A subscription-based service gets you returning customers

A subscription-based service is a good way to create sales for an online outlet. As a case study, you need to look no further than Amazon itself.

Amazon has come a long way since its days of just hawking cheap books online. Of course, you can still buy books on the site, but today’s Amazon will sell you everything from diapers to laundry detergent. Increasingly, it is digging deeper into our pockets through the subscription service called Amazon Prime. Amazon Prime subscribers pay Amazon $99 a year in return for goodies like free streaming of thousands of movies and TV shows and free two-day shipping on most Amazon purchases. According to a 2013 report released by Consumer Intelligence Research Partners, there are now approximately 16 million subscribers to Amazon Prime. As I write this, the folks at Morningstar estimate, since Amazon does not release the data publicly, that membership in Amazon Prime could swell to 25 million by 2017.

If you were to carve out Amazon Prime as a stand-alone business, it would already be a billion-dollar subscription company, but that severely underestimates the value of Prime to Amazon. Like many subscription models, Amazon Prime is a Trojan horse that is expanding the list of products consumers are willing to buy from Amazon and giving the eggheads in Seattle a mountain of customer data to sift through.

“It was never about the $79,” said Vijay Ravindran, who worked on the team that launched Prime at its original price of $79 per year. “It was really about changing people’s mentality so they wouldn’t shop anywhere else.”

According to Morningstar, the average Prime member now spends $1,224 on Amazon purchases each year, compared with $505 for non-Prime customers.2 We cannot say Prime members spend that much more just because they are members, since presumably a lot of Amazon’s best customers would have been attracted to the free shipping offer. However, this data seems to suggest that once someone becomes a Prime subscriber, they become even more loyal to Amazon. Further, Morningstar figures that after factoring in costs incurred for shipping and streaming content, the average Prime member yields Amazon $78 more per year in profits than the typical customer.

Given the positive impact Prime seems to have on customers’ buying behavior, some analysts have argued that Amazon should drop the fee for subscribing to Prime in order to grow the program even faster. But that thinking misses a key element of Amazon’s strategy. When you pay $99 per year to become a member, you want to “get your money’s worth.” Suddenly you start checking Amazon’s pricing on all sorts of products, from paper towels to sneakers, with hopes of “making back” what you invested in the membership.

Given Amazon’s aggressive pricing and seemingly endless product selection, you can almost always find what you’re looking for at a price that’s lower than what you could find elsewhere. When you factor in free shipping, it becomes an easy decision to buy from Amazon. Robbie Schwietzer, vice president of Amazon Prime from 2008 to 2013, summarized: “In all my years here, I don’t remember anything that has been as successful at getting customers to shop in new product lines.”

Through Prime, Amazon is competing head-to-head with the likes of Walmart and Target. Why should you care if three heavyweights are pounding it out for market supremacy? Because as customers buy a broader and broader collection of items from Amazon, Prime is cannibalizing the business of smaller companies too.

The other day I bought a pair of New Balance running shoes from Amazon. I’ve never thought to use Amazon for buying sneakers, but since I am now a Prime member, and therefore get free shipping on shoes, I chose Amazon instead of walking down the street to my local Running Room store. The Running Room is a small company compared to Amazon, with 100 or so locations scattered around North America. Most people would not consider Amazon a direct competitor. Yet the Running Room is now losing my shoe-buying business because of a little $99-per-year Prime subscription I bought.

Amazon, having learned a lot about the subscription business through Prime, is now applying the subscription model to other areas of its business. AmazonFresh is a grocery delivery business Amazon has been experimenting with in its hometown of Seattle since 2007. Amazon Fresh didn’t start out as a subscription business; instead, it was open to anyone willing to pay the delivery fee of $8 to $10 to have milk, veggies, and meat brought to their door in a one- to three-hour delivery window.

You can see how creating a subscription-based service works – everyone starts looking to you as the go-to shop for all their needs. They pay a subscription, then keep buying for you to make the subscription worthwhile. It is a clever commerce scheme if you wish to set up an online marketplace.

Managing your energy for your startup

If you are going to be successful running an online business, you need to focus your time and energy into it. But there may be changes you need to make to your existing lifestyle in order to give your energies into the business. These involve going right down to the basics – managing your energy by eating and sleeping well.

