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Subscription services are getting more and more popular as we go. They are the new jam, and everyone wants a piece of that cake. We’re going to discuss what exactly they are and who can benefit from and use different types of subscription models.
What is a Subscription Model?
A traditional subscription model is a recurring revenue system in which a product and/or service sells for a fixed price to customers. More modern approaches include more benefits for the customers and have the capacity to gain and sustain more customers and turn them into loyal, long-term customers via premium benefits that support both the customer and the business.
Why Are Subscription Models Helpful?
Subscription services are beneficial for both sides of the contract! Businesses get a stable and sustained stream of income, which helps them focus on innovating, progressing, and growing in general. On the other hand, customers lose the burden of trying to find and buy their regular, needed products or services.
4 Benefits For Subscription Business Models
Every business owner’s dream is to have enough trust from their customers that they’re not just paying upfront for 3 or 6 months but choosing products on their behalf. Isn’t that just awesome? Well, this definition is the subscription business models in a nutshell! With the help of a trusting platform, every business can run its own types of subscription models and gain various opportunities and benefits. Don’t forget that it’s not just you that wins, a good subscription model is a win-win contract for both parties involved!
1. Predictable Revenue
With the customer subscription fee you have at least one month of predictability, which would help sustain a business’s resources at best.
2. Recurring Revenue
As some types of subscription models tend to sell their subscriptions in a quarter or half a year period, the revenue will be recurring no matter what. Suppose you get enough feedback and act on it. In that case, the revenue will be recurring even without obligation
3. Face-To-Face Relations
With enough support and attention, your business will form a strong bond with customers, which will lead to a longer relationship.
4. B2B Partnership
With no worries about reaching profit or covering costs, you have more time, energy, and focus to innovate your subscription plans with cross-selling and up-selling new products.
Need some help starting a subscription box business in Subify?
Different Types of Subscription Models
There are several types of subscription services/models, each with its own unique features, advantages, and disadvantages. They can predate as old as 1900s jewelry exchange subscriptions in New York jewel shops or as known as Adobe products, or as new and young as AI-based tools.- Replenishment
- Software as a Service (SaaS)
- E-Commerce (Aka the subscription box model)
- Curation
- Access
- Unlimited
- PAYG (Pay As You Go)
- Premium Membership
- DIY subscriptions
1. Replenishment
Replenishment subscription, better known as the auto-ship subscription model, customers sign up for recurring product delivery within the needed period of time. These products usually contain essentials like coffee, contact lenses, razors, or any product that runs out in a certain amount of time. This type of subscription model ensures the customer gets what they need, even if they forgot to look for it!
The frequency and amount of each delivery will be controlled by the customer’s needs, and the subscription contract should be renewed or declined every 3 or 6 months.
- This type of subscription saves time and effort for the customer.
- They no longer need to record, enlist, or buy it every now and then.
- This subscription from all types of subscription models reaches higher loyalty with customers, that means it has the best loyalty programs on Shopify.
Remember the milkman? He was on an auto-ship contract which is a subscription model example!
- 32% of all subscription boxes are replenishment-based
- Replenishment services have particularly high long-term subscription rates: 45 percent of members have subscribed for at least one year, about ten percentage points higher than the level for curation or access service
- Cancellation rates are upward of 40% for all types of services
- Box subscribers tend to be between 25 to 44 years old.
2. SaaS
The Software as a Subscription business model includes access to a web-based software at a fixed price. In a SaaS subscription, customers pay a periodic bill, usually invoiced and billed automatically on a monthly or annual basis. In return for the payment, the subscriber can access the software through a web browser, app, or one-time download.
One of the main advantages of the SaaS subscription model is that it allows businesses to become more agile.
- By moving on-premises software solutions into the cloud, businesses can eliminate the expenses and responsibilities associated with managing and maintaining costly in-house servers.
- At the same time, they can more easily keep updated on new patches and features, increase the speed of their own software deployments and configurations.
