Industries That Take Full Advantage of the Subscription Business Model

What is the subscription business model, and how does it work?

The subscription business model is a recurring revenue business model in which customers pay a fee at regular intervals for ongoing access to a product or service. It has been around for decades, evolving from traditional newspaper and magazine subscriptions to encompass a wide range of products and services today. 

Here’s how the subscription business model works for customers and sellers:

• Customers: B2B or B2C customers pay money to a business at regular intervals for recurring access to a product or service. They can often choose a service level (based on features, frequency, etc.) and may have add-on purchase options. Reorders are automatic, and subscription fees are typically less than the cost of one-time purchases. 
• Sellers: Subscription businesses receive regular revenue from recurring monthly fees and add-on purchases. While sales vary as customers sign up for and cancel their service, businesses enjoy relatively stable income, allowing them to allocate budgets appropriately for overhead costs, inventory, research and development, etc. Subscription companies can also access a wealth of user data to inform product and service decisions, keeping the business competitive. These companies focus on customer acquisition and providing sufficient value to keep users subscribed. 

How to implement a subscription business model

Implementing a subscription business model can be complex and costly. To decide whether it’s suitable for your business, you must answer “yes” to one or more of the following questions:

• Does your product or service address a recurring or persistent need? Examples include data management for businesses and protein powder for athletes.
• Can your offering appeal to customers indefinitely? Examples include vinyl records or curated wine and chocolate. These products have audiences that will want them indefinitely.
• Does your offering lend itself to upselling and cross-selling? Upselling and cross-selling examples include a data storage subscription to which you can add additional storage or a meal subscription service where you can add extra entrees or desserts. 

If your business lends itself to the subscription model, follow this six-step process:

1. Evaluate demand for your product or service. 

Establish there’s an ongoing demand for your product or service. Take the following steps to accurately evaluate demand: 

• Look for competitors. Do you have competitors? If not, proceed cautiously. There’s been a concerted push toward subscription models in the last 20 years, so if no one is offering one in your space, it may have been tried unsuccessfully in the past. Still, you may be the first to see the opportunity.
• Research the competition. If competitors currently offer subscriptions, examine their offerings. What subscription tiers do they have, and what does each include? Do they sell add-ons? How successful are these companies?
• Analyze your target audience. Build customer personas to better understand your target market and why they would buy from your business or a rival. Dig deep to determine what your target customer would see as a compelling value proposition that would make you competitive.
• Gather detailed customer data. Gather survey data from existing buyers to accumulate customer feedback and learn their thoughts and desires. Consider working with a polling and market research agency to create a market research plan that helps you discover what your target audience truly wants.

2. Choose the right subscription model.

After being assured of robust demand for your product or service, it’s time to choose a subscription model. Your particular offering will dictate a suitable category:

• Membership subscriptions: Membership subscriptions give customers access to a range of products, services and expertise. Examples include gym memberships and access to private online communities like Summit Series or The Dad Edge.
• Software as a Service (SaaS): Numerous software solutions can be purchased as subscriptions. For example, many of the best accounting software and the best email marketing services are offered under subscription models (think Microsoft 365 and Adobe products). Subscription levels are determined by features, user numbers and more. 
• Box subscriptions: Box subscription companies deliver products to your home or business at regular intervals. Food and fashion boxes are popular in the B2C space, while printer consumables and office supplies packages are typical B2B options. 
• Content subscriptions: Services like Netflix, Disney+ and Amazon Prime are well-known examples of media companies offering subscriptions to their content. At a more niche level, many trade journals also require users to pay for access to their content.
• Usage-based subscriptions: Many companies with usage-based subscriptions don’t charge a monthly fee. Instead, they bill based on how much customers use their products and services. Examples include Twilio, a telecom provider offering backend integrations for apps and websites (read our Twilio Flex review to learn more), and Microsoft Azure, a cloud productivity platform. 
• Freemium subscriptions: With freemium subscriptions, you get access to basic services but have the option of paying for access to additional content. A popular example is the Daily Mail+ newspaper subscription.