You need to start with energy management techniques to efficiently manage your time. Various time management guides treat time as if it’s an infinitely manageable resource, as if by simply scheduling your day more effectively, you will be able to make the most of the allotted hours and get more done than ever before. Managing your time will require a sufficient amount of energy and enthusiasm on your part so it is important to understand how to maximise your energy levels.

If your body doesn’t have enough energy during the day to maintain a meticulously constructed time management plan, you are not going to be productive in life. Scheduling is important, but it’s even more important that you address your energy levels before attempting to corral your hectic working hours into a time management system.

Now let’s discuss three very essential ingredients of life; sleep, diet, and exercise, to better understand how your energy levels affect your overall productivity.

Your Sleeping Pattern
Your sleep plays a key role in your ability to wake up early in the morning, feeling refreshed, rested, and eager to start a productive day.

Hormones such as dopamine and adrenaline regulate your attention and keep you focused on work. Consistent lack of sleep at night lowers the production of these hormones and makes you less productive during the day. Studies have shown that the right amount of sleep at night helps people learn and process new information better, it also makes them more resilient and creative at work. Better sleep enhances memory and boosts performance of mentally challenging tasks, such as taking exams or handling stressful work situations.

Useful tips for better sleep

Set a fixed bedtime: Fix a bedtime and maintain it. Choose a time when you normally feel tired and sleepy and go to bed exactly the same time every day. Don’t break your sleep routine, even on weekends. If you have to adjust your bedtime, make small changes like, going to bed 15-20 minutes earlier or later.

Wake-up at the same time every day: If you are comfortably sleeping 7-8 hours every night, you should normally wake up at the same time daily without the help of an alarm. If you need an alarm to wake up in the morning, it usually means you didn’t get enough sleep.

Nap during the day: If you didn’t get enough sleep the previous night, take a brief nap during the day to make up for it rather than breaking your sleep routine. However, avoid napping if you suffer from insomnia.

Don’t sleep before bedtime: Some days you may feel sleepy after dinner. Resist the temptation to go to bed early, do a stimulating activity such as washing the dishes or walking to avoid sleeping just before your set time.

Turn off your TV and Laptop before bed: Don’t watch violent TV shows or play stimulating games before your bedtime. Watching TV or playing game’s delays the sleeping process. Read a book or listen to soft music instead.

Things you should avoid before sleep
Don’t eat a heavy meal just before bedtime. This will hamper your digestion and can make you feel sick or sluggish when you wake.

Avoid drinking alcohol before sleep. This will lead to a poor quality of sleep. Don’t take sleeping pills and avoid caffeine and smoking just before bedtime.

Your Diet for a Productive Day
Your diet plays a big role on your energy levels. Every person is different and their dietary approaches are different too. Eating processed and simple carb based foods deprive your body of valuable vitamins, essential minerals, and nutrients that your body needs to run effectively. A healthy, balanced diet boosts your brain power and keeps you focused and productive throughout the day. Your body breaks most of the food that you consume each day down into glucose. Glucose is the fuel that runs your body and brain. Some foods such as complex carbs release glucose slowly in the blood and can keep the body productive all day. Follow a whole grain foods based diet.

Here are a few diet tips for you to help manage your energy better.
Don’t skip breakfast: Eat a healthy breakfast every morning; it will help you remain active throughout the day. Include complex carbs such as cereals or whole grain breads.

Eat small, frequent meals throughout the day: This type of eating habit will keep your blood glucose levels steady and supply you with sufficient energy to remain active all day. Moderation is the key to any healthy diet, you should feel satisfied and not stuffed after finishing a meal.

Consume fiber rich foods and drink plenty of water: Similar to complex carbs, fiber rich foods digest slowly and keep the body active. Eat fiber rich foods and drink at least 8 glasses of water daily.

Consuming caffeine and alcohol: Drink only a moderate amount of coffee during the day. Use a cup similar to a green tea cup when drinking coffee to help moderate your intake. The common thinking is that a large cup of coffee keeps you active, but drinking too much coffee results in a productivity-impairing crash. Drinking alcohol after dinner and before bedtime will lower the quality of your sleep and consuming too much alcohol in general will lower your mood and overall energy levels.

