In the past, the only subscriptions available were for newspapers or magazines. Today, the subscription model has changed to accommodate consumer demands. You can find razors, makeup, food, music, educational classes and more on a subscription basis. We’ll explain the subscription business model, share how specific industries are thriving with it, and offer tips for incorporating it into your organization.
The subscription business model explained
The subscription model has been around for decades. It’s a straightforward process: Consumers pay a fixed amount at regular intervals, such as monthly or annually, to receive a product or service. The consumer receives items or services when needed, without having to place additional orders. The business benefits from recurring subscription revenue.
Did you know? Many cloud services use a subscription model where customers pay for access monthly. When the customer requires significant resources, the subscription model is a money-saver.
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 places one teacher in a classroom with 25 or so students and provides a textbook with relevant content. While this model is still standard, online learning is flourishing, allowing new ways for people of all ages to access educational and personal development resources. The COVID-19 pandemic hastened the adoption and popularity of online learning, spurring innovative ventures and learning platforms.
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 for 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.
Tip: Consider offering your employees access to an online learning subscription as a professional development opportunity. They can learn new skills while honing existing hard and soft skills in the workplace.
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, with Spotify more than doubling that with 188 million subscribers, according to Statista.
In addition to streaming music, subscription-based services like Netflix, YouTube TV, HBO 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.
Tip: The Netflix model is an example of digital disruption. The company adapted to changing technology and turned its DVD-by-mail subscription model into a streaming subscription model.
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
- Skylar Scent Club’s monthly fragrance deliveries
- Dermstore’s high-level skincare offerings
- 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:
- Snap Kitchen
- Raw Generation
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 with a reasonable price.
- Make subscribing seamless. The easier it is for consumers to subscribe to your service, the more likely it is that you will 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 an excellent value for their money. Deliver additional value by offering special incentives to subscribers.
FYI: To boost customer retention in your subscription model business, consider including bonus items, free samples and referral discounts.
Benefits of the subscription business model
The subscription approach owes its success to the balance of value it offers the company and to the customer. Customers get desired products or services conveniently, while businesses are able to 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 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.
Tip: A business considering adding a subscription model to its offerings should conduct a marketing analysis to understand its competitors. From there, it should try to improve on deliverables, price or both to impact its niche.
The future of the subscription business model
The subscription business model will continue to grow as customers and businesses benefit from the setup. Many feel that COVID-19 forever changed the subscription economy, making it a long-lasting model for consumers to get what they need conveniently.
While some subscription-based industries may dwindle as market leaders emerge, many more companies will likely move into subscription-based models to generate consistent revenues and build loyal customer bases.