What is a subscription business model?

A subscription business model is a type of business model that centers on charging customers an ongoing fee to receive access to a brand’s product or service. Customers are usually billed monthly or annually for this service. When you build a subscription business model, consider also creating a revenue model as well. This helps track how much your customers value your service and their relationship with you. The more value customers receive from your company, the more likely they are to continue subscribing to it.

Benefits of subscription business models

Using subscription business models provides many advantages to both you and your customers. Common benefits include:

• Simplifying the business process:These business models are simple and productive for both customers and organizations, as a scheduled automated payment comes straight out of their account. This means you’re able to prepare their upcoming order in advance, and they don’t have to worry about remembering to manually make payments each month or year.
• Increasing retention rates:Since customers are regularly using your service each month, your retention rates will grow as you gain customers and satisfy your existing customers.
• Building relationships with customers:Customers who use your service will often provide their contact information, allowing you to reach out to them with additional marketing opportunities. Consider sending email campaigns and creating content catered toward their preferences and needs to build a stronger relationship with them and potentially sell additional products to them.

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Types of business subscription models

Types of subscription models that different businesses regularly use include:

Subscription boxes

These business models streamline the process of physically shopping for products by sending them in a box for customers to sort through. Customers enjoy using these subscription boxes because they’re mailed right to their door, increasing customers’ convenience. Many of them also like the surprise and anticipation of not knowing what’s in the subscription box until it arrives.

Companies that use this business model combine their data and personalization research efforts to determine how much to price for these boxes. Regularly sending boxes that customers are guaranteed to enjoy ensures they maintain a positive relationship with the company.

Food services

Many meal-kit services practice a food service subscription model. These are similar to how subscription boxes operate, as these kits are mailed to customers every few weeks or months. Customers enjoy these services because they’re more convenient than going to the grocery store each week. They also contain unique recipes that customers can keep and refer to later on. These boxes also provide access to quality products that are catered toward customers’ unique diets.

Most companies using this model often charge a monthly fee, plus add-ons or upsells for food items that are more expensive for the organization to purchase. This includes food options like gluten-free, vegan and paleo meals.

Streaming services

A popular example of a subscription business model is streaming different forms of content. Users typically pay a weekly, monthly or yearly fee to stream their content of choice, which includes options like movies and tv, music or podcasts. Some of these services offer freemium plans, which are plans that allow you to use the service for free. They use the freemium plan to show customers how valuable the service is to entice them to pay an additional fee for more exclusive access and additional offerings from the business.

Tips for determining if a business subscription model is right for your business

Follow these tips to help your organization decide if a business subscription model is the best option for you to pursue:

Establish your business goals

Before building a subscription model, meet with your team to determine the business goals you want your model to help you reach. These goals could be an increase in revenue, stronger relationships with customers or higher retention rates. If a subscription model will help you effectively accomplish these goals, it could be a great option to pursue. Knowing your goals also helps in building an accurate and effective strategy for your business model.

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Decide which services to offer customers

Once you have your goals in mind, start strategizing what you’ll provide to customers. Research other competitors in your industry to learn what they offer their customers to give yourself ideas to go off of. If you currently sell products, consider using a subscription box service to send customers presents of your choice each month. If you’re developing a new subscription company from scratch, offer a service that provides value to your customers and is a worthwhile ongoing payment for them to make each week, month or year.

Determine your budget and pricing

Work with your accounting and financial teams to determine what your budget for subscription services will be. Keep in mind that you need to factor in costs like inventory and supplies, shipping and design elements. Determining how much it costs to create your subscription products and services will help you develop fair pricing models. Research the prices of competitors, the average amount customers spend on your product each month and your revenue total to help you come up with a reasonable pricing model.