Today, the subscription model is used by numerous businesses and websites, even though its origins date back to the newspapers and publishers that became popular during the 17th century.
Subscription, a very successful business model:
The subscription model is very easy to understand and the truth is that every year it generates billions of revenues worldwide.
This business model is extremely profitable since income is generated regularly.
Today we will tell you more about this topic and we will even share some success stories that have turned out to be very revolutionary for the times we live in.
What is the subscription business model?
In simple words, a subscription model implies the sale of content, products, or services, in exchange for a periodic payment (daily, weekly, monthly, semi-annual, or annualized).
During the last decade, it has experienced truly exponential growth, especially in the categories of content, physical and digital products.
Its popularity has escalated voraciously in the online environment since it offers multiple advantages and benefits to users.
Building strong audiences is a critical success factor, considering that customers will not make a one-time payment for a certain product or service.
In other words, it is necessary to offer them a quality service so that they are willing to renew their subscriptions at the established time.
This has caused companies to become increasingly demanding, bold, and competitive since otherwise, they would run the risk of losing relevance within their niche.
Operation of this business model
The operation of the subscription model is very simple. In essence, customers must make regular payments if they want access to a certain product or service.
One of its greatest competitive attributes is that the price of each subscription is usually more affordable than that of traditional products.
This is usually because pricing is tied to the length of the subscription.
So the longer its duration, the more flexible the pricing policy of each company could be.
Offering subscription services is an innovative business that is trending worldwide, especially in the technology sector and in product replenishment.
In theory, they make life significantly easier for customers because they don’t waste time deciding what they should buy, nor how often they should buy it.
Consequently, this has become one of its biggest advantages, especially among younger audiences.
Features of the subscription model
Here are some general features of the popular subscription model:
1. According to a LinkedIn report, this business model allows companies to continually improve the value of their offerings.
2. Subscriptions to products or services are often essential to the audience. In this way, constant or massive cancellations are avoided.
3. The product or service that customers subscribe to satisfies a real need.
4. Subscription models are generally based on pre-existing consumer behavior.
5. They tend to offer users a free trial so that they can get to know and try the service before making the first payment.
6. Revenue retention often outperforms customer retention, and therefore subscribers tend to spend more money on their subscriptions over time.
6 Companies that have succeeded with this model
Now we would like to introduce you to some companies that have succeeded worldwide thanks to the subscription model:
Both Netflix, HBO, and Spotify are part of the successful content subscription model.
Users pay for their respective subscriptions in exchange for access to a curated selection of movies, series, and music.
According to Statista data, the total profits generated by this company during the first months of 2021 exceeded 7 billion dollars, which highlights the profitability of this business model.
2. Amazon Prime:
Currently, Amazon Prime stands out within the service subscription category. In this case, customers pay monthly to access greater benefits of home deliveries.
And not only that, but they also offer discounts and exclusive audio or video content that they could not access with other services.
It should be noted that in 2020 subscription income represented 6.5% of the total income generated by the company.
Adobe has also built a profitable business by offering its applications under the subscription model.
It is a monthly subscription that allows its users to access all its programs and services without limitations of any kind.
In March of this year, Adobe reported that its total revenue has risen to nearly $16 billion, with revenue generated from subscriptions to its digital experiences at 23%.
Microsoft, the company that made Bill Gates one of the richest men on the planet, debuted in 2011 within this business model with Office 365.
In this way, users had the possibility of accessing the same functionalities of their desktop software through the cloud.
This allowed him to increase his sales by 70%, while his number of subscribers exceeded 18 million in just a few months.
This multi-platform application allows you to play music via streaming and is very popular worldwide.
Like the previous companies, Spotify also operates on a subscription basis, and this allowed it to generate more than $7 billion in revenue in 2020.
6. Hoot Suite:
This tool also offers a subscription and is used to monitor social networks, such as Twitter or Instagram, more easily.
Its free version only allows the monitoring of five social profiles, so users who want to increase that amount must subscribe to this service.
As for its earnings per subscription, it should be mentioned that they are greater than 300 million dollars per year.
Main advantages of operating by subscription
At this point it would be very convenient to present the main advantages of this business model:
1. It brings great value to all parties involved (businesses and subscribers).
2. Promotes the generation of recurring, stable, and scalable income. This means that monthly billing is practically guaranteed for companies.
3. Allows you to estimate the amount of monthly income that the business will receive, based on its customer base.
4. The value that each customer contributes throughout his life, which is known as “Customer Lifetime Value”, is greater for companies that operate by subscription (this does not happen with traditional businesses).
5. Companies can rely on very effective sales strategies, such as Upselling and cross-selling, to offer a top and most exclusive service.
6. Users have the possibility of accessing more competitive prices, as well as discounts or special rates, in exchange for the product or service received.
7. The novelty factor is also very attractive to customers, as subscriptions allow them to meet new brands regularly.
8. They also access exclusive content, materials, products, or services regularly.
Disadvantages of the subscription model
This business model also has a couple of downsides, but the good news is that they don’t outweigh its benefits. Here we will share some of them:
1. More and more companies are operating by subscription, which translates into greater competition and increasing deterioration in prices.
2. Some businesses could fail miserably if they don’t figure out how to reduce the churn rate.
3. It is mandatory to offer a high-quality service (one that provides real and sustainable value over time to each client).
4. Reducing acquisition costs per subscriber can be a very complex task if the right decisions are not made.
Recommendations to be successful with this model
– Satisfy the real needs of your audience.
– Incentivize customer acquisition by providing them with a great experience with your subscription products or services.
– Don’t hesitate to offer them a free version before trying to sell them a membership.
– Offer them various subscription levels.
– Execute various sales strategies to improve your services, capture leads, and retain your subscribers with greater efficiency.
– Try to set prices based on the value you offer.
The subscription generates recurring income:
It is undeniable that the subscription model generates billionaire and recurring profits worldwide, especially if companies are dedicated to offering memberships for digital products or content.
In addition, this business model will continue to grow at a rapid rate in the immediate future, especially in the digital environment and in the B2-B markets.
Therefore, it is ideal for promoting successful and profitable companies, and this is something that you should keep in mind if you are interested in joining this trend soon.