3. Set your pricing and evaluate your financial situation.

The data and insights from your earlier research will guide you in deciding which type of subscription service to offer and what to charge for it. There are several things to consider when setting pricing and managing your finances as a subscription startup:

• How many service levels will you offer? Various subscription tiers will have different prices depending on user numbers, features, etc. If you’re just starting out, consider beginning with one tier and a fixed price. Many established subscription services did the same before they started offering multiple tiers with paid-for extras.
• What do your competitors charge? You could benchmark your pricing against competitors. However, persuading people to leave them and join you is more about your offerings than the costs. For example, say you’re a Netflix competitor, and you decide to charge $1 per month. If your content isn’t what people want, they won’t abandon Netflix or add your subscription fee to their current lineup, no matter how cheap it is.
• Have you considered your potential churn rate? New subscription businesses must factor their expected churn rate into their pricing structure. Churn is when customers cancel and stop paying for your service. Your competitors will be a valuable source of information here. You must determine a subscription price that will recoup the acquisition and onboarding costs over the expected customer lifetime and account for ongoing service costs while still making a profit.
• Do you have sufficient operating capital? A subscription model is attractive because it provides high levels of recurring revenue. However, you won’t start out with enormous cash influxes, as a software company would under a licensing model. Subscription fees are relatively low, and it will take time to build and maintain cash flow. Consider finding a business investor to ensure you have operating capital and time to grow your business. 

4. Set up your tech backend.

The right technology setup is crucial to a smooth-running subscription business. Your customer relationship management (CRM) software and infrastructure are key elements: 

• CRM: A flexible CRM will help you track all customer interactions, preferences and subscription details. The best CRM software will be able to handle various pricing models, frequent pricing adjustments and recurring payments. 
• Infrastructure: Your infrastructure is critical. If you’re providing a digital service, you must ensure your system can handle all subscriber requests during peak times. If you’re shipping physical goods, your infrastructure considerations will include warehousing. Consider renting premises with sufficient room to store inventory if your service takes off. 

5. Build a seamless customer experience.

Providing a great customer experience is essential to a successful subscription business. Consider the following elements of a friction-free experience at all stages of the customer journey: 

• Friction-free onboarding: Your customers must feel positive about the business from the moment they sign up. Ensure your signup process is straightforward and quick. 
• Automate essential processes: Automate welcome emails, billing, renewals and payment reminders. You should also have a quick, seamless process for handling failed payments. These workflow automation efforts will reduce workload and speed issue resolution.
• Enable account management: Connect your CRM to your e-commerce platform and mobile app so customers can sign up and manage their accounts effortlessly. 
• Send personalized marketing messages: Communicate with customers regularly with personalized emails and texts that offer helpful suggestions and product recommendations. 
• Provide robust customer support: Excellent customer service is vital to customer retention and satisfaction. Ensure customers can reach you through their preferred channels, such as email, social media and telephone. Additionally, AI chatbots can help with purchase inquiries and simple questions.
• Build self-service resources: Add an FAQ or knowledge base to your website to help users solve straightforward problems on their own and learn more about your products and services. 

6. Develop and implement a retention strategy.

A dwindling subscriber base is the biggest threat to a subscription-based business. Once a customer has signed up for your package, you must continually strategize and innovate to persuade them to stay with you.

Use data from your CRM to inform your customer retention strategy. Track crucial metrics like the following: 

• Monthly Recurring Revenue (MRR)
• Annual Recurring Revenue (ARR)
• Churn rate
• Customer Lifetime Value (CLV)
• Customer Acquisition Cost (CAC)

Look for the following in the data you gather: 

• Patterns and correlations: Use data patterns to guide decisions. For example, if your MRR rate is holding steady but your CAC costs are rising, this could indicate more competition for subscribers or that you must rethink your advertising campaigns.
• Usage frequency: Analyze how often subscribers access your service, what features they use, how often they open your email newsletters, etc. Your CRM can analyze usage patterns to identify at-risk subscribers, allowing you to develop personalized retention strategies to improve customer loyalty and reduce your churn ratio.

Your data will provide you with the information you need to understand what your customers want. Your biggest challenge is continuing to innovate so customers appreciate and see the long-term value of what you offer.

Four industries that thrive with the subscription model

Not every industry will necessarily be suited to the subscription model, but there are more opportunities than you might think. Check out these four examples of fields currently thriving with this strategic approach.

1. Online learning

The traditional teaching model involves one teacher in a classroom with 25 or so students and providing a textbook with relevant content. While this model is still standard, online learning is flourishing, allowing people of all ages to access educational and personal development resources in new ways.

