The subscription services economy is thriving.A business centered on that profit model … [+]
In recent years, significant changes have occurred in the way consumers access products and services. Impulse buying is outweighed by convenience, curation, and community. One business model that has captured the zeitgeist is subscription services. From streaming services like Netflix to curated meal kits and more, subscription models aren't just a trend, they're the new frontier for customer relationships and business profitability. This transformation is reshaping business models across industries and revolutionizing consumer behavior.
The surge in demand for subscription services has made the subscription industry one of the fastest growing segments of the global economy, allowing aspiring entrepreneurs to build profitable businesses.
The global subscription economy market size is expected to reach $1.5 trillion by 2025, up from $650 billion in 2020. The average U.S. consumer spent $273 per month on subscription services in 2021, compared to $237 per month in 2018.
The power of subscriptions: a modern renaissance
The concept of subscription-based services is not new, but its popularity and variety are rapidly increasing in the digital age. What started as magazine and newspaper subscriptions has expanded to include software as a service (SaaS), beauty boxes, creative services, and many more. Subscription models offer convenience, flexibility, and value to consumers, while providing businesses with a predictable revenue stream and ongoing engagement opportunities. You can plan, invest, and grow with confidence knowing you have a stable financial foundation.
In a sense, subscriptions are a form of microtransaction model. Breaking down large costs into bite-sized monthly fees makes it easier for customers to say yes to your offer. It's the psychological pleasure of receiving a small reward every month without having to worry about making a big purchase.
Turning to subscription services: Why now?
The world is now a hotspot for innovation. If you have a great service or product, there's a good chance you can pivot your business model to include a subscription service. When a customer subscribes, they're not just buying a product, they're joining a community. This sense of belonging keeps churn rates low and renews customer excitement with each billing cycle.
Today's consumers don't just want products. They want an experience. This type of business model provides an ongoing brand experience and is ideal for brand loyalty and customer retention.
How to start a subscription service: a step-by-step guide
Building a subscription service is not as simple as delivering and offering a product on a regular basis. You need to create services that create ongoing value for your customers and ensure the survival of your business.
Step 1: Define your niche
Who are your potential customers and what unique needs do they meet? The more niche your service is, the easier it will be to identify and build a loyal customer base.
Step 2: Create a compelling value proposition
Why should someone subscribe to your service? Your value proposition should be concise, clear, and compelling. What problem are you solving? And how is your solution better than other solutions on the market?
Step 3: Choose the right platform and tools
This is the backbone of subscription services. Whether you're looking for a pre-built solution like Shopify or something more customizable, do your research to find a solution that fits your needs.
Step 4: Set subscription pricing for success
Pricing is critical to the success of a subscription service. It should cover costs and provide adequate margins.
Step 5: Deliver a great customer experience
Customer experience is what differentiates your service. From the first interaction to regular shipments, every touchpoint with your brand should be fun and on-brand.
Step 6: Continuous improvement and adaptation
Subscription models thrive on flexibility and continuous improvement. Be prepared to listen to your customers, analyze data, and adapt your services as you learn and grow.
Master the subscription business revenue model
Understanding the different revenue models for subscription businesses is important for long-term success. Here we introduce some major models and how to utilize them.
- Freemium model: Here, we offer basic services for free, but the best features and upgrades cost money. This is a great way to attract customers and upsell them to a subscription.
- Model used: In this model, customers pay based on the amount of service they use. Ideal for services that can easily adapt to customer needs and offer transparent pricing.
- Hierarchical model: By offering different service levels at different price points, you can reach a wider range of customers.
- Bonus model: Offering benefits such as insurance, discounts, and freebies can make your service even more appealing.
The key to a successful subscription business is the ability to adapt, create ongoing value, and foster a strong sense of community.
