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Ecommerce glossary > Subscription business model

Subscription business model

What is the subscription business model?

In the subscription business model, businesses sell their products or services on a recurring basis. Subscription services can include subscription boxes, software as a service, gated memberships, and more. The subscription revenue model is becoming increasingly popular for both merchants and consumers, with the subscription economy projected to reach nearly $500 billion by 2025.

Benefits & risks of subscription business models

Because subscription businesses benefit from a reliable recurring revenue stream, they can also experience greater ease with key business processes like forecasting and inventory management. Additionally, the recurring nature of a subscription product or service has the potential to form strong customer relationships over a long period of time, increasing customer lifetime value.

However, customer acquisition costs can be high for subscription businesses. This makes it especially important for these brands to focus on their retention strategies, and balance their customer lifetime value with customer acquisition cost. Depending on their product offerings, certain businesses may also risk subscription fatigue on their customers’ part, increasing the likelihood of churn. This can be mitigated by conducting proper data analysis and collecting customer feedback to ensure the right balance of products is offered. 

Subscription model success strategies

To set themselves up for success, subscription model businesses should be sure to make their offerings as flexible as possible. Enabling subscribers to manage their own orders by skipping deliveries and swapping products can improve business performance by reducing churn and increasing customer loyalty. To increase average order value and improve customer satisfaction, subscription services can also offer one-time purchases alongside their recurring offerings.