- They can also reduce their dependence on additional IT staff, and free up in-house professionals to focus their efforts on more strategic concerns.
Do you use Adobe products? They’re available as SaaS!
- Over 70% of software used by companies in 2023 are SaaS applications
- 78% of organizations store sensitive data in SaaS applications, and 54% of companies choose SaaS tools to increase productivity
- Around 85% of business apps will be SaaS-based by 2025
73% of corporate representatives use SaaS products to meet their business goals - Annual subscription plans are the most popular SaaS billing option (42%), followed by monthly (36%), and quarterly (11%) plans.
- 42% of SaaS companies offer monthly and annual subscriptions, while 26% of companies offer only monthly plans and 18% only yearly pricing plans
- 40% of SaaS businesses offer a yearly discount, and 48% offer free plans
3. E-Commerce (AKA the subscription box model)
In an E-Commerce subscription, customers sign up for a box of goods that are delivered to their doorsteps at regular intervals, that is one types of subscription boxes. These boxes often contain a selection of products that cater to the customer’s interests or needs. The products can range from clothing and beauty products to food items and books. Subscription boxes can hold different types and themes of products in one box and satisfy different needs of family members or different needs of the subscriber. E-commerce subscription models are the most profitable subscription across all types of subscription models.
- The subscription e-commerce market has grown by more than 100 percent a year over the past five years. The largest such retailers generated more than $2.6 billion in sales in 2016, up from a mere $57.0 million in 2011
- The largest such retailers generated more than $2.6 billion in sales in 2016, up from a mere $57.0 million in 2011
- Over 50% of e-commerce service subscribers have more than one active subscription which can be merged into one delivery or box per month
- Women account for 60% of subscriptions, whereas Men are more likely than women to have three or more active subscriptions (42% versus 28%)
4. Curation
The curation subscription model is a specific genre of subscription service that selects a group of products for a customer within or across product categories. This is done either by utilizing previous sales data or by having consumers complete a quiz or questionnaire that outlines their preferences. Recently, businesses have started to use AI to recognize and curate subscribers’ needs.
In this subscription model, consumers are effectively paying for a brand to personalize their offering and conduct the process of product discovery on their behalf.
Curation boxes are the riskiest one among different types of subscription models, with 40 percent of cancellations in the first three months and about 40 percent of subscriber satisfaction.
More innovative brands use the help of celebrities and popular figures to curate different products, which got a lot of attention and helped businesses move toward more acceptance and approval.
One of the main advantages of the curation subscription model is that it seeks to delight consumers by appealing to their sense of curiosity and anticipation. Sometimes, it can be challenging to satisfy each customer, but it’s the risk people and companies are willing to take to broaden their view on marketing, products, and brands.
- The curation subscription model was by far the most popular, claiming 55% of all subscriptions (compared to 32% for replenishment services and just 13% for access services)
- Subscription services were most popular with consumers who were already regular users of e-commerce sites
- 60% of subscribers are women
- Churn was a significant issue with over 40% of subscribers canceling. Of those, a third dropped out within three months while less than half made it past six months
- Conversion rates are low across the board, with only 55% of those considering a membership actually following through
Subscription model examples:
Remember Birchbox, from our previous articles about beauty box subscriptions? As a beauty product subscription service, Birchbox has been a leader in the curation subscription space for many years.
5. Access or Membership Model
The access subscription model is where customers pay a recurring fee to gain access to a product or service. This model is also known as the membership model. This could be anything from access to a digital library of books, music, or movies to access to a physical space like a gym or club.
One of the main advantages of the access subscription model is that it provides customers with a sense of exclusivity. Customers get to access a product or service that may not be readily available to non-subscribers. It also provides them with the convenience of having access whenever they want, as long as they maintain their subscription.
