Subscription based biz - any good reading material?

Overthrow

Hi folks,
I'm pondering putting a subscription model in to action for a web design service. So rather than charging the full fee upfront, charge a monthly subscription instead. This would be to attract a wider customer base who mightn't have the cash flow to pay the full amount upfront.

I'm wondering if anyone has any experience with running a subscription based business, or have any good advice on the do's and don'ts of this.

I feel the lower initial cost would open us up to a lot more business, but I'm also worried about how people perceive committing to an ongoing cost - do people prefer just dealing with one lump sum or do they prefer having the option of a low risk alternative.

To give an idea of figures, the current upfront cost would be matched after 1.5 years of the monthly subscription price that I'm thinking of.

Thanks!

jimmii

I was thinking about that as well something like €20 a month and then everything is sold at cost price I figured people would just subscribe for a month and buy a heap of stuff and then repeat it in a few months time or something. I think if you are doing it with products you need it to be products people use all the time to keep them subscribing.

Overthrow

jimmii wrote: »

I was thinking about that as well something like €20 a month and then everything is sold at cost price I figured people would just subscribe for a month and buy a heap of stuff and then repeat it in a few months time or something. I think if you are doing it with products you need it to be products people use all the time to keep them subscribing.

Thanks for the reply. Initially I didn't want to disclose what the business was but it's not exactly a new concept (Shopify, Squarespace etc are all doing it) so I've edited my original post to give people a proper idea of what I'm doing.

Peterdalkey

like bluepark.co.uk or other hosted CMS services? would have thought that train had long left he station!

pedroeibar1

Overthrow wrote: »

Hi folks,
I'm pondering putting a subscription model in to action for a web design service. So rather than charging the full fee upfront, charge a monthly subscription instead. This would be to attract a wider customer base who mightn't have the cash flow to pay the full amount upfront.

I'm wondering if anyone has any experience with running a subscription based business, or have any good advice on the do's and don'ts of this.

I feel the lower initial cost would open us up to a lot more business, but I'm also worried about how people perceive committing to an ongoing cost - do people prefer just dealing with one lump sum or do they prefer having the option of a low risk alternative.

To give an idea of figures, the current upfront cost would be matched after 1.5 years of the monthly subscription price that I'm thinking of.

Thanks!

If the above is what you are doing, the first question is the total product /service cost. How much?

If a start-up cannot afford a couple of hundred quid at the beginning and has to go with €20 per month (as mentioned) forget it, as it is totally undercapitalised and will not be around for long and you will not recoup your outlay. In reality a €20 missed payment would cost you more to chase up. Banking is unfriendly at that level for direct debits (they give you the control, standing orders do not), so credit control/credit management would be a nightmare. That is not what you should be spending your time on.

If you believe that your model really has legs (and if the minimum figures justify it) I would consider a minimum of 50% - 75% up front with the balance spread over six months during which time you would also provide a defined amount of ‘tweaking’ services to the site. At the end of the initial period I would make every effort to convert customers to a service agreement whereby you would provide site maintenance/tweaking/SEO for them – nice steady cashflow.

Overthrow

pedroeibar1 wrote: »

If the above is what you are doing, the first question is the total product /service cost. How much?

Let's say for argument's sake the total cost would be €450, and the monthly payments would be €25.

If a start-up cannot afford a couple of hundred quid at the beginning and has to go with €20 per month (as mentioned) forget it, as it is totally undercapitalised and will not be around for long and you will not recoup your outlay.

It wouldn't necessarily have to be a startup. It could be any type of business that would rather not have to put down a large sum. I believe a lot of businesses are aware that their website is very wanting of a redesign but they're not often in a position to commit time & resources to addressing the problem. This model would hopefully solve that and open my services up to a wider range of clients, not necessarily those who are very strapped for cash.

In reality a €20 missed payment would cost you more to chase up. Banking is unfriendly at that level for direct debits (they give you the control, standing orders do not), so credit control/credit management would be a nightmare. That is not what you should be spending your time on.

