Worried About Future Profits? Read How One Business Reels In Repeat Customers And Profits
|May 29, 2012||Posted by Louise under Online Business Ideas||
Stuck on what business to start? It’s challenging for many to choose a business idea that will prove profitable. That’s why I’ll keep providing you with some awesome business examples. Let them be your inspiration to brainstorming your ideas into a successful thriving business.
In this week’s Cool Internet Business Ideas, we target PetFlow, a scheduled pet food delivery service, founded by Alex Zhardanovsky and Joe Speiser back in 2010. In an interview with the New York Times, Among Online Entrepreneurs, Subscriptions Are All the Rage, Zhardanovsky explains how he adopted a particular business model that set his company in a very lucrative direction.
It all began when Zhardanovsky noticed how Netflix and other companies managed to get customers to pay monthly fees for repeated use of their services.
At the time, Zhardonovsky sold online ads and considered starting an online pet food store. He admired companies like Netflix who followed the subscription model and enjoyed great success. For Zhardonovsky, this type of business model seemed the perfect fit for his pet food supply idea, because pet owners are continuously running out of pet food and have to restock it on a regular basis.
As explained in Among Online Entrepreneurs, Subscriptions Are All the Rage, and as any entrepreneur with a new business idea should, Zhardonovsky and partner Speiser wanted to make sure the idea would fly and dipped their toes into the market waters. Here’s what they found:
To test his theory, Mr. Zhardanovsky and his co-founder, Joe Speiser, set up a Web page in 2009 with a form that asked customers if they would be interested in signing up for regular deliveries. They then placed a few ads online and waited to see what happened. “We had an overwhelmingly positive response from our customers who wanted to sign up for the service,” said Mr. Zhardanovsky, who lives in New York City and who proceeded to introduce PetFlow in 2010.
Using a subscription business model, PetFlow customers sign-up and log onto the PetFlow site where they determine how much food they need, how often it should be delivered, and where to deliver it.
And their market research proved right on the money as they watched their business skyrocket in a very short time:
In its first month, July 2010, the company shipped about 60 orders; by January of this year, that number had leapt to 27,000. In 2011, PetFlow exceeded $13 million in revenue — with 60 percent of its sales coming on a subscription basis — and it projects revenue will exceed $30 million this year. “I’ve come to appreciate,” Mr. Zhardanovsky said, “that subscription models are, in so many ways, the holy grail of business.”
You may have noticed that PetFlow’s model differs somewhat from the Netflix one. Like Netflix, it obtains a monthly payment, but not in the same way. Where Netflix is paid an automated recurrent flat rate every month for unlimited use, PetFlow gets paid whatever the client orders on a monthly basis. And the majority of clients order every month for the simple reason that it’s a convenient way to replenish their pet food supply and it alleviates the frustration that comes with running out of pet food and having to haul it to the grocery or pet food store.
And for the business owner, there are other less obvious pluses to this business model as Zhardanovsky explains:
“This is the best business model you can ever have because we can place inventory purchases against future sales,” Mr. Zhardanovsky said. “I will be shipping out 24,000 products next month whether I land a new customer or not. I already know how many bags of Blue Buffalo brand chicken-flavored dog food I have sold in the next 60 days.”
That predictability allows PetFlow to maintain lower inventory levels and to negotiate better deals with suppliers, who appreciate that PetFlow does not discount its sales and that its customers are much less likely than others to switch to a different brand. “We have 60 percent of our customers telling us that they used to shop at Petco or PetSmart,” Mr. Zhardanovsky said. “Which means we’re taking a lot of people out of the traditional retail channel.”
Sounds great doesn’t it? Could a subscription model (also called a membership model) be applied to your business idea? As the PetFlow example shows us, it’s a great fit for daily consumables that need replenishing on a regular basis, like coffee or maybe a school lunch service.
You can apply this model for online services as well. You could arrange a monthly or weekly fee for let’s say a certain amount of social media work or for writing a certain number of newsletter articles per week.
As Zhardanovsky pointed out, a subscription model allows you to predict and rely on future sales. Plus, if you offer the type of product or service that requires periodic replenishing, then you have a stable income flowing in. Not so for many other online business models that depend on one time sales.
(New York Times full article Among Online Entrepreneurs, Subscriptions Are All the Rage.)
So, would the subscription model work for you and your idea? Leave a comment…
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