Get your business plan down – the first step to launching a business

In the year 2003, there was a tiny gadget that easily fit into the palm of your hand that heralded of one of the greatest technological revolutions ever. Yes, long before the I Pad and MacBook Air, there was the I Pod. What this tiny device did, really, was revolutionize the entertainment industry, making it ‘portable’, something that had never been done before. We all grew up in a time when the only music we ever listened to was in the form of audiocassettes or compact discs bought from the local store. Apple took it one step further. They allowed us to buy ‘single’ songs at a most affordable price, and that too while we were on the go! No need to have to make the time to visit your local store or anything like that. Just click on the download button from wherever you are, be it at home or on the way to work, and voila! You have the song you always wanted. That too, without having to purchase the unwanted remainder of the album as well!

In just three years the combination of I Pod and I Tunes became around a ten billion dollar product, accounting for a whopping fifty percent of the entire revenue of the company! And the best part is, it all started with a business model.

One must bear in mind here, that it was not Apple that was the first to bring digital music players onto the scene. There were other popular products like Rio and Cabo but neither of these, successful as they were, could create the sort of impact that the I Pod did on the music scene. Why is that? That’s because Apple took a great ‘idea’ and bolstered it with a great business model! It really made downloading music far easier and convenient than the other products in the market through a good combination of hardware, software and service. What they did in essence was literally ‘give away’ their music on iTunes for a throwaway price, which in turn lured customers to buy their I Pod. And no matter how expensive that I Pod might have been, it really was worth every single cent to the customer because of the added value of the very affordable music that came along with it! Apple succeeded where others didn’t simply because they had a far superior ‘business model’. If you are an entrepreneur looking to launch a new product or offer a new service to the market out there, you might wish to invest a little bit more time in that business model of yours. In the end hat, really, is what is going to make all the difference, determining whether your product is going to be successful or not!

Using Ebay feedback to your advantage

As a small business you may have to routinely make small purchases, and one of the places you may turn to for the purchases is Ebay. After all, you could, with a bit of hunting, find what you need at a lower price, if you are prepared to do the mouse work.

When you make purchases, what is the most important consideration? For the most part, cost is. Would you want to pay more if you can get it for less? But of course there are influential factors. If you had to choose between two similarly priced items, you might go for the one with the more suitable delivery time. If you could get it quicker, why wait longer? Or would the £15 saving justify waiting an additional two weeks?

A third tie breaker is feedback. All other variables equal, feedback is the most important variable in determining who to buy from.

A supplier with good and a high number of feedback over the last month may mean it is more trustworthy. But beware, as it may mean they could be too busy to fulfil your order quickly. I sometimes order from the supplier who has a positive feedback rating, but not a high number of feedback, because it may mean they have less orders to fulfil and mine may be processed quicker.

If a supplier has recent negative feedback, it may mean the business is going through a bad patch and you should order from them with caution.

But it is not just about numbers. Read what customers say about them – you can glean a lot of information from the comments.

If you are selling on eBay and have to leave feedback for buyers, use it to your advantage. Don’t just leave a perfunctory “Thanks for buying” message, leave something along the lines of “Thanks for your support and buying from me. I appreciate the quick payment.” Why? Because taking the time to leave good personal feedback is an indication you care enough. If people are checking out your business on eBay, it is a signal to buy from you. You demonstrated you care from a purchase the customer made. It is free PR.

Resist the urge to promote yourself on feedback though. I once bought from someone and their feedback for me was “Thanks for buying from (their company name), (their byline)”. That is taking advantage of your customers. It puts off future customers from buying if they know they are going to be used by you. Needless to say, I thought twice about buying from them again.

Ebay feedback can work for you, both as a buyer and a supplier. It is certainly something to consider leveraging to your advantage.

Starting an online business – some considerations

Starting an online business to sell is a good lifestyle choice but there are some considerations to consider. One of the most important ones you will ever make is in deciding your brand name.

The brand name is one of the most important decisions you will have to make in the life of your business. The company name will identify your business for the foreseeable future. It is possible to change your company name, but doing so could have major implications – particularly as your business becomes more established. You will have to go through a re-branding process which could be costly; you may have to create a new logo, brand and colour scheme as well as printed materials, website re-design and any intangible costs such as the confusion it might cause amongst your customers.

