Marthin Steyn, Technical Lead
Subscription services explained
The ultimate guide to subscription services
The ultimate guide to subscription services
Subscription services are hot. This revenue and consumption model is not new. You probably already had a subscription to a magazine, a gym membership or a cable TV contract long before companies like Netflix, Spotify and Swapfiets started offering their services to the general public. Did you know that subscriptions to books and magazines already existed in the 17th century?
Subscription as a revenue model
What are subscription services anyway? What makes a subscription model interesting for businesses and consumers? And how can you benefit from the opportunities offered by subscription as a revenue model? The answers to all these questions and more can be found on this page.
Subscription services: what are they?
Subscription services focus on offering products and services for which a fixed amount is periodically paid by customers. This revenue model involves the periodic or even non-stop supply of or access to physical products or services.
The counterpart of subscriptions as a revenue model is transaction-driven and focuses on selling products or services and thus often transferring ownership. Subscriptions are about use or consumption (usership). The focus on 'usership' usually results in more intensive contact between the supplier and customers.
Read more about the differences between ownership and usership in another blog.
Reasons why businesses opt for subscription services
In a short time, a huge number of businesses have started to offer subscriptions. It is therefore logical that the subscription economy is growing fast as a result. Research by Zuora shows that companies offering subscriptions can, on average, achieve sales growth five times faster than the market average for companies in the US S&P 500. Let’s look at some of the main reasons why businesses opt for a subscription-based revenue model.
- a predictable and continuous source of revenue. This reduces business risks and can have a positive effect on the value of a business (interesting for shareholders and investors)
- higher turnover per user or customer compared to pure selling of a product or service
- lower pressure on sales and more focus on customer satisfaction and customer service rather than sales.
- much more data generated as a result of greater customer contact and insights into behavior. This fosters a lasting, more intense relationship and better upselling opportunities
- expansion of the range of services or products
Want to know more about the opportunities offered by subscription services? Then check out our blog on the possibilities of B2B subscription commerce?
Different subscription types
There are different types of subscriptions, both for the B2C and B2B market. According to a survey by Nibud in 2019, Dutch households had an average of 5 to 15 subscriptions. Below is a list of known subscription types:
- traditional: newspapers and magazines, gym, razor blades, software, meal boxes, flowers
- service: maintenance of a car, house or website, but also tv, internet and telephone contracts, insurance and gas, water and electricity
- lease of product-as-a-service: car, smartphones, white goods, bicycle
- digital products: video & music streaming (and on-demand), e-learning, online communities
Differences between subscription services and other revenue models
Each revenue model offers its own opportunities. And at the same time, there are differences between the revenue models. If you are planning to add subscription services to an existing transaction-driven business model or want to switch entirely to subscriptions, it is good to be aware of the following differences. Consider the following aspects when running subscription services:
- continuous improvement and/or expansion of your product or service. Keeping users excited and surprised is a must if you want to keep customers on board
- managing subscription prices, especially if you expect to develop your product in such a way that subscription prices will go up
- withdrawing a product or service is more difficult. Customers expect continuity. You cannot simply withdraw something from your product range.
- take into account a different/large capital requirement due to the pre-financing of the physical products or productions (Swapfietsen, Netflix offering)
- focus on the entire customer journey, even in the event of a failed payment or cancellation. (also read this article by Buckaroo on Emerce)
Tips for a good start with subscription services
If you want to get started with subscriptions for your organization, we have some preparatory questions for you. These are intended to help you get off to a good start with subscription services.
- Do your subscriptions really make things easier or more efficient for consumers or business customers?
- Is your organization geared up for subscriptions? In contrast to a transaction-driven business (with its strong focus on acquisition and sales), for subscription services you will need to free up more resources for customer service and customer communication
- Is the platform on which you will offer the subscriptions scalable? Are you prepared for peak loads and significant growth in users or products?
- Have you ensured that the online platform is flexible and easy to adapt? Because of the large amount of data and more and better feedback loops, it is important to be able to keep improving the platform.
- Have you determined a clear billing strategy that fits the type of subscription you are going to run? Do customers pay-as-they-go, periodically or on the basis of fair use (usage with possible post-calculation)?
For even more tips, visit the blog ‘what you need to know about subscription services before you start’ or download the white paper below.