Some online learning businesses use the subscription model to provide educational resources to their customers:

• Educator.com: This powerful online platform connects students to various middle-school, high-school and college-level courses taught by qualified teachers and professors for a low monthly price. It’s an excellent supplemental educational tool for students seeking outside help and anyone interested in learning.
• Treehouse: This business offers unlimited subscription-based online coding courses for $25 per month. The platform also offers a free trial.
• Udemy: This website features more than 200,000 courses in business, design, marketing and much more. It offers various plans at a range of prices to accommodate any student’s needs. 

Subscription-based online learning resources help anyone learn new skills and explore unfamiliar subjects without ever leaving the comfort of their home or office. Furthermore, subscription prices allow for unlimited consumption. It’s like buffet-style learning.

2. Streaming entertainment

The streaming music industry was one of the first to embrace the subscription business model. Apple Music had 88 million subscribers in 2021, according to Business of Apps. Spotify more than doubled that number with 188 million subscribers in 2023, according to Statista. In addition to streaming music, subscription-based services like Netflix, YouTube TV, Max, Hulu, Apple TV and many more have changed how viewers access and watch entertainment.

The growth of subscription streaming is the direct result of the increased availability of internet-powered devices. There’s no longer a need to purchase individual songs or movies when you can stream unlimited entertainment from various channels and sources at any time.

3. Beauty and health products

The beauty and cosmetics industry is uniquely suited to the subscription model. Birchbox was one of the first leaders in the field. It launched in 2010, delivering boxes of curated samples directly to doorsteps for just $10 per box. It now offers an array of personalized beauty and skincare products with a range of subscription options. 

The subscription-based health and beauty arena has since exploded, with businesses like the below: 

• Billie’s razor sets and skincare products 
• Flamingo Estate’s at-home spa products
• The Detox Market’s ethically sourced beauty products in monthly boxes
• Skylar Scent Club’s monthly fragrance deliveries
• Petit Vour’s vegan beauty boxes

These are just a few examples of the myriad beauty and health products available on a subscription basis. Consumers can find the products they need and subscribe so they never run out. 

4. Food and beverage

The food and beverage industry has made huge inroads using the subscription model, with dozens of new services arriving each year. This segment thrives on consumer convenience, helping busy individuals stay healthy and keep their cabinets stocked. 

Here are some examples of mail-order ingredient and meal services: 

• Sunbasket 
• Snap Kitchen
• Raw Generation
• Dinnerly
• Hello Fresh

Consumers can also subscribe to services that regularly deliver coffee, beer, wine, tea, spices, barbecue sauce, vitamins and much more. 

Tips for taking advantage of the subscription model in your business

By now, your mind is probably racing with how you can implement a subscription model in your business. When you’re ready to start, keep these tips in mind: 

• Survey your customers. Start with existing customers to discover what they’d like to see in a subscription service from your company. Use survey data to glean customer feedback that helps shape your subscription model.
• Create an attractive price point. While you want to be profitable, it’s essential to incentivize customers to join the subscription service at a reasonable price.
• Make subscribing seamless. The easier it is for consumers to subscribe to your service, the more likely you are to retain them. Incorporate a seamless signup process in your website design and use email marketing to inform customers of monthly options.
• Deliver value. Consumers are more likely to stick with their subscription and refer others when they receive excellent value for their money. Offer special incentives to subscribers as a “thank you” to underscore your commitment to them.
• Automate as much as you can. To save work for you and your staff and streamline the customer experience, automate as many workflows and processes as possible, including payments, renewals, customer notifications and user behavior tracking.
• Offer a free trial. While it may add to your customer acquisition costs, letting people and businesses try your service for free for a week or two may be enough to convert them into paying subscribers.
• Consider a freemium model. You could offer a free version of your service and provide incentives to upgrade to a paid subscription for valuable services and features. Top CRM HubSpot has used this model with great success (read our HubSpot review to learn more).

Benefits of the subscription business model

The subscription approach owes its success to the balance of value it offers the company and the customer. Customers get desired products or services conveniently, while businesses can rely on recurring sales to help predict revenues. 

Specific benefits for businesses and their customers include the following:

1. The subscription model offers easy scalability.

The subscription approach is a scalable business model. Scalability is a massive benefit to businesses and customers alike. 

