What Types of Business Models Are Suited for Subscription Billing?

August 17, 2020

Subscription billing is a better fit for some business models and industries than others. The decision to implement a subscription-based strategy should depend on the product or service being sold, as well as how customers expect to pay.

In general, business models built around repeat utilization or that provide regular access to a service work well with subscription pricing. Below, we dive into common use cases and highlight why subscription billing is useful across these specific situations.

Consumables and Retail Billing Models

The subscription box concept burst onto the scene in the 2010s. A beauty company called Birchbox paved the way when it began sending makeup through the mail directly to subscribers. Customers loved not having to shop for products themselves in busy malls, which has become even more important today. Instead, they could offload that responsibility to Birchbox with monthly payments.

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 establish loyalty with large customer bases and maintain predictable cash flows. They can set their business models to run on auto-pilot, delivering invoices, collecting revenues, automating dunning, and much more without any manual effort.

“As-a-Service” Subscription Billing Models

As-a-Service business models exploded in recent years thanks to advances in cloud computing and digital storage technology. Both enterprise clients and individual users can now pay for access to sophisticated online platforms and products that would otherwise be too expensive.

For example, Adobe offers more than 20 powerful creative design applications that are all priced under $21 per month for individuals. Businesses can also 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 $12 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. Clients can choose between packages and combinations that fit their needs best.

For any As-a-Service model, companies must have flexible and dynamic billing solutions that are capable of handling pricing complexity well. Users should be able to deploy multi-dimensional pricing for unique customer accounts while still maintaining efficient operations. Otherwise, these specific subscription-based business models can grow out of hand.

Digital Entertainment Industry Examples

On the entertainment side, subscription billing dominates video and music streaming. People 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 have one disc at a time. Now, users only pay $4 more 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 easy-to-swallow payment options. With modern billing solutions, they can manage millions of individual accounts, reduce revenue leakage, and package personalized offerings based on past behaviors and preferences.

Maintenance and Service Pricing Plans

Subscription pricing also works well for maintenance and service plans. Consumers are happy to pay consistent fees for landscaping, pest control, and other common maintenance needs so that they don’t have to find skilled labor whenever something goes wrong.

For years, property managers have operated by the subscription-based pricing approach. They charge a percent of monthly rent to stay on top of property needs. Again, the subscription model 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 worth it for both sides to pursue. Now, startups like Super are trying to bring the subscription model to the home repair and maintenance world. Users can subscribe to different service tiers depending on what coverage they want.

Is Subscription Billing 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 system to charge for items that are “one-off” in nature.

For businesses built on repeat utilization, platform access, or recurring needs, BillingPlatform is a cloud-based solution that can adapt to any business model and industry. With our agile architecture, finance teams can deploy and manage complex subscription revenue models with ease.

Interested in learning if BillingPlatform is right for you? Contact our team to learn more or start with a free trial today.

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