Although subscription billing is a better fit for some business models and industries than others, the decision to adopt a subscription-based strategy should depend on the products or services you are selling, as well as how you expect customers to pay for your offerings. In general, business models that are built around repeat utilization or that provide regular access to software or services tend to work well with subscription pricing. To help you decide if it’s right for your company, we’ve provided four common subscription based business model examples and detailed why subscription billing is right for these industries.
Subscription-Based Business Model Examples
Consumables and Retail Models in Subscription Billing
Although the subscription box concept has been around for a while, it really began to make its mark around 2010/2011. In this subscription based business model example, the explosive growth can be attributed to companies such as Birchbox. As an early adopter of this business model, they began sending makeup through the mail to subscribers – paving the way for other companies to follow in their footsteps. From a consumer perspective, customers loved not having to leave the house to shop for products. Instead, they simply offloaded that responsibility to Birchbox, making monthly payments to receive makeup on an ongoing basis.
Soon after, businesses like Dollar Shave Club and Blue Apron followed suit. Dollar Shave Club now sends razors to customers in multiple countries, and Blue Apron delivers meal kits to over 350,000 subscribers on a regular basis. Today, millions of people pay recurring fees for subscription box services. They can replenish items they consistently use, as well as try new products without having to leave their homes.
Through subscriptions, retail businesses that sell consumables can build and maintain loyalty with large customer bases, while benefiting from predictable cash flows. Basically, these companies can set their business models to run on automatic pilot, delivering invoices, collecting revenues, automating dunning, and much more with little to no manual effort.
As-a-Service Subscription Billing Models
Thanks to advances in cloud computing and digital storage technology, as-a-service business models are quickly rising in popularity. Both enterprise clients and individual users can now pay for access to sophisticated online platforms and products that would otherwise be cost-prohibitive.
With this subscription-based business model example, Adobe offers more than 20 powerful creative design applications that are all priced under $21 per month for individuals. Businesses can purchase licenses to use all of the company’s tools for $80 per month. Microsoft Office 365 Home with Word, Excel, and PowerPoint is available for $100 per year or $10 per month. Microsoft’s pricing approach gives those who want to pay the total amount upfront a discount without turning away those who don’t.
Digital storage operates similarly, charging customers fixed monthly fees for predetermined amounts of storage space. Dropbox users pay $10 per month for 2TB of storage, regardless of how much they use under that limit. Salesforce uses subscription pricing in several ways. The company charges businesses per user, per contact, or per month depending on the specific feature. Their customers can choose between packages and combinations that best meet their needs.
For any as-a-service model, companies must have flexible and dynamic billing solutions that are also capable of handling complex pricing schemes. Users should be able to deploy multi-dimensional pricing for unique customer accounts, while still maintaining efficient operations. Without these billing must-haves, subscription-based business models can become difficult to manage.
Digital Entertainment Subscription Billing Models
On the entertainment side, subscription billing dominates video and music streaming. Users pay monthly fees to access massive content libraries, instead of having to rent individual titles or purchase specific songs.
In the past, Netflix customers paid $5 per month for unlimited DVD rentals, although they could only rent one disc at a time. Now, users only pay $9 per month for thousands and thousands of hours of material that is accessible from anywhere at any time. Spotify premium gives listeners access to 30 million tracks for $10 per month, which is much more cost-effective than the traditional per-single pricing offered by iTunes twenty years ago.
Overall, entertainment companies can use subscription-based pricing to recoup R&D expenses and pass along these savings to their customers by providing easy-on-the-wallet payment options. With modern billing solutions, they can manage millions of individual accounts, reduce revenue leakage, and package personalized offerings based on their customer’s past behaviors and preferences.
Maintenance and Repair Subscription Billing Models
Subscription pricing also works well for maintenance and service companies. Consumers are happy to pay consistent fees for landscaping, pest control, heating and cooling, as well as other common maintenance needs. This eliminates the need for them to scour the internet for skilled labor when something goes wrong.
For years, property managers have operated by the subscription-based pricing approach. They charge a percent of the monthly rent to stay on top of property needs. This subscription based business model example gives peace of mind to the buyer and predictable cash flow to the seller. The exchange of value is simplified in such a way that makes it a win-win situation for everyone involved. Entering the scene just a few short years ago Super, an online subscription-based service company, is reinventing the homeownership experience with a subscription-based business model for home repairs and maintenance. They partner with local servicers to provide their subscribers with fast and predictable home services at a predictable cost.
Which Industries Are Next to Join the Subscription Economy?
We’re already seeing a rise in subscription-based business models for other industries such as the car industry. With the increasing cost of purchasing or leasing vehicles, companies like Zipcar enable members to reserve vehicles for just $7 per month or $70 a year, plus an hourly rate for the use of the vehicle. Airlines are also following suit with companies such as Surf Air that provide private air travel for their members, with memberships starting at just $199 per month.
Other companies joining the subscription economy include Fitbit, who launched its first paid subscription service in 2019. Another is Codecademy that provides a virtual platform to teach programming skills. While many of their courses are offered free, subscription to the platform’s Pro service provides students with a more focused learning experience. LinkedIn is also providing eLearning subscriptions that range from $20 – $30 per month for expert-led courses.
As subscription-based business models continue to expand into other industries, we can be relatively certain that a wide range of verticals will adopt this business model. A few that are already making inroads to the subscription economy include:
- Papa unites college students with aging adults to help with everyday activities such as transportation, chores, and technology.
- Little Spoon provides subscribers with custom baby food that is specifically formulated to meet a baby’s individual nutritional requirements.
- Le Tote, a fashion and apparel subscription-based company, offers its members clothing that can be worn and returned or purchased for up to 50% off retail price.
Is One Of These Subscription Based Business Model Examples Right for Your Business?
Although subscription billing has many advantages, it isn’t right for every type of business. On one hand, being able to charge customers repeatedly without providing incremental services can be incredibly efficient and profitable. On the other hand, it may not make sense to implement a subscription billing model to charge for items that are “one-off” in nature or have low perceived value.
If your business is built on repeat utilization, platform access, or recurring needs, you need a billing solution that can handle the complexities of subscription-based billing. BillingPlatform provides a cloud-based solution that can adapt to any industry, business model, and pricing scheme. Our agile architecture allows your finance teams to deploy and manage complex subscription revenue models with ease, ensuring that your subscription-based business can create, deliver, and capture new revenue by quickly and effortlessly rolling out innovative business models. Interested in learning if BillingPlatform is right for you? Contact our team to learn more or start with a free trial today.