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Subscription Business Model Defined, How It Works, Examples

examples of business model subscription based

What Is a Subscription Business Model? 

Subscription business models are based on the idea of selling a product or service to receive monthly or yearly recurring subscription revenue . They focus on customer retention over customer acquisition. In essence, subscription business models focus on the way revenue is made so that a single customer pays multiple payments for prolonged access to a good or service instead of a large upfront one-time price. Now, the economy is trending toward more subscriptions instead of ownership for cars, software, entertainment, and shopping. This increases the lifetime value (LTV) of the customer.

Key Takeaways

  • Subscription businesses involve selling a product or service and collecting recurring revenue for continuing to provide that service or product.
  • Most subscription businesses charge either monthly or yearly. 
  • One of the first and easiest to understand subscription business models is magazine subscriptions.
  • Thanks to the rise of technology, many businesses are moving from one-time purchases to subscription models.

How Subscription Business Models Work 

Subscription business models were first introduced in the 1600s by newspaper and book publishers. With the rise of technology and software as a service (SaaS) products, many companies are moving from a business revenue model where revenue is made from a customer's one-time purchase to a subscription model where revenue is made on a recurring basis in return for consistent access to the delivery of a good or service.

The subscriptions are generally renewed and activated automatically with a pre-authorized credit card or checking account.  The benefit of subscription business models is the recurring revenue, which also helps create strong customer relationships. 

Types of Subscription Business Models 

Subscription business models can include a variety of companies and industries. Those industries include cable television, satellite radio, websites, gyms, lawn care, storage units, and many more. 

In addition, there are newer-aged businesses that operate subscription models, such as subscription boxes. Subscription box businesses include meal delivery services and meal delivery kits. As well, there are subscription business models for accessing online storage for documents and photos, such as the Apple iCloud.  

Beyond that, there are products that are shipped directly to your home, such as personal care products. Companies in this area include Dollar Shave Club and Birchbox.

Car subscription services provide you with access to a vehicle in exchange for a monthly fee. Vehicle subscriptions may include registration, maintenance, roadside assistance, and  liability insurance . Unlike a lease, which requires a two- to four-year term, you can subscribe to a car service for a shorter time frame, and you can swap out your car for a new one every month.

Example of a Subscription Business Model  

The easiest subscription business model to understand is that of a magazine company. Instead of selling a magazine as a standalone product where a customer makes a one-time purchase, magazine companies offer a subscription service for the delivery of a weekly or monthly magazine. In this model, instead of having customers make single purchases, magazine companies offer monthly payments for a yearly subscription to access their monthly magazines.

If a magazine company offers a monthly magazine service, instead of as a single magazine purchase, it offers its service as a 12-month service comprising 12 purchases. This makes the revenue model of the company stronger because it guarantees itself sales over a 12-month period rather than a single purchase. This makes revenue forecasting and business planning easier since a company can project its sales farther out with more accuracy.

Magazine companies are not the only model that uses a subscription business model. With technology, almost any product or service can now be a subscription model.

examples of business model subscription based

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The Complete Guide to Subscription Business Models in 2022

Nicolas Tissier

Co-founder & CPO @ Purchasely

Subscription business models are transforming the business landscape. Learn about different types of subscription business models, why they work, and best practices in our complete guide for 2022.

The membership economy has boomed in the last decade. Subscription business models have transformed nearly every industry, and by 2023, it’s estimated that 53% of software companies will embrace the subscription business mode l.

Faced with the opportunity to grow revenues up to 5x-8x faster by adopting a subscription model approach, many businesses are moving away from one-off payments to create ‘forever transactions’ with loyal repeat customers. Read our article Subscription Megatrend is here to stay.

So, what is it about a subscription business model that works so well? What are the different types of subscription models? And what are the benefits for organizations and consumers? Find out below in our ultimate guide to subscription business models in 2022.

What is a Subscription Business Model?

The subscription business model is based on selling products and services for an agreed fee on a regular and ongoing basis. Customers are typically charged weekly, monthly, or annually. If they want to continue using a service after the specified time window, they must renew their subscription to retain access. If they want to cancel, they simply let their subscription expire.

The subscription business model, also known as the membership business model, is not a new concept. Some of the earliest examples include newspapers and monthly magazine subscriptions. These were popular as early as the mid-1800s, but it wasn’t until the late twentieth century that the industry truly boomed. 

