The Ultimate Guide to Successful Subscription Business Model

To get an edge on their competition, many businesses are incorporating subscription models into their services and products as part of their marketing strategies. What are subscription business models? How do you create a subscription business plan?

In this guide, we’ll cover all of these questions, and more, so you can start generating profits with subscription-based service offerings.

What is a subscription business model?

A subscription business model is a model that allows customers to pay a recurring fee for access to a product or service. The subscription can take many forms.

Types of Subscription Services

Offering one type of service with a subscription option is fairly straightforward. This gives you room to grow and refine your product or service, as well as add additional offerings. For example, Netflix offers unlimited streaming services for movie fans who can pay a monthly fee for those perks. Since Netflix launched its subscription-based model in 1999, it has steadily added shows and movies available for streaming. But other companies have taken their offerings one step further by providing multiple types of subscriptions within one company.

For example, Amazon offers multiple subscription tiers that give customers access to different perks; Prime Video subscribers can stream free videos with their membership but also get free two-day shipping on products from Amazon's catalog at no extra cost.

Reasons Why Companies Use a Subscription Model

A subscription model is a business model where customers pay for products or services on a recurring basis. Companies benefit from subscriptions because it allows them to generate a long-term relationship with their customers. This can improve brand loyalty and retention, which can help boost profits. Although most businesses are not creating their own subscription based services, many of them are using existing subscription based services in their organisation.

Price Comparison Between Non-Subscription and Subscription Model

The obvious benefit of a subscription model is that it allows you to make recurring revenue from your customers. However, depending on your target audience, other benefits may be more important. For example, one-time-purchase models are great for time-sensitive purchases like airline tickets and event tickets. This is because people often want those things right now, not later (for practical purposes). In addition, if they want to buy multiple items at once, they will likely have to do separate transactions. With a subscription model though, you can bundle those items together in one transaction and optimise shipping costs while still charging one fee.

How Long Until You Break Even With A Subscription Model?

How long will it take before you’ve recouped your initial costs with a subscription model? A common question. In most cases, it will be longer than if you were operating under a traditional software licensing or SaaS business model. However, depending on how many customers you acquire and how much they pay for your service on an ongoing basis, there may be a time when you start profiting from each new customer — thus making your marginal costs zero.

Tips for subscription businesses

Make sure you’re really solving a problem people are willing to pay for. Solve a real problem and it will be easier for you to find a subscription model that works. It is also critical that you provide something of exceptional value, otherwise there isn’t much reason for someone else to pay (or subscribe) on your behalf.

1. Establish your objectives early on

What exactly do you want to achieve by offering subscriptions? Increased revenue, faster growth? Adopting this business strategy necessitates the early identification of these objectives. This ensures you're developing the ideal pricing approach for your specific goals. When your recurrent revenue is closely related to monthly or annual payments, long-term strategic planning is essential.

These objectives will then assist you in defining how you will create buyer profiles and arrange your pricing levels.

2. Increase acquisition by providing a better experience

It's a straightforward formula: more customers equals more income. As a result, signing up for your subscription service should be as simple as feasible. Over time, a positive client experience will boost your acquisition numbers. When combined with an excellent overall onboarding experience, you'll notice a higher average readiness to spend.

Every channel you use should have the option to sign up as well. It's significantly easier to fuel your company's growth when a consistent stream of clients join up for the service, regardless of where they find you and your content.

Once your acquisition numbers have increased, you will be able to better offset the percentage of clients you lose due to churn.

3. Simplify the billing procedure

Don't let your subscription billing system force you to lose money. Most modern software services require a number of sophisticated processes in account billing, and you must master all of them. Your customers will not put up with a cumbersome billing process for long.

Product experience is a significant aspect of subscription success. Your customers must understand the worth of your product or service at all times, especially while they are actively seeking to pay.