Guide to Subscription Business Model for 2020

The subscription business model is rapidly growing due to the convenience it offers to customers. Between 2012 and 2018, the subscription business model grew by more than 300%. And, the trend doesn’t seem to slow down anytime soon. 

According to a recent survey by Zuora, 71% of adults use subscription services, while 74% of people believe that adults will subscribe to more of such services in the coming years. 

Let’s understand the subscription business model, its benefits, popular subscription-based businesses, and tips for implementing it. 

What Is a Subscription Business Model?

The subscription business model refers to the business model where customers are charged a recurring fee (usually monthly or annually) to access a business’s products or services. 

When compared to traditional pricing models, the subscription business model offers the biggest benefit of ensuring a consistent revenue from existing customers. 

Here are some more reasons to opt for a subscription business model:

• Increases return on customer acquisition costs
• It offers predictable revenue so you can create expansion plans and adjust your marketing budget 
• Allows you to earn more through upsells and cross-sells
• Empowers you to anticipate supply and demand with confidence

Subscription Revenue Model

The subscription-based businesses are gaining significant popularity owing to the usefulness they offer. Customers won’t have to order the same item (that they need regularly) again and again. Instead, the service provider delivers the product every month (or as per the frequency chosen by the customer), so they never fall short of essentials. 

By implementing a subscription revenue model in your business, you can streamline business processes and increase customer retention. It also enables you to build better relationships with customers. 

But, before you implement a subscription revenue model, let’s look at the different types of subscription-based businesses. 

Streaming Services

Streaming services are the most common types of subscription business models. From online music services to video on demand, streaming has become the new norm for today’s consumers.

As of May 2020, 62% of US adults have subscribed to at least one streaming service. 

Companies like Netflix and Spotify have built their business on the subscription revenue model. Even YouTube started its subscription services (YouTube Premium) in March 2019. 

The primary driver for the growth of subscription-based streaming services is ad-free entertainment. But, there are other drivers as well – for instance, free and fast delivery for Amazon Prime. 

Monthly Subscription Boxes

Subscription ecommerce offers consumers a low-cost, convenient, and personalized way to purchase what they want and when. Around 15% of online shoppers have signed up for one or more monthly subscription boxes to receive products on a recurring basis. 

Companies like Dollar Shave Club and Stich Fix are some prominent examples of subscription ecommerce businesses. Even major retailers like P&G (Gillette on Demand), Sephora, and Walmart (Beauty Box) have entered the subscription business. 

The primary driver for the growth of subscription ecommerce is the convenience it offers to consumers. 

Food Services

The meal service market (both fresh and packaged food) is expected to grow to around $7.63 billion by 2024, up from $4.05 billion in 2020. 

Companies like Snap Kitchen, Blue Apron, and HelloFresh are some prominent examples of subscription-based food services. All of them are unique in their own way. Some offer vegan foods, some different meal choices, while some high-protein foods. 

The primary driver for the growth of subscription-based food services is the people’s willingness to pay for nutritious, gluten-free, and healthy food. 

#4 Tips to Nail Subscription Business Model

Now that you know what subscription business is and why it is beneficial for you, let’s look at some tips to implement it. 

1. Decide What You Want to Achieve

The first step to adopting a subscription business model is deciding what you want from it. More revenue? Faster growth? Reduce customer churn? Make sure to focus on long-term business plans. 

Your goals will also help you define your buyer personas and pricing strategy. For instance, you could try matching the features with different customer groups to target a wider audience. 

2. Focus on Customer Experience

Irrespective of what you want to achieve, customer experience must be your priority. Right from signing up for your services to getting the service delivered, customers should feel like they are doing the right thing by being associated with you. 

3. Streamline the Payment Process

One of the primary reasons someone signs up for subscription-based is that they don’t want to order the same thing again and again manually. If your subscription billing system is not reliable, the customer will have to hit the “pay” button every time they need your services. And, if that happens, it won’t be long before they turn to your rivals.

Ensure that your subscription billing system is reliable and can deduct money automatically. 

4. Plan for Scalability 

To run a subscription model successfully, you need a reliable, agile, and scalable infrastructure. Besides, your system should be up and running 24×7 with little to no downtime. Since the subscription model has a predictable income, it gets easier to make adjustments as your company grows. 

Evaluate the predictable recurring revenue against churn rates and operating costs to define the infrastructure you need, and supply & demand. This will help you prepare for the unexpected and continue providing the best possible services to your customers. 

Final Thoughts

The subscription business model is expanding quickly, and there are no signs of it slowing down. However, to nail the subscription business model, you need to follow the four best practices mentioned above. 

Did we miss any important information about the subscription business model? What things you think are crucial in a subscription business? Let us know in the comments!