- The market size of the Access subscription economy worldwide amounted to 650 billion U.S. dollars in 2020
- That year, subscriptions to cloud services accounted for roughly 45 percent of the market, with an estimated value of around 292 billion U.S. dollars
- This subscription economy will reach $1.5 trillion by 2025
- In 2022, the subscription economy market reached $275 billion, and that number will exponentially increase every year after
- Gartner reports that 75% of the organizations selling directly to consumers are projected to offer subscription services by the end of 2023
6. Unlimited
The unlimited subscription model, also known as the all-you-can-eat model, is where customers pay a fee to gain unlimited access to a product or service. In an unlimited subscription, customers pay a periodic fee, usually monthly or annually, to gain unlimited access to a product or service.
The unlimited subscription model can be used alongside Access membership for customers with more needs. The unlimited subscription model is usually in favor of customers considering the small price for unlimited access.
The food industry first introduced this model, thus its nickname, all-you-can-eat, where customers had to pay a small price to get a chance to enter the buffet, and if they could eat a certain amount of food, they didn’t have to pay for the food. God bless America!
- Between 2021 and 2025, subscription revenues of media and digital content with unlimited subscriptions are expected to grow by over 13.5 percent, with consumers generating approximately 1.26 trillion U.S. dollars on services
- According to a survey conducted by McKinsey & Company, 46 percent of customers are willing to pay for at least one unlimited subscription
- More than one-third of consumers who sign up for a subscription service cancel in less than three months, and over half cancel within six
7. PAYG
The Pay-As-You-Go (PAYG) subscription model is where customers pay based on their consumption. Also known as consumption-based pricing, this strategy involves charging customers without prior commitments. This model is particularly popular in the services industry, where providers fix a meter to assess the usage level of customers.
In a PAYG subscription, customers pay for what they use and for the time they use it. This could be anything from the amount of data they consume to the number of hours they use a software or application.
8. Premium Membership
Premium memberships are known for their social media figures and exclusive content, but they were first introduced by private transportation companies to gain attention from the general public. Premium membership in concept contains a free service (or with a very small price) for everyone and more exclusive access or service for whoever is willing to pay a price!
9. DIY Subscription
In a DIY subscription, customers receive a box of the product they need, but with a twist! These boxes contain all the materials and instructions needed to complete a DIY project.
One of the main advantages of the DIY subscription model is that it provides customers with a sense of accomplishment and creativity. Customers get to create something new every month, and they learn new skills in the process.
10. Subscription Boxes
Subscription boxes are a type of subscription model that typically include a few products in each box that are related to a single theme or niche.
Pros:
For store owners, subscription boxes are an easy way to create a recurring revenue stream and introduce customers to new and exciting products. The subscription box business ideas are bold enough for a brand to be used as a marketing tactic as well. For customers, they get the convenience and excitement of receiving a box of goods, in their selected frequencies like food subscription box or even coffee subscription boxes. Also, many box subscription services offer discounted pricing for members. This allows customers to save money on their regular purchases too.
Cons:
For store owners, these types of subscription models require more upfront work to ensure that each box is unique and contains items that customers will enjoy. For customers, it can be difficult to predict what products will be in each box and if they don’t like what they receive, they may not be able to return the items.
What makes this model special?
Subscription boxes are a great way to introduce customers to new products and experiences that they may otherwise not have had access to.
Subscription model examples:
FabFitFun, a monthly lifestyle box, is one of the most popular subscription box services on Shopify.
11. Merchandise Subscriptions
Merchandise subscriptions allow customers to select the merchandise they would like to receive recurringly, based on their preferences.
Pros:
For store owners, it allows them to create a recurring revenue stream that is tailored to their customers’ interests. For customers, they get to enjoy a selection of merchandise that they may not be able to find elsewhere.
Cons:
For store owners, these types of subscription models require more effort to make sure that they’re able to provide each subscriber with a selection of products, that are uniquely personalized to their own choices. For customers, the cost of the subscription can be expensive and they may not always find the items they are looking for.
What makes this model special?
Merchandise subscriptions allow customers to get a selection of merchandise that is tailored to their interests and tastes.
Subscription model examples:
Loot Crate is a popular merchandise subscription service that offers customers a variety of themed boxes each month.