• Scalability benefits customers. The subscription model suits customers because it allows them to scale according to their needs. For example, say someone has a subscription for 20 prepackaged meals weekly. If they’re heading out of town for five days during one week, they can scale back the subscription.
• Scalability benefits businesses. From a business perspective, the subscription model lets the organization scale easily according to demand. If demand jumps suddenly from 500 units in one week to 1,000 the next, the company can double inventory to meet demand. 

2. The subscription model brings predictability.

Customers and businesses benefit from the subscription model’s predictable nature.

• Predictability benefits customers. Busy consumers juggling work, family and other responsibilities rely on subscriptions to deliver the products they need to stay healthy and care for themselves and their families. They know their products and services are arriving regularly, so they don’t risk running out of what they need. 
• Predictability benefits businesses. Businesses enjoy the consistency a subscription model brings. They can use the number of subscriptions in place and their average growth rate over recent months to predict upcoming revenues. This predictability can fuel growth. If they know they’ll generate $20,000 in profits during a specific month, they can allocate a percentage toward a new project or initiative. 

3. Subscription services build relationships.

Subscription services enhance consumer trust and customer loyalty. 

• Consumers gain trusted partners. When customers receive necessary or desired products and services regularly, they develop trust in the brand. Often, consumers find these deliveries invaluable. Subscribing to an offering and committing to payment is an act of faith — one consumers wouldn’t undertake without immense trust. 
• Businesses gain loyal customers. Subscription models foster customer loyalty and brand loyalty. With customer loyalty, a business is assured of repeat sales. When businesses achieve brand loyalty, their customers are more likely to turn to them for their needs than any competitors. Loyal customers also spread the word about your business, helping businesses gain more recognition and increase sales. 

4. Subscription data improves personalization.

The subscription approach allows businesses to collect valuable data about their customers and create personalized experiences. 

• Data collection benefits businesses. The rich data firms gather helps them better understand customer wants and needs. With that information, they can build products and services that appeal to their audience, improve marketing campaigns, and better predict demand levels to improve efficiency and delivery.
• Personalization benefits customers. With that same data, subscription companies are better able to deliver personalized product or service recommendations. Customers feel valued and seen and benefit from helpful suggestions and additional offerings. 

5. Subscriptions pay for continual improvement and innovation.

Predictable income levels provide subscription businesses with the cash flow they need to constantly improve their products and services.

• Continuous improvement benefits customers. Businesses can use data insights to fund product and service enhancements and improvements, and customers enjoy higher-quality offerings and convenient upgrades.
• Innovation benefits businesses. Being able to invest in research and development helps businesses innovate, increasing the value of their products and services and helping them gain a competitive edge over rival firms.

6. Flexible subscription models extend market reach.

Subscription services with different tiers and paid add-ons increase their market reach and maximize revenues. 

• Tiered pricing benefits businesses. Streaming services often have basic, standard and premium tiers. Some are ad-supported, and others have exclusive bonus content. These services are affordable for price-sensitive consumers and can extract more revenue from higher-earning customers.
• Customized bundles benefit customers. The switch from cable to streaming showed that people are happier when they can pick and choose the services they want. By allowing subscribers to create their own personalized packages based on a set of core tiers, customers only have to pay for what they value.

The future of the subscription business model

The subscription business model will continue growing as customers and businesses benefit from the setup. Look for the following trends:

• A rise in global subscription revenue: Juniper Research expects global subscription revenues to rise to $599 billion by 2026, a jump of 81 percent. This indicates that there’s plenty of room in the market for new entrants and existing players. In the U.S., the number of subscriptions per adult is expected to rise from 2.2 to 5.3 by 2026.
• Potential move toward subscription bundles: A Bango subscriber survey found a creeping “subscription fatigue” because users need to switch from one app to another to access the content they want. Many wish to see the development of a “super bundle” app so they can consume what they want from one place.
• New subscription model: Given the complexities of running a subscription service, some companies running a direct-to-consumer (D2C) model are switching to B2B2C (business-to-business-to-consumer) solutions. In this arrangement, the D2C companies continue to provide and deliver the product or service to the end user, leaving the B2B2C provider to handle billing, customer support, subscription management and payment processing.

Although rising revenues show that consumers and business decision-makers are far more willing to consider a subscription service than before, this is still a tough market to crack. Your future success may rely on bundling some or all of your services with competitors’ offerings on a platform managed by an industry consortium or third-party provider.

Kimberlee Leonard contributed to this article.