Risk & Business Magazine Lovitt & Touché Fall 2015 | Page 14

Revenue From Recurring Sources
The Benefits of a Subscription-Based Business
BY: NEIL WADHWA, RISK & BUSINESS MAGAZINE

J

ohn Warrillow, author
of The Automatic
Customer, is a guru in
building subscriptionbased businesses. Having
founded five different
companies, including
a subscription-based
qualitative research
firm that was sold to a
publicly traded company
on the New York
Times stock exchange
in 2008, he’s been immersed in the
subscription-based business world
for years—including with his current
company, The Value Builder System.
While there are certainly no stigmas
against subscription-based businesses,
there are misconceptions that
subscription-based models are only
successful for companies that operate
in specific industries (e.g. software).
Certainly there are industries where
subscription is not the current agreedto or standard model, but what

John contends is that every
business can form some sort
of subscription-based revenue,
even if it’s just 5% or 10% of the
overall revenue that’s coming
from these recurring sources.
“There are many auxiliary
benefits that subscription-based
revenue provides, namely that
it lets you plan your business
more effectively, as you know
how much product to buy in
the future, you know how many
customers you have in the future, you
can plan out your human resources and
raw materials better, and the model
also allows you to get steady cash flow,”
says John. “But the primary reason [of
a subscription-based model] is that
it simply drives up the value of your
company. People who subscribe are more
likely to buy more frequently from the
companies that they’re subscribed to.”
As an example of companies that
can thrive under subscription-based

models—in industries that have
otherwise been overlooked as potential
suitors for generating revenue under the
model—John points to accounting firms.
“Accounting firms have a ‘lumpy’
business model where the firms see
an overwhelming amount of work
once a year during tax-return time,”
says John. “But accounting firms can
get around this under a model where
they handle the back-office, reconcile
books, handle payroll, and update
bookkeeping software once a month, and
do this on a fixed subscription fee—in
addition to filing the tax returns.”
Through this method, these accounting
firms suddenly have subscription
revenue and a much steadier workflow
while alleviating the “lumpiness” that
plagues a typical accounting firm.
Flower shops can also follow the
subscription-based business model to
success—and H.BLOOM, an online
flower store, is the case study to follow.
The problem with the traditional flower
shop business model is two-fold. First,
flower shops have to continuously
stimulate demand, as flowers are
normally bought only when a specific
occasion calls for it (e.g. birthdays,
anniversaries). Second, flower shops are
unaware how much inventory will move
on any given day, and because of the short
shelf life, normally 50% of flower shop
inventory gets thrown out every month.
Seeing the problems that flower shops
typically encounter, H.BLOOM turned
to hotels, spas, and doctors’ offices—
businesses that normally have freshcut flowers placed on the reception
desk—to sell these companies flowers
every two weeks on a subscription basis.
Selling flowers under this model has
not only given H.BLOOM a consistent
source of income while only having
to throw out 2% of their inventory
each month, but operating under a
subscription based model has allowed

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RISK & BUSINESS MAGAZINETM FALL 2015