In modern times, the emergence and development of new technologies have made subscription models the primary source of revenue for many licensed products. Today’s most popular subscription-based business model examples include Amazon Prime, Netflix, and Spotify.

However, the membership economy is not limited to streaming services. Physical and consumable goods, educational programs, travel , shipping, and delivery benefits are also available using the subscription model. From food and drinks to cosmetics, flowers, toys, accessories, and more, savvy businesses around the globe are offering regular deliveries of their products on an ongoing subscription basis.

Why do Subscription Models Work?

The subscription business model examples we listed above provide a whole heap of content at an affordable cost. But that’s not the only reason they’re successful. They also tap into significant changes in market demographics and shifts in consumer mentality:

“People want to experience all that life has to offer, and since acquiring things no longer dictates your class or status in life, millennials are simply enjoying experiences over things, access over ownership.” Forbes Magazine         
  • Hassle-free living – Customers are happier with products and services that call for little effort on their part in terms of upkeep, maintenance, and decision-making. Plus, subscriptions offer easy access to desirable goods and services without needing to leave the house.  
  • The sharing economy - The sharing economy has transformed traditional market behaviors. Marketplaces are great platforms to make items and digital services circulate between end-users. Marketing innovations are enabled by new technical capacities. For example,  Apple provides the capacity to add u p to 5 additional family members to a specific subscription, and app publishers may launch Family plans (read our article Family sharing In-App Purchase: principles and recommendations ).

Types of Subscription Models

What springs into your mind when you hear the word subscription? As we highlighted earlier, it wasn’t all that long ago that the membership economy was limited to newspapers and magazines. However, in the current economic climate, there’s virtually no limit to the industries and verticals that can benefit from adopting a subscription business model to scale their business. Here is a breakdown of the main types of subscription models.

Software as a Service (SaaS)

Most SaaS companies utilize a subscription model rather than charging for a perpetual license. SaaS products add value by automating and optimizing processes. By following a monthly or annual membership/subscription-based billing schedule, businesses can deliver a range of packages to suit varying needs and budgets. For example, offering essential, standard, and premium options is common practice. This is advantageous as it allows customers to scale their subscriptions as their needs grow. Some of the most popular subscription-based business model examples for SaaS products include:

More widely known as the subscription box model, this approach has become a popular way to deliver personalized shopping experiences. Personalization is becoming an essential factor. Research by McKinsey   indicates that 49% of consumers actively sign-up for personalized products and services.

Tailored boxes allow recipients to sample new products at an affordable rate without buying extensive sets or investing in full-size versions. Subscription boxes appeal to shoppers who enjoy an element of surprise, and for many, the mystery of ‘what will be in this month’s box?’ is a key part of the experience. The most popular genres of subscription include:

  • Home chef boxes
  • Couture coffee boxes
  • Wine and cheese boxes
  • Hobby boxes – including a range of niches like books, plants, games, and activewear.
  • Cosmetics boxes
  • Male grooming boxes

Media/Entertainment

The COVID-19 pandemic acted as a catalyst for the rapid growth of streaming subscriptions. According to the LA Times , streaming service subscriptions passed 1 billion worldwide for the first time in 2020. Media and entertainment subscriptions come in two forms:

Premium services  – Subscribers pay a monthly fee to access music, games, movies, television series, books, etc. Notable examples in addition to the big names we mentioned above include HBO, Disney+, Hulu, Apple Music, Apple Fitness, and Kindle Unlimited.

Freemium services – More prevalent in the news and media industry, freemium subscriptions grant exclusive access to a full array of articles, while non-subscribers are limited to a handful per month. Popular examples include The New York Times, The Guardian, Harvard Business Review, Washington Post, and The Wall Street Journal.

The spike in demand for remote learning courses throughout the COVID-19 pandemic has led to exponential growth in the e-learning market. According to Business Wire , the value of the online learning industry is projected to pass $370 billion by 2026. The Edtech subscription business model offers access to personalized and convenient courses, programs, study materials, and learning support. Students can curate study plans that suit their needs, and education providers can scale their operations to meet demand. The most popular subscription business model examples for educational development include:

  • Masterclass
  • Linkedin Learning

You may read our article  EdTech and language-learning: 10 insights from Babbel & Duolingo for further insights from 2 leaders of EdTech.