This is the area I have no idea about. Can you maybe explain a bit further on the difference between direct debits and standing orders? My initial thinking was that if a payment is missed and isn't paid for say a further 4 weeks, that the site is simply turned off until further payment is made. Given that websites are becoming more and more crucial for businesses I wouldn't see it being likely that they'd let their site payments slip if they knew it meant it going offline.

Of course there'll be some who will just stop payments maybe even after a couple of months, but I wouldn't have gotten those with the full payment either.

If you believe that your model really has legs (and if the minimum figures justify it) I would consider a minimum of 50% - 75% up front with the balance spread over six months during which time you would also provide a defined amount of ‘tweaking’ services to the site.

Well, ideally the subscription model would continue on indefinitely, potentially yielding a good bit more than what the upfront cost would have been. I wouldn't see it as a hire purchase type arrangement but rather an ongoing subscription.

At the end of the initial period I would make every effort to convert customers to a service agreement whereby you would provide site maintenance/tweaking/SEO for them – nice steady cashflow.

I believe that if this were to allow for a higher volume of clients (given the lower barrier to entry) then yes there'd be greater potential for upselling additional services such as those.

Thanks for your input so far, much appreciated.

lucky john

Have you done a cash flow spreadsheet for your business plan? It would be worth your while.

I am sure you will have set up costs and monthly experience to cover. If you have a good start and build 10 sites in the first 10 weeks your income for month 3 will be €200 . Even at 100 sites you will have only 2000 income. I know the €20 per month is an estimate but the bigger the site you build the bigger your investment as well. You are going to have to invest a lot upfront before you start to generate a reasonable income. Its a business model that is very risky. The businesses that survive best these days are the ones that generate cash the fastest.

Best of luck with it though.

Overthrow

lucky john wrote: »

Have you done a cash flow spreadsheet for your business plan? It would be worth your while.

I am sure you will have set up costs and monthly experience to cover. If you have a good start and build 10 sites in the first 10 weeks your income for month 3 will be €200 . Even at 100 sites you will have only 2000 income. I know the €20 per month is an estimate but the bigger the site you build the bigger your investment as well. You are going to have to invest a lot upfront before you start to generate a reasonable income. Its a business model that is very risky. The businesses that survive best these days are the ones that generate cash the fastest.

Best of luck with it though.

The first months of this would be tough for sure.

After further thought regarding cash flow issues I'm thinking of offering the monthly payment option on one 'package' to begin with to see how it goes, and even then still leaving the option of a full upfront payment.

I've come up with a way to handle payments from our end rather than having to rely on direct debits, so we'd have full info on who has paid and when, and also a client could potentially sign up and make first payment in minutes there and then.

As for the process we'd be doing it in a way that turning around a site would only take a few hours (ie client pays, they choose a template with our guidance, they provide us with the content, we fill in the gaps).

So while 10 sites is only €200/month, it's still 2k/year for something that wouldn't take a lot of man hours. The hope is that the lower barrier to entry would allow for a much higher volume that getting to a respectable number of monthly subscribers would be achievable.

jimmii

What are the gaps you would fill that would encourage someone to go with you guys over going with shopify or register365 etc? I think there probably is a market for it in the same way a lot of the new till systems are moving to a subscription service approach.

Graham

Shopify and squarespace both scale really well as all of their customers are provided a standard out of the box solution. The cost to them of a new customer is almost completely limited to the cost of acquiring that customer (advertising etc).

Although you're talking about the same ballpark monthly subscription rates, your new customer cost (and effort) is going to be substantially higher unless you have a way to almost completely automate the on-boarding / launch of a new customer and their custom site.

Overthrow

jimmii wrote: »

What are the gaps you would fill that would encourage someone to go with you guys over going with shopify or register365 etc? I think there probably is a market for it in the same way a lot of the new till systems are moving to a subscription service approach.

The main thing that separates us is the fact that our clients wouldn't have to make the site themselves. So we'd be somewhere between the likes of Shopify and Squarespace, and the traditional web service providers.

Graham wrote: »

Shopify and squarespace both scale really well as all of their customers are provided a standard out of the box solution. The cost to them of a new customer is almost completely limited to the cost of acquiring that customer (advertising etc).