12. Educational Subscriptions
Educational subscriptions are a type of subscription model that offers customers access to educational resources and materials on a regular basis.
Pros:
By using this model, those working in educational or digital fields can enter the subscription industry without missing a beat. For customers, they get the convenience of having the educational resources they need delivered to them on a regular basis.
Cons:
For store owners, this model requires them to have a high-quality resource base or genuine access to these tools. For customers, they may not always find the resources they are looking for in the subscription.
What makes this model special?
Educational subscriptions are the types of subscription models that provide customers with an easy and convenient way to access the educational materials they need, without the necessity of leaving the house or making time and effort for an offline class/course.
Subscription model examples:
Skillshare is a popular educational subscription service that provides customers with access to a variety of courses and tutorials.
Types Of Subscription Business Model Examples
Different types of subscription business models have been adopted by a variety of industries. For example, software companies, e-commerce businesses, media and entertainment companies, educational technology services, dating services, and many more have adopted subscription models to meet their customer’s needs. Choosing the type of subscription models depend on the nature of the industry and the needs of the customers. Let’s compare types of subscription models in action with subscription model examples:
| Type | Pros for customer | Pros for business | Cons | Example |
| Replenishment | Convenience of getting the product they need regularly and the option to cancel it | A steady stream of income – lowering the cost of shipment as numbers grow – good opportunity in B2B partnership | Only works for essential items. cancellation can be costly for business. | Dollar shave club (How Dollar Shave Club Disrupted the Razor Industry) |
| Software as a Service (SaaS) | Eliminating the need for indoor servers. Can be a One-time payment | Eliminating the need for a physical store. Direct relation with the customer | Only works for software. Risk of pirating the service | Adobe |
| E-Commerce (Aka the subscription box model) | interesting boxes on a regular basis. Getting to try needed products every month | Guaranteed revenue until the end of the subscription. Huge chance for B2B partnership | Required up-front payment for the goods from business. Unpredictability for the customer | FabFitFun |
| Curation | Interesting handpick items that will surprise them every month. | B2B partnership opportunity. | It can be tricky for the business. Boxes may cost more than subscriptions sometimes. It can be costly for customers | Birchbox |
| Access | Flexibility. Inclusive. | Beneficial during long times. | Needs a big archive, only works for physical stores or digital libraries. Depreciation | Audible- gyms |
| Unlimited | Flexibility. Inclusive. | It can be lossful in a long time. | This can lead to a loss for business in a long time. Needs money and work upfront. Depreciation | Netflix |
| PAYG (Pay As You Go) | Cost management. Only pay for what has been used | Control over resources. | Takes time to reach profit. | Google cloud. Phone services |
| Premium | Access to exclusive stuff. Better support from businesses | Focus on loyal customers. Helpful feedbacks | Takes time to reach profit. High Risk for Investment | Porsche owners club. Private golf clubs. |
| DIY | Helping with creativity, craftsmanship, and education | Building a community of certain people. | Have to make educational videos and papers for the products | Kiwico |
Trends in subscription models
Running subscription model businesses is all about innovation, creativity, and loyalty. But trends play a huge role for new businesses or for those in need of new customers. Even older businesses with rusty strategies can use trends to optimize subscription programs.
Subscription trends 2024 contain eco-friendly material, hyper-personalization, VR, and AR tools. More industries are getting involved in subscription plans, and boxes are getting more inclusive, cheaper, and better. If you want to stand out, you need creative subscription box ideas!
Conclusion
there are many different types of subscription models to choose from, so it is important to take the time to carefully consider your options, knowing the pros and cons of subscription models and coand select the one that best fits your brand’s needs.
Making the effort to understand the different types of subscription models and determining which one is best suited for your brand will ultimately help to maximize your revenue. It is important to keep in mind that the goal of any subscription business model should be to provide value to both your customers and your business. Taking the time to select the best subscription model for your brand will help ensure that you are able to meet this goal.
