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Report: Rising disposable incomes offer hope for SVoDs

May 29, 2024

With latest government figures showing an increase in disposable income in the UK, subscription businesses could be set to benefit from relief from the greatest challenge facing the industry.

Subscription business models have gained significant popularity in recent years due to their potential for predictable revenue and deep customer relationships. However, these models also face unique challenges that can impact stability and growth, including difficulty in acquiring and retaining customers due to the need for increased consumer commitment and spend.

This challenge has been felt by even the biggest brands in the industry in recent months, with Disney+ and Netflix being forced to crack down on password sharing to address revenue losses.

The team at business insurance have revealed the top challenges facing this type of business model and offered their tips on how these businesses can protect themselves.

Challenges facing subscription businesses: 

  • Customer acquisition and retention

Maintaining a steady flow of new customers while keeping existing subscribers engaged is a significant challenge. High churn rates of subscribers can make it difficult to keep the business sustainable. Businesses must continually invest in marketing, enhance service quality, and offer new things.

  • Payment issues and fraud

Recurring payments introduce complexities such as failed transactions and fraud. Issues like credit card expirations, declined payments, and fraudulent activities can disrupt cash flow and damage customer trust.

  • Legal and compliance risks

Subscription businesses often face stringent regulations, including consumer rights and data protection (such as GDPR). Non-compliance can result in hefty fines and legal disputes.

  • Supply chain and delivery challenges

For physical goods, managing inventory and ensuring timely delivery are critical. Disruptions in the supply chain, like those seen during the pandemic, can lead to delays, affecting customer satisfaction and retention.

  • Dependence on technology

These businesses heavily rely on technology to manage subscriptions, billing, and customer interactions. Any downtime or cyber-attacks can lead to substantial business interruption.

Kyle Eaton, business insurance expert, commented: “Business insurance is crucial for mitigating risks for subscription services. By tailoring insurance coverage to the specific needs of a subscription business, entrepreneurs can protect against significant financial and operational risks. Key insurance types include general liability for bodily injury or property damage, product liability for damages to physical goods, professional liability for service-based negligence claims, cyber liability for data breach recovery costs, business interruption for income loss due to operational disruptions, and property insurance for damage to premises.

“In the evolving landscape of subscription services, businesses face multiple challenges that can jeopardise growth and sustainability. Business insurance provides a safety net against these risks and supports the company in maintaining smooth operations. By understanding and integrating comprehensive insurance solutions, subscription businesses can focus more on growth and innovation, secure in the knowledge that they are protected against many of the inherent risks of their business model,” Eaton concluded.

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