Although you're talking about the same ballpark monthly subscription rates, your new customer cost (and effort) is going to be substantially higher unless you have a way to almost completely automate the on-boarding / launch of a new customer and their custom site.

Our approach would be somewhat similar in that it'd be an out of the box template that the client would choose (with our help) and we'd take it from there. This would reduce the turn around time required by quite a bit.

It certainly wouldn't be as effort free as the self-building systems that are sitting there waiting for another user but I believe it could be done quite quickly nonetheless.

The thing about Squarespace etc is that not many people have the patience, or even the inclination to attempt, to make their own website. All the providers in this space are competing for a relatively small % of the market who are willing to sit down and design & build something themselves.

We have quite a unique position in the industry that would allow us to reach a much broader type of customer, and broader again if we have this low barrier to entry which I think would best facilitate continual growth.

Graham

Overthrow wrote: »

The main thing that separates us is the fact that our clients wouldn't have to make the site themselves. So we'd be somewhere between the likes of Shopify and Squarespace, and the traditional web service providers.

Our approach would be somewhat similar in that it'd be an out of the box template that the client would choose (with our help) and we'd take it from there. This would reduce the turn around time required by quite a bit.

Have you timed how long you to produce a new website? From a customer signing up to going live. How many man hours? What's your normal hourly rate? How long will it take to recover your initial costs at €25 a month.

Are you planning to sign customers up for a minimum term? If yes, how will you enforce this? If no, what will your churn rate be?

What do your customers get for their €25/month. Unlimited support, customisation, ongoing changes. How will you handle customers who think that you're an alternative to having a full web design agency on retainer? If your time is worth €25/hour, a couple of quick support calls from a customer obliterates your profit for that customer for the month.

I think there is a gap in the market somewhere between the drag & drop site builders and the full-service agencies, this was discussed in another post during the week. From what you've said so far I suspect either your revenue model or your cost model (or both) are out of kilter.

Overthrow

Graham wrote: »

Have you timed how long you to produce a new website? From a customer signing up to going live. How many man hours? What's your normal hourly rate? How long will it take to recover your initial costs at €25 a month.

I'm confident we could turn one around in about 4 hours. Of course it would vary from case to case, some would take less, some would probably take longer but I'd only see this as viable if we could have it approximately <5 hours average.

Are you planning to sign customers up for a minimum term?

I'm not sure....would appreciate some input on this. People are hesitant to get involved in any long contracts.

Also in many ways a website is self binding - nobody wants to be offline for long and websites are just getting more and more recognition as being crucial for business, plus moving to another provider is a lot of hassle. So I suspect that it might be better to not have a minimum term to encourage more business, because it could easily be a redundant point in most cases.

What do your customers get for their €25/month. Unlimited support, customisation, ongoing changes. How will you handle customers who think that you're an alternative to having a full web design agency on retainer? If your time is worth €25/hour, a couple of quick support calls from a customer obliterates your profit for that customer for the month.

They would just get the website. If they want content management, ongoing support, customisation, ongoing changes, these would all be charged in addition. This would be made clear on sign up. This would be the case with our current full upfront payments anyway.

So I'd actually see these ongoing tasks as a way to boost our earnings throughout the year. And the higher volume of clients we're dealing with, the more frequent these additional requests would be.

As for the phone calls, I see what you mean but I'm sure there are effective ways to deal with that.

I think there is a gap in the market somewhere between the drag & drop site builders and the full-service agencies, this was discussed in another post during the week. From what you've said so far I suspect either your revenue model or your cost model (or both) are out of kilter.

I haven't laid everything down as of yet but I'm hoping that this gap is workable, I think it is so far.

Thanks for the help

Peterdalkey

Whatever the offering, I would seriously worry about who is actually likely to be interested in it, and factor in the customer acquisition cost versus potential revenues. Ugly numbers me thinks!
These are the punters that get one of their kid's pals to build them a brochure site for beer money or some techie hobby-ist type from the pub. You are also competing with the modest business Facebook page space for customers, in what is a grossly oversupplied market served by tons of recently "qualified" experts.

