A subscription-based business model refers to a business model where the customer pays a regular price at regular intervals for accessing a product. It is similar to the subscription charges that you pay to Netflix for viewing its shows. It could either be a monthly or yearly subscription.
Examples of a subscription-based business Model:
Let’s look at some daily life examples to understand the Subscription-based model. All Magazines, newspapers, milk, and other groceries for which you pay a recurring amount are examples of a Subscription-based business model.
Some professional examples for a better understanding are:
- Streaming apps like Spotify, Netflix, amazon prime, etc.
- Content websites like New York Times, National Geographic, etc.
- Airline subscription: Flyline that charges $49.99 for essential Subscription and $ 79.99 per annum for a Premium subscription is an excellent example of an airline subscription. It is a travel benefit that includes priority boarding and other perks like drink vouchers etc.
- Video game subscriptions: An example of a video game subscription could be Playstation NOw that offers 650 games at a monthly subscription of $9.99 or $59.99 monthly.
There are many such examples. But now, let’s proceed to the types of Subscription-based business models.
Types of Subscription-based business model:
There are four types of Subscription-based business models. These are:
- SaaS (Software as a Subscription): In this type, the Software is accessed online via Subscription rather than installing and buying. Example- Microsoft office 365, which offers Software as a subscription, and you have to renew it after a fixed period.
- Subscription box style service: It is a recurring, physical delivery of products designed to offer additional value besides the actual product. Let’s take the example of Birchbox to understand it. So this Subscription-based service sends 4-5 selected makeup and beauty products at monthly subscriptions, and afterwards, the customers can choose the full-fledged product.
- E-commerce: Several products are required repeatedly. So in this type of business model, you can subscribe to those products. Example of this includes grocery, paper towels, and other household goods.
- Accessibility subscriptions: subscriptions based on content and products like Netflix and Amazon Prime, where you pay for on-demand entertainment or shipping, are called accessibility subscriptions.
How Subscription-based business models work?
We can look at the working of a Subscription-based business model from two perspectives:
- Consumer point of view: It’s simple from the customer’s perspective. He/she signs up for getting service and pays for it on a monthly or yearly basis.
- Business owner’s point of view: From a businessman’s perspective, this business model is complicated. He has to negotiate with the maker or supplier the profit percentage and availability of the product/service and then choose a suitable payment method like Pay per click, pay per unit, etc.
Let’s take the example of Netflix, the most convenient Subscription-based model, for better understanding. As a customer, if you want to Netflix series, you know you have to pay a monthly subscription fee of Rs. 199, and then you can access that show.
From Netflix’s point of view, he has to negotiate with producers and directors of web series about the payment and marketing of those shows, several seasons, copyrights, etc.
Benefits of a subscription-based business model:
After knowing the basics of a Subscription-based business model, let’s move onto the benefits of a Subscription-based business model.
- Good revenue and reduced costs: Marketing costs are reduced because you are earning from existing customers also. So even if you don’t get many new users, you can get good revenue.
- Financial forecasting: Since you know the number of existing users, you can estimate your business’ revenue. Although there are chances of cancelling a subscription, the likeliness of the options would be reduced with a good subscription model.
- More brand awareness: Monthly Subscription of a particular product excites the users and is likely to spread information about the same. Common examples include youtube videos on unwrapping birch box.
Ways of building a successful subscription business model
Now you know the benefits of a successful subscription-based model, so here are some ways that will help you to create a successful subscription business model:
- Researching about the market is essential: The first and foremost step for the success of any business policy is to identify the target audience of your subscription model. For this, you need to research market trends and understand the needs of consumers to know who can be your prospective buyer?
Adapt your subscription plans according to consumer problems and needs. This research will also help you to determine your business goals that would further clarify your strategy.
Also, researching would help you to think strategically for the long term. Long-term planning is essential in Subscription-based models because the revenue is recurring, and only a long-term policy would ensure that you get regular monthly or yearly fees. - Connect and engage with your target audience: Once you know the right target audience for your business, the next step is to connect with them for better understanding. Almost all consumers like convenient and easy-to-use products. So try to reduce any complexities in signing up, paying methods, etc., if any. A good customer experience is a must for attracting more customers.
You must include popular online payment methods like Paytm, Gpay, PhonePe, Bharat UPI, etc., in payment methods.
Besides new customers, retention of existing customers is also essential. So Keep upgrading yourself so that existing consumers don’t feel the need to give away the Subscription. - Know about your competition: After ascertaining the potential buyers and their needs, the next step is to know your competition. Analyzing the potential competitors that can stand against you in subscription service will further help in market analysis. This would also help you to explore what is working in Subscription-based services and whatnot. Then you can prepare yourself accordingly and create a different service than your competitor.
- Using buyer personas can help: Another excellent strategy for building a successful subscription plan is using buyer personas. Buyer personas are fictional characters based on your best customers and how they used your product/services. It can help you understand your business’s right marketing strategy based on prior demographics, behaviour patterns, and other attributes.
These will help you know where you need to focus and attract more clients and leads for your subscription business model. Also, the more you know your customers, the more customer-oriented services and pricing can be adopted. - Finalize product offerings and prices: Finalizing product pricing is the most vital and challenging step. So keep a negotiated price to balance between consumer needs and sustainable revenue.
Freemium products are also helpful for attracting consumers. For instance, amazon prime also offers a 30-day free trial for attracting more users. A freemium plan helps your buyers to experience your values and services even before buying it. This way, there are more chances that they will switch to premium prices for getting a better experience. - Reliability, security, and efficient performance are keys to a sustainable business model: After beginning a successful business, it is essential to sustain it in the long run. For that, Reliability, security, and efficient performance are paramount to maintain your customers and maintain goodwill. So it’s essential that whatever strategy you opt for in your business model, you don’t give up these three key factors.
Given the recurring income from a successful subscription business model, it is crucial to optimize the same. In this article, we saw different ways to land upon a suitable subscription business model. Combined with your hard work and dedication, these strategies will help you boost your subscription plans.
