The subscription model stands out as an exceptional growth lever for businesses, not only by providing greater financial predictability but also by significantly improving customer loyalty.
This article explores in detail the benefits, different types of models, and best practices for deploying this model: a practical and in-depth analysis for marketing experts looking to drive sustainable growth within their companies.
Subscription business model: What is it?
The subscription model, adopted across various sectors (software, media, consumer goods, etc.), relies on recurring payments for access to a product or service. This strategy ensures businesses stable and predictable revenue, often billed on a monthly, quarterly, semi-annual, or annual basis.
Subscription: A new consumption habit
By 2025, the global subscription market is expected to represent over $1,500 billion, according to Statista. Many sectors are affected by this new consumption habit.
For example, the global subscription e-commerce market is experiencing rapid expansion. While it was valued at $225 billion in 2020, it is expected to reach $687 billion by 2025
.According to a Boston Consulting Group study, the automotive subscription market in the US and Europe could reach $40 billion by 2030.
This spectacular and global development reflects the effectiveness and growing appeal of this business model. It’s no surprise that 85% of European consumers already have one or more subscriptions.
Why launch a subscription business model?
Simplify user experience
Automated purchases reduce the effort required from users, thereby enhancing their experience and satisfaction.
Customers no longer need to remember to renew their purchases and don’t have to handle anything to continue enjoying the service, saving them time and simplifying their daily lives.
This model reduces friction during the customer experience, thereby improving loyalty and retention.
Enhance Customer Loyalty
A subscription model stabilizes the business by reducing the need to invest in customer retention.
Subscribed customers are more likely to stay loyal to the brand since their access to the service is automatically renewed.
In this framework, the customer effort is more focused on cancellation rather than renewal. This increases customer lifetime and, consequently, profitability.
The churn rate for SaaS is 4% on average according to Recurly, compared to 70-80% in non-subscription e-commerce (Omniconvert).
Upsell and cross-sell opportunities
Trial offers for complementary services are easy to implement, increasing sales opportunities.
Businesses can offer additional options or service enhancements during the user experience, which can raise the average order value.
It also allows for diversifying revenue sources and increasing customer satisfaction by better meeting their needs.
Financial Stability and Predictability with the Subscription Model
The subscription business model optimizes long-term financial management. It simplifies inventory management and makes it easier to raise funds thanks to recurring revenues that ensure greater financial visibility.
These regular cash flows improve working capital and allow for more efficient management of operational expenses while supporting investment in growth.
Sales growth with the same marketing budget
The subscription model smooths the cost of the service or product over a long period, reducing purchase barriers.
The conversion rate increases and, with an equivalent marketing budget, the cost of acquisition mechanically decreases, leading to higher sales.
Different Types of Subscription Business Models
Replenishment Subscription
This type of subscription ensures a continuous flow of consumable products like coffee capsules or printer cartridges.
It allows consumers never to run out of their favorite products, providing businesses with more predictable demand and optimizing the supply chain.
Recurring service
Essential daily services, such as phone plans, insurance, or streaming media, use this model to provide continuous access.
These subscriptions strengthen customer loyalty through uninterrupted access.
Leasing subscription
Offering access to valuable goods like cars, phones, or bikes without purchase, this model makes products more accessible.
Businesses attract a broader clientele through leasing options, allowing consumers to enjoy goods without the high costs of ownership (cash needs, depreciation, maintenance, repairs, etc.).
Discount Access Subscription
This model is frequently used in retail to offer savings through loyalty cards that provide exclusive discounts.
Customers benefit from advantageous prices, encouraging subscriptions and strengthening loyalty.
Premium service subscription
Premium services, such as high-end credit cards like American Express and subscriptions to exclusive travel clubs like Inspirato, attract customers willing to pay for extra benefits.
These subscriptions offer high-end services such as priority reservations and personalized services, adding significant value to the customer experience.
According to the Onepoint study, 64% of French people who consume subscriptions are sensitive to the creation of exclusive services, products, or content.
Examples of sectors impacted by the subscription business model
Media & Newsletters
Platforms like Netflix and Spotify have revolutionized the subscription model in the media sector.
Subscription-based video revenues are expected to reach $100 billion by 2025, highlighting the growing importance of this economic model.
Automotive Sector
The automotive subscription market is expected to exceed $40 billion by 2030, offering a flexible alternative to vehicle ownership and meeting the growing demand for accessible transportation options.
Automotive subscriptions allow consumers to change vehicles regularly without the constraints of ownership.
Food
Food subscriptions, such as those offered by Hello Fresh, Le Petit Ballon, Les Nouveaux Fromagers, and their counterparts, ensure regular delivery of meals or products, facilitating meal planning and sourcing quality ingredients.
Steps to Implement a Subscription Business Model
1. Define your offer
Start by identifying the needs and expectations of your target market.
Develop a clear and distinct value proposition that is attractive enough for customers to subscribe.
You can integrate the decoy effect into your strategy by offering a basic, intermediate, and premium option.
2. Define a profitability target
Determine the ratio between the revenue generated over the customer’s lifetime (Lifetime Value or LTV) and the customer acquisition cost (CAC).
The LTV/CAC ratio ensures that each subscribed customer generates a positive return on investment.
3. Define multiple pricing options
Test different pricing models to balance accessibility for customers and profitability for your business.
You can implement A/B tests on a selection of customers to refine the offer.
4. Iterate on the offer for the best results
Continuously evaluate and adjust your offer based on customer feedback and performance analysis.
This allows you to align your services or products with market expectations.
5. Launch and scale your offer
Once your offer is tested and adjusted, expand the launch to scale effectively.
Run targeted acquisition campaigns to grow your subscriber base and solidify your market presence.
It is crucial to manage this deployment and track offer performance: traffic by acquisition channel, ad click-through rate, conversion funnel rate, etc.
Also, monitor your LTV/CAC ratio to ensure expansion remains economically viable.
6. Optimize each step of your AARRR funnel
To improve profitability and MRR, systematically optimize each step of the AARRR funnel: Acquisition, Activation, Retention, Referral, Revenue.
Adjust your strategies to better convert, increase engagement, reduce churn, and stimulate referrals.
Best Practices
Segment the offer based on user needs
To maximize the effectiveness of your subscription model, it is essential to segment the offer to precisely meet the needs of each persona.
Each customer segment should have a tailored offer, allowing you to better meet their specific needs and increase customer satisfaction.
Avoid commitment duration
Eliminating or minimizing commitment duration can remove a major barrier to purchase.
Customers often prefer flexible options that don’t lock them into long-term contracts, enhancing the competitive advantage of your offer.
Simplify payment
Facilitate the payment process by introducing methods such as direct debit or SEPA.
A simplified payment procedure reduces friction during purchase and improves the conversion rate while providing a better user experience.
Provide excellent customer service
Quality customer service is essential for maintaining a good relationship with subscribers.
Ensure your team is accessible, responsive, and capable of quickly resolving issues to maintain high satisfaction and retain your clientele.
According to Visual Capitalist, 68% of users cancel their subscriptions because they believe the brand does not care for them.
Maximize cash flow and loyalty with the subscription model
In summary, adopting a subscription model improves cash flow through recurring revenues while facilitating customer acquisition.
This strategy leads to increased loyalty and improved financial predictability, valuable assets in a highly competitive market.
For successful implementation, it is necessary to deeply understand customer needs, design an offer perfectly suited to these requirements, and reduce friction in the customer journey, especially during the payment process.
