How Subscription Models Can Benefit Your Business

22 Jul 2024

Learn all about subscription models:

What is a subscription-based business model?
Business benefits of subscription models
In summary

Everywhere you look, there are signs of the subscription megatrend across most sectors. Changes in behaviour throughout the pandemic have formed new habits, and research shows they’re here to stay.

The global market for the subscription-based model is expected to grow from more than $72 billion in 2021 to $120 billion in 2022, with a mammoth prediction of $904 billion by 2026.¹ As subscription-based services offer more convenience and instant access, trends suggest consumer values are shifting from product ownership to usership.

Learn more about the benefits of a subscription model and how you can use them to strengthen your business.

What is a Subscription-based Business Model?

A subscription-based business model is where a customer is charged a recurring fee for access to a product or service on a weekly, monthly or yearly frequency – instead of a single purchase.

Subscription services are becoming increasingly normalised throughout our lives, from the media we consume and technology we use, to the food we eat. Subscription-based products have been around for a long time, with some of the earliest examples including milkmen and magazine subscriptions² from the 1800s.

A few modern examples of subscription-based products include:

Cloud storage
Music streaming
Media streaming
News
Food and groceries
Health and wellbeing
Cosmetics products
Male grooming boxes
Clothing and collector’s items

‘Freemium’ services are also becoming popular among news and media services, offering exclusive access to resources through a free email subscription.

As remote working increased over the course of the global pandemic, the consumption of subscription-based cloud services grew to $396 billion in 2021. This is expected to reach $482 billion in 2022.³

Business Benefits of Subscription Models

There are various ways businesses can benefit from this boom in the subscription economy.

Grow your revenue

Subscriptions make it easy to encourage repeat purchases and keep your products or services in the hands of customers who already know and love you. This can increase the lifetime value of the product significantly, therefore growing your revenue.

This revenue stream is also predictable, allowing you to collect data and estimate how many customers you may gain or lose over specific periods. This can make it easier to assess your income too.

Long-term profit generation

The disadvantage to single purchases is that you may need to make significant improvements to your product to sell the next version to customers. This can mean holding back product updates until the next launch.

With a subscription-based model, you enjoy recurring profits, and the customer is happier – receiving instant updates to the service as soon as they’re live.

Lower customer retention costs

One-off products often cost more for customers to buy outright than signing up to a subscription service, which breaks down the cost over a period of weeks or months – depending on their choice of frequency.

If customers have already spent their hard-earned cash on an older version, it can be harder to promote purchasing the upgrade. A subscription service can help you retain customers and save money on marketing, releasing updates as they become available.

Build stronger relationships with your customers

A subscription-based model means you’re in touch with your customers on a regular basis – whether it’s monthly, bi-monthly or quarterly.

Take advantage of frequent contact with email marketing to build even stronger relationships with them. That way, you can inform them of any supplementary services, updates or exciting product news, while also providing a top-notch service.

Make sure to answer customer feedback – the better you serve them, the more word-of-mouth and brand advocacy you’ll earn.

Pass cost-savings down to your customers

Thanks to the savings you will enjoy from subscription-based products – including bulk ordering, less time spent on sales and marketing, and streamlined operations – you can pass the benefit along to your customers. That will make your products or services even more attractive to them.

Focus sales efforts on acquiring new customers

With your current customers hooked into your subscription model, you can focus your sales and marketing efforts on acquiring new ones. You’ll want to keep some of your marketing budget dedicated to them, but the bulk of it can be focused on reaching new customers.

Upsell and cross-sell opportunities

Upsell and cross-sell opportunities can help prevent your subscription-based model from going stale, offering new methods of personalising the service in ways that can also benefit you as a business owner. You can do this by advertising supplementary products and services that will add value to people’s current subscriptions.

Subscription-based products are flexible and easily customisable. This can offer reassurance that customers will be able to move between various subscription plans, potentially making them more willing to try out an upgrade.

Personalisation can also help strengthen your relationship with your customers. Research shows that 80% of consumers are more likely to make a purchase when businesses offer custom experiences.⁴

Business growth and development

Subscription models can give you access to more consistent customer data over a longer period of time than one-off products can. Utilise customer feedback and data trends to learn what makes your customers tick, as well as any new features they’d like to see.

This can help you become better equipped for adapting to these trends and needs, ready to scale the business in the most productive and profitable way.

In Summary

The subscription economy is thriving, and it’s transforming the transactional relationship between businesses and consumers. The growth of subscription-based services is set to increase even more in the coming years. Customers value subscription services as they can offer financial autonomy, convenience, variety, customisation and instant access.

The subscription model can benefit your business in several ways. It can widen your audience to attract more customers, increase your revenue and help future proof your business – all while strengthening your relationship with current clients.

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