Dating Services

The convenience of meeting new people from your phone or computer has made online dating the most popular way to meet partners. In 2021, 30 million people were online dating. There are many apps and websites available to online daters, and they fall into two subscription models:

Membership Subscriptions - This model is the most used in the online dating industry. Users are charged a recurring fee to use the website or app for a period of time. In this model, the subscription is cheaper the longer the membership time. Examples of this model include:

Freemium - This model allows users to sign up for free access to the basic functions of the website or app. Then advertising or having users pay for premium services will generate revenue. Examples of this model include:

The Benefits of Subscription Business Models

The staggering success of subscription models and the continued projected growth is based largely on the significant benefits for both businesses and subscribers. The beauty of a well-designed subscription business model is that it reduces risk and maximizes value for both parties. Here’s how.

The Consumer Benefits of Subscription Models

There are several reasons why people sign up for a subscription service, the main benefits being value, convenience, variety, and personalization.

Value – Subscriptions feel like less of an investment. The cost of a yearly fee may be the same in the long run. But for most people, making smaller regular payments is preferable and feels more affordable than making one large payment. Let’s say you pay $20 per month for a subscription service. That’s easy to factor into a budget, especially when compared to other bills. It’s only about a third of a typical gym membership price, and less than most people spend on coffee every week!  In addition, many subscriber services in the SaaS and entertainment sectors offer free trial periods, making it easy for consumers to try before they buy and sign up with confidence.

Convenience – Membership business models make life easy for customers. Payments are automated, so there’s no need to remember to pay bills. It’s essentially a ‘set it and forget it’ style of purchasing, while still providing options to upgrade or cancel within a few clicks.

Variety – Most people shy away from trying new things because they fear wasting money on products they won’t like. Subscription business models allow consumers to try more products and services within the provider’s range, with the added bonus of not having to labor over purchasing decisions.

Personalization – Many providers offer self-service tools allowing users to set their personal preferences. However, many subscription services take personalization even further. By leveraging feedback and user data, providers can anticipate subscriber needs and desires to provide personalized service in the form of recommendations or the provision of specific products.  Spotify’s ‘Recommended for You’ playlists are a great example of this.

The Business Benefits of Subscription Models

For all the consumer benefits, there are just as many – if not more- for businesses offering subscription services. Here is a breakdown of the main advantages.

Attract More Customers – Large one-off fees act as barriers to access. By spreading the cost into more manageable regular installments, more customers can afford – and immediately access – the company’s products and services.

Accurately Predict Revenue – Businesses offering one-time purchases must constantly market to attract and convert more customers, and income may vary significantly over time. Using a subscription business model allows companies to predict revenue much more accurately, allowing them to reinvest and grow with confidence.

Increased Return on Acquisition Costs – One-off payments have a fixed rate of return, whereas subscription models do not. As long as businesses retain their subscribers, the revenue stream will continue to flow.

Upselling and Cross-selling Opportunities – Having continuous contact allows companies to maintain an ongoing relationship with subscribers, making it easier to market additional products and services.

Stronger Customer Relationships – Subscription business models don’t just sell products and services. They create communities of loyal customers who feel heard and valued. Plus, with one-off purchases, fees for maintenance and support are often not included. But with subscription services, there are no hidden costs. This builds further trust, which deepens customer relationships, ultimately leading to more referrals and even more subscribers.

Business Growth and Development – By using customer feedback and data trends, subscription providers can find out what customers like best, and what additional features they’d like, and use this to scale the business most productively and profitably.

What are the Risks of a Subscription Business Model?

If you’re reading this thinking that membership models seem to be a bit of a no-brainer, you’d be right for the most part. The main potential pitfall is complacency. Some basic Subscription models focus on retention rather than acquisition, but it’s not simply a case of making a sale and then sitting back to watch the money stream in. Customers are quick to cancel services that don’t deliver consistent quality and value. So continual effort is required to ensure that the ‘churn rate’ remains low.

“Loyalty doesn’t come cheaply. It requires a commitment to continuous innovation, a culture that treats customers like members, and an emphasis on retention”. Robbie Kellman Baxter, Author, The Forever Transaction

Acquisition and retention are two sides of the same coin: both are the pillars of a sustainable and successful subscription strategy (read our article Product Optimization: Best practices from Subscription League Paris) .

Keeping Subscription Model Customers Connected

Thinking of moving to a successful subscription business model? There are several effective ways to keep customers engaged and prevent them from clicking the dreaded ‘unsubscribe’ button.

Deliver Seamless Onboarding – The first few payment cycles are crucial in pleasing and retaining new subscribers. Businesses need to provide adequate support to overcome initial user difficulty and ensure the services provided live up to customer expectations.

