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The Benefits of a Subscription Based Business as opposed to a Single Transaction Business.

When considering a business model or idea you want to always understand the financial structure of the business to make sure your business idea is worth pursuing!

I am not referring to the commonly thought of sole proprietorship, partnership, or corporation structures, what I am referring to is the literal organization of your sales and pricing methods. 

Subscription Business Model Definition: A business that provides continuous services for customers on the basis of a recurring payment with predetermined installments. Subscription model businesses focus on retaining customers for long periods of time, allowing for a more stable flow of income.

Many people spend thousands of dollars developing their product or service without understanding how to structure their business to make more money and increase profits.

When considering your payment structure, it’s important to understand the market size and type of demand for your product. Is your product or service something that people generally pay for only one time or something you can charge for multiple times?

Our experience shows that many single payment transaction business models can be transformed into a subscription based payment model, where you receive monthly or ongoing payments for your services. This leads to a dramatic increase in income and revenue for your business.

The reason recurring or subscription based business models are so powerful is because you can continuously sell more products or continued services to existing customers. Studies show it’s 7 times cheaper to sell to an existing customer than to acquire a new customer, which is why it’s in your best interest to maximize your existing customers. Subscription based business models allow you to acquire economies of scale or profits based on less of your individual time and effort by providing more passive income. This frees up your time so you can use it to market, scale, grow your business, and acquire more new clients.

Before we get into the additional benefits, let’s look at some common payment structures which you may be currently choosing from:

1. One Time Payment for a Physical Product (Ball, Yoga mat, etc…)
2. One Time Payment for an Online Product (E-book, Course, Guide, etc…)
3. Recurring Payments for a Physical Product (Supplements, paper, etc…)
4. Recurring Payments for an Online Product (Membership sites, Groups, Spotify, etc…
5. Pay As You Use (Online software services, Amazon cloud, Facebook Ads, etc…)

Now let’s consider 2 different business ideas and see how they work under various structures.

Business Ideas:

• Fitness Instructor/Coach: Learn how to productize your knowledge to take your business online, reach more people, and scale your income.

• Ecommerce/Product Sales (ex: selling dog leashes or other products on Amazon):Learn how to turn your product into a brand or community so you charge people for information related to your product offering.

Fitness Instructor (Service or Informational Product)

STRUCTURE 1: Single Time Session (Pay $50/hr. Live session in person)

1. PROS: Higher 1 Time Ticket Cost. “In-person” is valued by some clients
2. CONS: LIMITED BY sessions per day, locality of clients, ability to scale. Only 40 hours available per week meaning your maximum income can be $8000, if you’re scheduled every single 2 hour session without any breaks between. This means the realistic income would be closer to 3 clients or about 5 paid hours per day totaling $6,000 a month.

This is how it would look over a few months (at an average of 5 paid session hours per day)

– Month 1: 5 hours X 22 work days X $50 = $5500

– Month 2:  5 hours X 22 work days X $50 = $5500

– Month 3: 5 hours X 22 work days X $50 = $5500

– Month 4: 5 hours X 22 work days X $50 = $5500

– Month 5: 5 hours X 22 work days X $50 = $5500

– Month 6: 5 hours X 22 work days X $50 = $5500

– Month 7: 5 hours X 22 work days X $50 = $5500

– Total Profit: $38,500

– Local Clients Acquired:  100- 200 (more difficult to predict retention rates with this model)

Moving onto the next business structure means productizing your business. In that case, recording all your training sessions as well as methods and compiling them into a video course.

STRUCTURE 2: Online Video Fitness Course 

1. PROS: Can reach a much larger audience, build the product once and sell it many times. Requires more time upfront and less time once the business is already going.

Let’s say the cost of the course is $50 and you sell 50 courses in one month, that would be $2500 in sales. If you sold 100 that would be $5000 in sales. If the course does really well, you could sell 200 courses and make $10k in sales in one month. This already surpasses the maximum you would earn with a physical business.

2. CONS: As the next month comes along, those 50 or 100 clients have gone through the course and you no longer profit from them. You have to focus on acquiring 50 new clients. Although not impossible to do, after a few months of running ads, you’ll start having a harder time finding clients for your course. At this point, the common decision is to create another course, perhaps more advanced or detailed than the last. This takes considerable time and investment on your part and your income will be fairly slowed down.

 This is how it would look over a few months: (with 50 new clients monthly)

– Month 1: 50 Clients X $50 = $2,500

– Month 2: 50 Clients X $50 = $2,500

– Month 3: 50 Clients X $50 = $2,500

– Month 4: 50 Clients X $50 = $2,500

– Month 5: 50 Clients X $50 = $2,500

– Month 6: 50 Clients X $50 = $2,500

– Month 7: 50 Clients X $50 = $2,500

– Total Profit= $17,500

–  Total Clients Acquired: 350

STRUCTURE 3: Online Fitness Membership Community:

1. PROS: Can reach a much larger audience, the knowledge product is built once, and sells many times. Requires more time upfront and less time once the business is already going.

Let’s say the cost of the membership is $50/m and you sell 50 memberships.  People can log in and view a members only locked video course and access a member’s discussion channel. Client members can talk with each other and with you. You’re consistently posting new and useful nutritional information, routine updates, health alerts, advice and more. The next month 30 of those clients remain subscribed and you gain 50 new clients. This brings your  group total to 80 paying clients now. 80 clients X $50/m = $4000.

2. CONS: More initial setup and startup costs such as creating a membership platform website. You also need to provide more continuous value to clients to keep them on board.

