Top 3 questions to consider thinking when starting your car subscription

Subscription models, including car subscriptions, are growing in popularity and demand from consumers, retailers and businesses alike. With the market predicted to hit $100bn by 2032, it is clear that the industry is becoming increasingly prevalent as a way of living for many. 

It’s no wonder, given they avoid heavy upfront capital expenditure, offer flexibility of choice and support usage based pricing which is becoming more and more prevalent as the most effective way to outlay money. When beginning a car subscription or a business, it is essential to build a foundation of knowledge into the particular industry. Asking yourself questions will help you build what your firm will become and most importantly, what you want out of it.

What to consider before starting a car subscription

Top 3 questions to consider when starting your car subscription business.

What are my target customer segments? 

A customer segment refers to a group of customers that share common attributes, this essentially allows you to “segment” them into a group and then target them through means such as advertising, pricing or stock range. In addition, these attributes are typically demographic (age, gender, financial) and are important for you to define early on as it will dictate everything from choice of fleet, pricing, subscription metrics and ad spend. 

Choosing your target customer segments is critical to the success of any subscription business. It’s important to put time and effort into this upfront using market and competitor research. By spending the time upfront, you may uncover an untapped opportunity within the market or a competitive advantage that you may have over other businesses. 

How big do I want my fleet to be? 

After choosing and defining your target customer segment(s) the next step is to address how you will satisfy demand from those clients. Stock and more importantly the availability of that stock will define success in terms of your ability to engage and grow your client base.

Cars are not cheap and even finance and leasing arrangements for cars can cause fluctuations in your costs due to changes in the cost of financing and other factors such as balloon payments. The size of your fleet will also dictate running costs (maintenance etc) and how big a subscriber base you will need to grow to ensure you obtain sufficient utilisation.

What competencies can I leverage to achieve operational excellence? 

Operational excellence in a car subscription business refers to your ability to maintain operating costs while increasing your client base (and hence revenue) disproportionately. That is, by running a well managed business, you can increase your profitability over time.

Rental companies quickly adopt subscription models and grow them. They turn around vehicles from renter to renter, have a customer experience function for customer service and complaints, and run software to simplify their daily activities and provide accurate reporting. 

If you’re neither of these types of businesses or a start-up, you’ll need to consider how you build, buy or partner to equip yourselves with a competency across the three areas above to ensure that you can run with operational excellence and boost your profitability over time.

While not exhaustive, the tips covered above are fundamental to think about prior to starting a subscription business. With appropriate thought and a mentality of iteration and experimentation, it’s very likely that you’ll be able to ride the growing wave of demand for subscription and build a business that has the fundamentals and potential to grow.

Jeremy Gupta is the Chief Operating Officer at Loopit.