If you can build great sites that generate loads of traffic, I would be up there selling "actual products and real stuff" online!

pedroeibar1

Overthrow wrote: »

Let's say for argument's sake the total cost would be €450, and the monthly payments would be €25.



It wouldn't necessarily have to be a startup. It could be any type of business that would rather not have to put down a large sum. I believe a lot of businesses are aware that their website is very wanting of a redesign but they're not often in a position to commit time & resources to addressing the problem. This model would hopefully solve that and open my services up to a wider range of clients, not necessarily those who are very strapped for cash.



This is the area I have no idea about. Can you maybe explain a bit further on the difference between direct debits and standing orders? My initial thinking was that if a payment is missed and isn't paid for say a further 4 weeks, that the site is simply turned off until further payment is made. Given that websites are becoming more and more crucial for businesses I wouldn't see it being likely that they'd let their site payments slip if they knew it meant it going offline.

Of course there'll be some who will just stop payments maybe even after a couple of months, but I wouldn't have gotten those with the full payment either.



Well, ideally the subscription model would continue on indefinitely, potentially yielding a good bit more than what the upfront cost would have been. I wouldn't see it as a hire purchase type arrangement but rather an ongoing subscription.



I believe that if this were to allow for a higher volume of clients (given the lower barrier to entry) then yes there'd be greater potential for upselling additional services such as those.

Thanks for your input so far, much appreciated.

You initiate direct debits, the bank pays a standing order. DDs you control and can re-present one for a second attempt at payment, a missed SO is just that. You are far too small to get anywhere near a DD system.

On your other comments, firstly I have no up-to-date inside knowledge of your end of the IT sector; my ‘take’ is based on experience of dealing with industry in general and countless SME’s. I cannot come to grips with your business model – you are or will be a start-up, you intend to provide a design and ‘fix/tune -it’ service to other start-ups . Other than offering long credit terms you really have no other differentiator..... In a word, you are starting a banking business.

You really need to look at the purpose of credit terms, who gives them, for what duration and why. When you provide a service you have no retention of title on the asset (simplistically). Consider why garages, when they service your car, get you to pay before you drive off.

I reiterate that a potential customer which cannot afford a paltry sum is most unlikely to be a good customer. In the general scheme of costs, a couple of hundred on web stuff is nothing, even for a start-up. The only difference between 20 or 30 euro a month in the first year of a company’s life is whether or not they will be around to continue paying you for the work you already have done. Even if they continue to stay around, you have no hope of suing to recover it and as for the suggestion of ‘turning off’ their website, I’d have serious concerns about the legal issues and claims you would leave yourself open to should you go down that route.

You need more work on a spread-sheet, expenditure and income and cashflow. CASHFLOW - the lack of which is the biggest killer of all companies.

Overthrow

Thanks for the further input.

Peterdalkey wrote: »

Whatever the offering, I would seriously worry about who is actually likely to be interested in it, and factor in the customer acquisition cost versus potential revenues. Ugly numbers me thinks!

These are the punters that get one of their kid's pals to build them a brochure site for beer money or some techie hobby-ist type from the pub. You are also competing with the modest business Facebook page space for customers, in what is a grossly oversupplied market served by tons of recently "qualified" experts.

I believe any SME considering a new website would potentially be interested. I don't believe that by offering a subscription based model you're turning off those who could afford a large upfront payment and only attracting those who can only afford the smaller monthly payments. So long as the more established businesses can see value and quality service there's nothing to say they won't be attracted too.

Let me ask you, would you rather pay a large upfront fee for an as yet unseen product, or pay a smaller monthly fee that you can bow out of at any time?

And would you not feel that the company depending on your monthly subscription would have to continue to provide a quality service to earn that payment each month, whereas the company who has already been paid in full don't have to do the same?

