What Is a Subscription Business Model? A Complete Guide

Susan Kelly

Jan 28, 2024

The idea behind subscription business models is to sell a service or product to get yearly or monthly repeated subscription revenue. They care more about keeping customers than acquiring new ones. Subscription business models, in general, revolve around how money is earned such that a single client makes more than one purchase for exposure to an item or service for more than a longer period rather than paying a vast one-time amount in advance. Entertainment, cars, software, and shopping are moving away from ownership and toward subscriptions. This increases the customer's LTV (Lifetime Value). So let us see a subscription business model and how it works.

What Exactly Is A Subscription Business Model?

Customers pay you a weekly, monthly, or yearly fee for your products or services as part of a recurring revenue model called a "subscription business model." After a certain amount of time, a customer can renew their subscription. With this model, you can use your customer relationships to make a steady stream of money.

Revenue models based on subscriptions are good for the company and the customer. As a customer, you can choose to have a service or item you know you'll need again in the future bought for you automatically. As a business, you keep customers so you can sell to them again in the future instead of having to reach out to them more often. You get MRR (Monthly Recurring Revenue), which can keep your business going even when things are bad. A subscription model can be a very effective and profitable way to run a business if you have the right industry, brand, and product.

How a Subscription Model Appears to work

In a subscription model, customers pay for a good or service repeatedly. They choose how long and how often they want to get each offer, and most subscriptions let them renew or cancel at any time. Think of an agreement between you and a customer as a subscription. The customer agrees to pay for a service or product over a certain amount of time, and as long as the customer makes their recurring payments, the business delivers what was promised. When the contract is over, customers can choose to keep their subscription or end it.

Subscription Business Model Types

A wide range of companies and industries can use subscription business models. Some of these businesses are satellite radio, cable TV, websites, lawn care, gyms, storage units, and many others. There are also newer businesses, like subscription boxes, that work on a subscription model. Meal delivery services and meal delivery kits are subscription box businesses. There are also subscription-based business models for online document and photo storage, such as Apple's iCloud.

Personal care products are another type of item that can be sent straight to your house. In exchange for a monthly fee, car subscription services give you access to a car. Subscriptions for cars can include things such as maintenance, registration, roadside help, as well as liability insurance. In contrast to a lease, which usually lasts between two and four years, you can sign up for a car service for a shorter period and get a new car every month.

A Subscription Business Model Example

The best way to understand how a subscription business works is to look at a magazine company. Instead of selling a magazine as a stand-alone product that a customer buys once, magazine companies offer a service where customers can sign up to get a monthly or weekly magazine delivered to their door. In this model, customers don't buy one magazine at a time. Instead, they pay a small amount each month for a yearly subscription to a magazine.

If a company sells a monthly magazine service rather than a single magazine purchase, it sells it as a 12-month service that includes 12 purchases. This makes the company's way of making money stronger because it guarantees sales over a year instead of just one sale. This makes it easier to predict sales and plan for a business since a company can predict sales farther into the future more accurately. A subscription business model isn't just used by magazine companies. With the help of technology, you can now subscribe to almost any item or service.

A Subscription Business Model Will Assist Your Business Develop

This is just a tiny sample of the industries that can benefit from a business model based on subscriptions. With a bit of creativity and the right plan, you may find that this approach makes your customers happier and increases the number of people who stick with your business, allowing you to increase.

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