Therefore it is really critical to get it right at an early stage.

There are three main options when it comes to deciding on a company name. Firstly, you could use your own name as your company name. This is absolutely fine, but it may be tougher to present yourself professionally as a brand. This does however work well for Authors, Freelancers, Sole Traders or Professional Speakers, where it is about the person.

You could choose to name your company based around your products or services; ABC Plumbing and Heating, for example, which describes what it does but isn’t necessarily creative. However, this sort of company name may help in search engine rankings because it has your main product or service within it.

The final approach is all about building a brand so it stands on its own two feet. Major companies these days are all about brand identity: Google, Apple, BMW, Audi, Yahoo!, Samsung, Coca Cola, Visa, Starbucks, Adidas, McDonalds and so on. They are all brands that people readily recognise; the idea being that once people remember your unique brand name you will be found in the search engines, and if it’s catchy it will stick in people’s minds.

Think about how your company name will look, maybe as a part of a logo or on your website. It shouldn’t be too long and may have a bearing on what usernames you use for marketing your business on social media platforms. You will also be registering a domain name, setting up a website and having emails linked to the domain in due course, so picking a company name that can be reflected in your website domain name will also help. You can double check both of these by:

Googling your chosen company name(s) to see if anyone is already trading using those names
Checking with a domain registrar, such as Fasthosts, to see if your preferred domain name is available

It goes without saying that it needs to be unique. You can check if your chosen name or something similar has been registered with Companies House or Intellectual Property Office in the UK; or in the US, the Patent and Trademark’s Office.

Consider how it will be perceived by your potential customers. It might be a great idea or quite funny at the time to give your company a catchy or clichéd name, however, you need to consider if, in a few months, it will continue to appeal to potential new clients.

You may choose to operate as a Sole Trader, Limited Company or Partnership when starting out.

Registering as a Limited Company is my recommended route as it is a simple process and protects the Intellectual Property surrounding your company name. In the UK, the process of registering a Limited Company is straightforward. There are three options:

Find a reputable Chartered Accountant and ask them to register your new company on your behalf
Use one of the many Business Registration websites available
Do it yourself on the Companies House website – http://www.companieshouse.gov.uk

Registering the business directly through Companies House is probably the cheapest. However, an accountant will have experience in registering businesses and will understand what share structure you will need to set up from day one.

Do check on Companies House to see if a company name already exists. Equally, someone may have registered your chosen name as a Trademark, which means you can’t use it as your company name.

You can search registered trademarks on the Intellectual Property Office’s website – http://www.ipo.gov.uk/

Using one of the third party websites to register a business also makes life slightly easier than the DIY option however, from personal experience, they make the process more complicated.

They register the business on your behalf with themselves as the key shareholders and then transfer the shares into the name(s) of your company director(s). Director Shareholdings are recorded permanently and if, like me, you have OCD, it looks a bit messy on the paperwork.

When registering a company in the UK, you only need one Director and a Company Secretary, who can be the same person.

Once registered you will get a Registered Company Number, and will be legally obliged to complete annual Company and Tax Returns on an annual basis. A good Chartered Accountant may charge in the region of £500 per year to complete the various returns but they will ensure these returns are accurate and hopefully save you enough tax (to cover their costs at least).

You may also want to become VAT registered; HMRC adjust the UK VAT threshold each year so check what that threshold is on the HRMC website, you can still be VAT registered if your turnover is less than the UK VAT threshold.

Once registered you have to charge VAT to your customers and complete quarterly VAT returns but you can also claim back any VAT on your outgoings. If your business does not have many overheads and is under the threshold then you may want to avoid being VAT registered, likewise if you are selling directly to consumers (B2C) then not being VAT registered will save your customers 20%. However, if you do have higher overheads, and are selling your products or services to businesses (B2B) then you may want to consider VAT registration regardless of whether you have reached the threshold.

IN SUMMARY
Choose a company name which you will like in five years’ time
Decide whether you are the brand or whether your business will be the brand
Register your company name officially
Consider registering for VAT; having a registered company and VAT registration does look professional
Choose and register your domain name.
Secure your Social Media ‘handles’ at the same time