Seek Constant Feedback – Conducting regular happiness surveys and sending feedback questionnaires includes subscribers in the product journey and makes them feel involved in development.

Provide Efficient Customer Service – Whether it’s self-service tools or a human element, fast and efficient customer service is fundamental to gaining trust and loyalty in today’s competitive market.

Constantly Review Pricing and Renewal Strategies – Several retention methods focus on payment and renewal paths. Popular strategies include offering:

  • A pause in subscription for a limited time
  • Discounts for early or automated renewal
  • Referral bonuses

Offer Incentives and Upgrades – If a subscriber is unhappy with a product or service, surprising them with a gift or discount may incentivize them to stay connected.

Utilize Data – User metrics identify patterns about how often clients use products and services and how they interact with them. Perceptive companies use this data to provide tailor-made services for each individual. For example, by providing personalized landing pages or gift cards.

Subscription Business Models: The Key Takeaways

  • Subscription models are changing the ways businesses and consumers act and interact in the modern marketplace.
  • The ongoing trend toward subscription business models is expected to grow in 2022 and beyond.
  • Customers are drawn to subscription services because they offer value, convenience, variety, and personalization.
  • Attract more customers
  • Predict revenue more accurately
  • Reduce customer acquisition costs
  • Build stronger customer relationships
  • Sell more products and services.
  • Loyalty is key. Businesses must focus on innovation to deliver consistent quality and value to keep subscribers connected.

Power Up Your Subscription business model with Purchasely

Are you inspired by the top 50 most successful examples of apps with In-App Purchases ?  Purchasely ’s industry-leading tools make managing multi-channel subscriptions easy. Our software makes light work of the complex and confusing elements, allowing you to:

  • Enjoy complete control of your in-app campaigns
  • Engage with your subscribers at every step
  • Run seamless no-code campaigns
  • Design visually appealing, branded paywalls
  • Access detailed subscriber insights
  • Eliminate data discrepancies between platforms

Book a a 30-minute product tour  with one of our experts where they’ll talk you through the platform and how it can help you to fastly deploy subscription business models. 

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What’s a Subscription Business Model & How Does It Work?

Clint Fontanella

Published: July 21, 2023

Subscription business models are beneficial for many organizations because they encourage customer success and improve buyer retention.

business owner creating a subscription revenue model for their business

Nowadays, subscription models are used in nearly every industry. Growing companies like Netflix, Dollar Shave Club, and Microsoft have been using a subscription-based revenue model for years with much success. The good news? Your company can, too.

In this post, let's discuss what a subscription business model is, how it works, and the benefits of using this model. Then, we'll list a few examples of subscription models that you can use as inspiration for your business.

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What is a subscription business model?

A subscription business model is a recurring revenue model in which customers pay a weekly, monthly, or yearly fee in exchange for your products or services. Customers can renew their subscription after a certain period of time. This model allows you to leverage your customer relationships to create a steady stream of income.

Subscription-based revenue models benefit both the company and the customer. As a customer, you have the convenience of automatically repurchasing a product or service that you know you're going to need in the future. As a business, you retain customers for future sales rather than needing to re-engage them on a more frequent basis. You secure monthly recurring revenue (MRR) , which can keep your business afloat throughout the worst times.

For the right product, brand, and industry, a subscription model can be a very effective and lucrative approach to running your business. For example, you could build a subscription box business that makes millions per year with the right marketing.

To aid with subscription billing, you can leverage tools such as HubSpot's Payments software . You'll be able to collect ACH or credit and debit card payments in one CRM.

Let's learn a little bit more about how this business model works in the next section.

How a Subscription Model Works

In a subscription model, customers are charged on a recurring basis for a product or service. They choose how long and how often they want to receive each offer, and most subscriptions provide the option to renew or cancel at any time.

Think of a subscription as a contract between you and the customer. The customer agrees to pay for a product or service for a period of time and the business fulfills that offer so long as the customer completes their recurring payments. When the contract is up, the customer has the option to renew or cancel their subscription.

The diagram below illustrates what this looks like.

subscription-business-model-diagram

Image Source

A great example is your local newspaper. While you can buy newspapers individually, most who read them have a subscription. That way, you get a newspaper delivered to your front door for a fixed rate, rather than having to go to the store to purchase one.

Let's explore more benefits of subscription models in the next section.