Methods to add value: Weekly challenges, responding to client questions in the members group, providing new and valuable information. Course updates and improvements.

This is how it would look over several months: (with 50 new monthly clients and 20 clients dropping off monthly based on Industry averages)

– Month 1: 50 Clients X $50/m = $2,500

– Month 2: 80 Clients X $50/m = $4,000

– Month 3: 110 Clients X $50/m = $5,500

– Month 4: 140 Clients X $50/m = $7,000

– Month 5: 170 Clients X $50/m = $8,500

– Month 6: 200 Clients X $50/m = $10,000

– Month 7:  230 Clients X $50/m = $11,500

– Total Profit = $49,000

–  Total Clients Acquired: 350

Summary of Fitness Instructor Business Idea:

Overall, we have a clear understanding of why a recurring payment business is so beneficial. We see that overtime the recurring model leads to much higher income for the coach or business owner while still retaining the same investment amount necessary to acquire those 350 clients. The physical training business is also a viable option but is overall much more TIME consuming, difficult to scale overtime, and requires constant sustained effort as opposed to the online training models. Hence, you’ve productized your service based business.

This concept applies to any one offering a training, informational or service based business, not just fitness instructors. Some examples include: marketing coaches, business coaches, self-development courses, life coaches, nutritionists, consultants and many others.

Now let’s move on to another business idea and see how 2 different structures can apply there:

Ecommerce/Product Sales (ex: Dog Leashes)

(NOTICE: This can be applied to many different ecommerce products!)

STRUCTURE 1: One time sales of the product.

1. PROS: Selling dog leashes on your own personal website, Amazon, or other platform can be a lucrative business if you’re able to rank your product well on Google and sell hundreds to thousands of products. Simple one time transactions make for a simple client relationship.
2.  CONS: Builds little to no relationship with the buyer with limited ability to resell to the client.

This is how it would look over several months: (with 200 new clients monthly and $12 profit per leash)

– Month 1: 200 Clients X $12 = $2,400

– Month 2:  200 Clients X $12 = $2,400

– Month 3:  200 Clients X $12 = $2,400

– Month 4:  200 Clients X $50 = $2,400

– Month 5:  200 Clients X $50 = $2,400

– Month 6:  200 Clients X $50 = $2,400

– Month 7:  200 Clients X $50 = $2,400

– Total Profit= $16,800

– Total Clients Acquired: 1400

STRUCTURE 2: Offering a dog training course along with the dog leash.

1. PROS: You can create a community around dog training using the product you sell. You can build this community by simply creating a Facebook page and inviting everyone who purchased your product to this page. Here you’ll be able to share valuable dog training and dog related information with your audience and even sell a dog training course. This will build the value of your brand and you‘ll be able to sell various other pet products to the same group of people. This is how you can take your business from good to great!

2. CONS: The only downside will be the slight increase in attention needed to create and manage a Facebook group and course. Otherwise, there’s nothing you can lose from building up your brand and adding an additional revenue stream to your existing business or business idea.

This is how it would look over several months: (with 200 new clients monthly and $12 profit per leash)

– Month 1: 200 Clients X $12 = $2,400

– Month 2: 200 Clients X $12 = $2,400

– Month 3: 200 Clients X $12 = $2,400

– Month 4: 200 Clients X $12 = $2,400

– Month 5: 200 Clients X $12 = $2,400

– Month 6: 200 Clients X $12 = $2,400

– Month 7: 200 Clients X $12 = $2,400

– Total Profit= $16,800

– Total Clients Acquired: 1400

Additional income from membership dog training course (10% of leash buyers minus 5 cancelations/m)

– Month 1. 20 Clients X $10/m = $200

– Month 2. 35 Clients X $10/m = $350

– Month 3. 50 Clients X $10/m = $500

– Month 4. 65 Clients X $10/m = $650

– Month 5. 80 Clients X $10/m = $800

– Month 6. 95 Clients X $10/m = $950

– Month 7. 100 Clients X $10/m = $1000

– Total Additional Profit = $4,450

– Total Profit = $21,250

This doesn’t take into account the additional business that can be generated as a result of building this brand and creating a community around the products offered. As you can see, the recurring payments are only about 30% of the total business but the more time that passes the more significant an income source it will become.

Summary of Ecommerce/Product Sales (Example: Dog Leashes) Business Idea:

In this example, we can see that merely selling a product and having a transactional business can only lead to so much success. People will always need dog leashes, but the majority will be sold by big retailers such as Walmart, Target, and other stores. On the other hand, with a much smaller audience and niche group of interested and engaged customers you can create an entire brand which will set your business up to generate sustainable income for many years. Building a community or group around the activity your product serves is one of the most important and financially intelligent decisions you can make.

Main Takeaway:

It’s easy for many entrepreneurs and business owners to forget the power of recurring income. In these two examples, we were able to see two different businesses using mostly existing resources and products to transform their structure into a subscription based business. In both examples, we saw clear and definite income gains as well as the creation of long-term relationships with clients. Creating a community and loyal brand following is one of the most important aspects of business that many new businesses and owners fail to consider.

Ultimately a business needs to provide enough value so that clients/customers are willing to pay the price without much hesitation because what they receive is more valuable than the fee they pay. Therefore, a good product needs to actually help people and deliver noticeable results. If you already have a good product, now it’s time to switch to a structure that not only helps you significantly increase your income but also better serves and empowers your customers.

For more information on subscription or membership businesses you can download the guide below. This guide will give you all the information you need to understand and start your own online subscription business. 

You can also read our detailed guide on how to create a membership site here.