Subscription business model exists everywhere in our daily life. You can easily get a subscription for just about anything including food boxes, makeup, magazines, music, and so on. In fact, thousands of companies in every industry are adopting the subscription business model as a potential growth strategy for their business.

If you are a store owner with many concerns about the subscription model and wonder if it is suitable for your business, you come to the right place. This post will answer your question about what the subscription business model is and all you need to know about this hot trending business model.

Now, let’s check it out! 

What is the subscription business model?

A subscription business model is a kind of model that charges your customers on a monthly or recurring basis for a product or service. By adopting this model, you can leverage your customer relationships to create a steady stream of income. 

It is easy to see the presence of subscriptions in many aspects of our lives. Fresh milk delivered every day, a weekly grocery box, periodic health examination, chill songs on Shopify, and many other subscription-based products and services.

Pros and Cons of subscription business model

Pros 

Convenient solution for customers

Subscription services allow customers to have ongoing access to a product or service. It improves customer satisfaction and ensures a consistent experience. Besides, your customers can enjoy the personalized subscription box for a recurring period of time by signing up only once. Subscriptions clearly save them time and effort in looking for new products/services that meet their needs.

Predictable revenue stream

The subscription business model makes it simple to forecast your future revenue stream at an accurate rate. Because your customers pay you in advance or on a regular basis, you can easily keep track of your cash flows. This helps to review the exact financial health of your company and thereby allocate reasonable resources for future plans. By getting a predictable revenue stream, you can have a more data-driven approach to your marketing strategy and keep your operation growing. 

predictable revenue stream subscription business model

Higher customer lifetime value

Working with the same customers also allows you to build deeper relationships with them over time. Because your brand interacts with your subscribers on a regular basis, you can better understand their preferences and serve them. The close relationship also avoids misunderstanding and builds customers’ trust. 

If customers are satisfied with your subscription service, they may recommend it to their friends, relatives, etc. This kind of word-of-mouth marketing is more effective and cost-saving than any other method. Just serving your customers well, you can get more value back from them. 

Reduce customer acquisition costs

Subscription business model allows you to get profit from your existing customers rather than engaging new ones. This lowers marketing costs and allows you to concentrate on customer referrals. Subscribers paying on a regular basis and commit to a long-term relationship with you are also less likely to churn. Therefore, you do not need to invest any additional fee on customer retention.

Cons 

High competitive rate

Subscription business model is a profitable market but highly competitive with many participants ranging from small businesses to big corporations. The barrier is low and you can witness many new competitors entering this market almost every day. 

high competitive rate

During the context of Covid-19 pandemic, more companies moved to the subscription business model with a desire to get steady and sustainable operation. Thus, if your brand does not join in early and owns competitive advantages in your subscription, you will be left behind soon. 

High churn rate

A potential risk that you need to handle when adopting the subscription business model is that your customers cancel their subscription and not draw in payments. It contributes to high churn rate and may damage your brand’s revenue. 

Some featured subscription business model that you can refer 

HelloFresh – Food Service Subscription

HelloFresh is a meal-kit subscription service that sends you everything you need to make a complete dinner. Each box contains individually wrapped food packages that have been measured out to the exact amount required in the recipe. Because all of your items are measured and prepacked when you receive your HelloFresh box, you save time by not having to do any prep work.

HelloFresh subscription business model

One of the outstanding points of Food Service Subscription by HelloFresh is that it meets exact demands of a niche market. With a food service subscription from HelloFresh, customers can save time buying fresh ingredients for every meal and pay less than buying in grocery stores.

Glossy Box – Beauty subscription box

Glossy Box is an example of the beauty subscription box. It did a great job in combining both the personalized experience and surprising feelings whenever customers receive a subscription box. Glossy Box allows customers to select what items appear in their monthly subscription box and offers a smart product filter tool. Besides, it partners with various skincare and makeup brands all around the world so customers can explore new beauty products with affordable prices. 

Gloss Box subscription busines model

What makes Gloss Box successful is focusing on customer retention. It has researched and collected data about the products, color preferences and favorite brands of its huge customer base. From that, it approaches specific brands and asks for specific products. This brand puts customers in the top of priority so it always provides products customers desire and appreciate all feedbacks for better improvement.

Conclusion

The subscription business model is more and more developing which leads to new opportunities to raise profit for many businesses. Is this kind of recurring revenue model suitable for your products or services and helpful in scaling your business? Hope that our post has helped you in understanding the subscription business model.

Let me tell you, this is just the first article in a series about the subscription business model. If you like this topic, please stay tuned for our next informative releases.   

If you have further questions, feel free to contact us via live chat support!



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