If you were paying a monthly fee for a brochure site, what do you think would be a good price (ie one that would suggest a quality service) and what about the inclusion of extras included in that price to add to the service such as free updates, support, etc?

pedroeibar1 wrote: »

You initiate direct debits, the bank pays a standing order. DDs you control and can re-present one for a second attempt at payment, a missed SO is just that. You are far too small to get anywhere near a DD system.

Right, thanks for explaining this further.

On your other comments, firstly I have no up-to-date inside knowledge of your end of the IT sector; my ‘take’ is based on experience of dealing with industry in general and countless SME’s. I cannot come to grips with your business model – you are or will be a start-up, you intend to provide a design and ‘fix/tune -it’ service to other start-ups . Other than offering long credit terms you really have no other differentiator..... In a word, you are starting a banking business.

The subscription would be an ongoing subscription, rather than a method of payment towards a set price, apologies if I didn't make that clear before.

I reiterate that a potential customer which cannot afford a paltry sum is most unlikely to be a good customer. In the general scheme of costs, a couple of hundred on web stuff is nothing, even for a start-up. The only difference between 20 or 30 euro a month in the first year of a company’s life is whether or not they will be around to continue paying you for the work you already have done.

I agree that businesses that can't afford a paltry sum aren't worth targeting. However as I mentioned above I think the model would be attractive to all types of businesses, including those who would be drawn to it as a more attainable solution.

The other aspect of this is turnaround times. With a template based approach, turnaround times can be driven lower.

Selling a template based solution at a higher price is a bigger ask - because it's all about the product rather than the service, and since they can see that the product is easily reproduced then it's not entirely attractive.

A monthly subscription means they're online for a minimum price (the first month's payment), so the product doesn't matter so much.

From here, for clients that want something more tailored, there can be an additional design/set up cost plus the monthly payments. But you need that basic foundation of the entry level template in order to do this.

Even if they continue to stay around, you have no hope of suing to recover it and as for the suggestion of ‘turning off’ their website, I’d have serious concerns about the legal issues and claims you would leave yourself open to should you go down that route.

If you fail to make payment on Shopify, Squarespace or any of the others your site is turned off, so the legality of it would already be established.

The offer would (probably) be that they can cancel at any time. But as I mentioned earlier a website is self binding, switching provider is a lot of hassle, and nobody wants a dead URL. So while I'm sure there'd be nonpayments to deal with, I don't think it'd be a major issue.

On the cashflow point, this is certainly a concern, but we're looking at this as a slow roll out and a way to clinch those potential customers who'd be on the fence or shopping around for different quotations, or see it as a way to simplify the problem of getting online, with this service focused low risk option.

Thanks again for all the input, it's great to have the idea challenged and I hope it's holding up to your scrutiny.

Graham

I'm not sure if it's the way you're trying to explain your product but the only unique selling point that's coming across is your instalment plan/subscription fee.

I'm not particularly a fan of Squarespace/Wix/Weebly but they do often produce a better result than a poorly customised template site. When you talk about offering a quality product using templates while at the same time highlighting that turnaround times can be driven lower because you're using templates, alarm bells start ringing.

Atomico

I think the key difference between this and the site-builders is that you will always get an SME-owner type who just won't have the slightest interest in setting up their own site. It's just not on their radar.

So the two models are not really comparable, and if someone can get a site built at a low upfront cost and low monthly fee through consulting with a real live person, then it should be a lot more attractive an option than the idea of sitting down to a faceless site-builder after a hard day at the office / shop / warehouse

Peterdalkey

Graham wrote: »

I'm not sure if it's the way you're trying to explain your product but the only unique selling point that's coming across is your instalment plan/subscription fee.

I'm not particularly a fan of Squarespace/Wix/Weebly but they do often produce a better result than a poorly customised template site. When you talk about offering a quality product using templates while at the same time highlighting that turnaround times can be driven lower because you're using templates, alarm bells start ringing.

I am with Graham on this. I would also have grave concerns about the business viability too, as articulated by perdroeibar. Even if the offering is very attractive to potential clients, the pricing provides very little cash for actual customer acquisition costs. Selling to this kind of unsophisticed potentail website owner is going to take a lot of handholding ( incurring time costs) with no ultimate sale guaranteed.

