online
Also popular as a model but becoming trickier to get right in today’s free-information culture; there is so much free information online, so why should the customer pay to view your site? This is not always an easy question to answer.
News sites are an interesting example; many offer a “freemium” model, allowing you access to a certain number of articles before asking you to register as a monthly paying subscriber. Unfortunately there are a lot of free news sites online (making money primarily from advertising revenue), so customers don’t have to stay and register to read their news; they can simply find a different news site to browse.
Having a differentiated and unique offer is therefore the key. Perhaps you can offer a certain amount of free material, and offer your customers the opportunity to access more detailed information in exchange for a monthly subscription (which they can cancel at any time). Other sites offer a free month trial, and then try to convince the user to stay and pay from the second month onward.
Pipedrive, the CRM and sales pipeline management tool, uses this kind of offer very effectively; users can try out the full version of this software for 30 days, and then make a decision about whether or not to continue the service by paying the monthly fee. In Pipedrive’s case this works well, as active users will spend a month inputting their information and using the system, and won’t want to lose all of this work when their free trial ends.
Choose Your Product and Industry With Repeat Customers in Mind
When deciding on your business model, ask yourself the likelihood of attracting repeat customers. Selling a product that people will only ever buy once from you (say an educational game), versus a consumable product (for example pet food), will make a big difference on your business’s momentum and profitability in the long term.
Remember, it’s going to cost you something to acquire each customer, and therefore customers that stay and become long term repeat purchasers will be much more worthwhile to attract than one-time purchasers.