The USP is simply not compelling enough, in my view, to make the service stand out from vast competition in this space. Even if it were moderately successful the potential profit yields are far too low to be worth the risks/effort involved.

Graham

Atomico wrote: »

I think the key difference between this and the site-builders is that you will always get an SME-owner type who just won't have the slightest interest in setting up their own site. It's just not on their radar.

So the two models are not really comparable, and if someone can get a site built at a low upfront cost and low monthly fee through consulting with a real live person, then it should be a lot more attractive an option than the idea of sitting down to a faceless site-builder after a hard day at the office / shop / warehouse

Both very valid points and what would appear to be a fairly good deal for the buyer.

The downsides I can see are almost all on the sellers side initially.

It's almost the worst of both worlds, competing with the lower end of the market template customisers for the same amount of money but spread out over a year or two.

Atomico

Graham wrote: »

Both very valid points and what would appear to be a fairly good deal for the buyer.

The downsides I can see are almost all on the sellers side initially.

It's almost the worst of both worlds, competing with the lower end of the market template customisers for the same amount of money but spread out over a year or two.

Yep, I also thought the exact same initially - great for the buyer, but possibly the seller is shooting themselves in the foot. I think the crucial element will be managing client expectations.

If a client is calling you up or emailing here and there, that monthly subscription soon evaporates in terms of profit. I think the monthly subscription needs to be higher to start with. Really what you are banking on is lots of clients not contacting you each month.

This could be tricky since you will need a lot of clients to make decent revenues with the model, but lots of clients can likely add up to a fair amount of support cost each month - even if the sites are very easy to manage.

That said, if they are contacting you to request new features you can charge for, then that's not a bad thing either.

pedroeibar1

Overthrow wrote: »

Let me ask you, would you rather pay a large upfront fee for an as yet unseen product, or pay a smaller monthly fee that you can bow out of at any time?

Usually I would expect to make a downpayment of 25-50% followed up by an invoice on completion/delivery (7 day terms) with a 10-15% retention (payment 30-45 days) to ensure no glitches were discovered.

Overthrow wrote: »

And would you not feel that the company depending on your monthly subscription would have to continue to provide a quality service to earn that payment each month, whereas the company who has already been paid in full don't have to do the same?
I agree that businesses that can't afford a paltry sum aren't worth targeting. However as I mentioned above I think the model would be attractive to all types of businesses, including those who would be drawn to it as a more attainable solution.

I expect top quality service from all suppliers, regardless of size or amounts involved. I have always believed in building relationships, paying a fair price and being upfront with suppliers/customers.
You have a low ‘unit cost’ – that sum will not be an issue for any firm that has a bit of trading time behind it, so you will be attracting the weakest customers. The latter won’t care, they just want cheap. Most established businesses budget for website design/upgrade and do not need extended terms for amounts around €500-1,000. Most credible start-ups are the same. As regards add-on services/support, there is a big difference between providing (billable) quality service and handholding (non-billable), the smaller/weaker guys need this in large quantities and inevitably expect it, free of charge..

Overthrow wrote: »

A monthly subscription means they're online for a minimum price (the first month's payment), so the product doesn't matter so much.

Do you really mean that?

Overthrow wrote: »

If you fail to make payment on Shopify, Squarespace or any of the others your site is turned off, so the legality of it would already be established.
........... So while I'm sure there'd be nonpayments to deal with, I don't think it'd be a major issue.

Obviously the ‘turn-off’ feature will depend on the contract with the customer but IMO blocking the website of a company raises three issues (a) they could claim that your service did not deliver as promised, so they were entitled to stop payment; (b) they could then sue you for damages / loss of profits; (c) with their website blocked you are closing down their ability to make the money with which to pay you. Dealing at that end of the market the non- payment experience is the worst of all.

Overthrow wrote: »

On the cashflow point, this is certainly a concern, but we're looking at this as a slow roll out .....

I would guess that your cashflow forecast (if you have done one) is wildly optimistic.

I'm out; most here have given you good advice, mine you can judge for yourself. Best of luck if you proceed.