Benefits of a Subscription Business Model

  • Subscription models are convenient for customers.
  • Customers can discover new products.
  • Businesses can accurately predict revenue.
  • Subscriptions can attract more customers.
  • Subscriptions decrease customer acquisition costs.
  • Businesses build stronger relationships with their customers.

1. Subscription models are convenient for customers.

People are busy. And, if they can get a product (that they like) delivered when they need it, with little to no effort on their part — sign them up. Subscriptions save people from having to research new products and shop for them in stores, creating a more seamless customer experience.

2. Customers can discover new products.

Not only do people save money from not having to travel to the store, but they also get to try new items that they may not have purchased on their own.

Take Snack Crate, for example, where you can purchase boxes of snacks from around the world. With this subscription, you might discover a new favorite snack that you never knew existed.

Snack Crate - subscripton - box

3. Businesses can accurately predict revenue.

Subscription models make it much easier to predict how much revenue your business will receive each month. Since your customers are paying repeatedly, you know when they're going to make a payment and how much it will be for. When you're factoring budget into your business strategy, this will help you have an accurate representation of your company's resources.

4. Subscriptions can attract more customers.

Sometimes, the price tag on a product or service can be cost-prohibitive for a consumer. Charging weekly, monthly, or annually allows you to set the price at a more affordable point, and lets consumers budget it into their monthly bills.

Think about buying a car. If you don't purchase it outright, you'll likely be put on a payment plan where you'll pay incrementally over time. This allows you to afford the cost of the car, even though you can't afford the total cost of it right away.

5. Subscriptions decrease customer acquisition costs.

Rather than engaging potential customers who don't know or trust your brand, subscription business models allow you to do business with people who already do. This cuts down on marketing costs and allows you to focus more on customer referrals . This word-of-mouth marketing is typically more effective and less expensive than promotional advertising.

6. Businesses build stronger relationships with their customers.

Another benefit of working with the same customers is that you develop stronger relationships with them over time. When your service team is always there providing excellent customer support, customers learn to trust your employees and they become accustomed to working with your brand. This plays an important role when customers have to decide whether or not they'll renew their subscription.

Now that you know the benefits of a subscription business model, let’s take a look at the steps you can take to build one for your company.

How to Build a Subscription Model

  • Figure out if your business would benefit from offering subscriptions.
  • Establish a goal for your subscription-based business.
  • Choose a subscription pricing strategy.
  • Improve the user experience to get more sign-ups.
  • Create a seamless onboarding experience.
  • Make the billing process simple and easy.

1. Figure out if your business would benefit from offering subscriptions.

Before creating subscription packages for your company, figure out whether offering subscriptions makes sense for your products and services. Do you sell products that customers need to continuously access? Examples would include software products, continuous services (such as consulting or content writing), and exclusive media.

Or is the product a physical item that customers will need refills for? Day-to-day products, books, and snacks might qualify here. Once you’ve figured out whether your products and services would benefit from a subscription model, move on to step two.

2. Establish a goal for your subscription-based business.

The right goal will guide your process when you’re creating subscription packages and pricing levels. For instance, are you more interested in attracting high-value clients such as enterprise businesses, or do you want to increase your small-business client base? Or maybe you want to boost sales for a certain product, grow revenue by a certain percentage, or increase customer retention.

Depending on your goals, you’ll choose a pricing structure that can help you attract the clients you want to retain. It will also help determine the right wording for your website copy.

3. Choose a subscription pricing strategy.

Depending on the nature of your product and your goals when creating your subscription model, you might select a certain subscription pricing strategy . For instance, if your goal is to sell more user seats, you might go for a per-user pricing model that provides a subscription discount to businesses that have more users.

Next is the fun part: Creating your subscription packages and levels. If you want to keep it simple, you can start by creating just one package that jumpstarts your subscription-based revenue model. As you gather more feedback from your customers and learn more about their preferences, you can create different packages that serve different segments.

4. Improve the user experience to get more sign-ups.

Signing up for a subscription package should be easy, straightforward, and simple. You don’t want your customers to wonder how they can sign up for a subscription once they get to your website and social channels. Include a call-to-action button on the top right-hand corner of your home page and above the fold, like HubSpot does below :

subscription model example: hubspot calls-to-action

Once prospects get to the pricing page, they should know which package they should choose based on the language and pricing for each subscription level. ( Hot tip : Check out some excellent pricing page examples to inspire your own.)

If there’s any confusion, then there should be an option to get in contact with your team via live chat or email. You certainly don’t want confusion to be a barrier to conversion.

5. Create a seamless onboarding experience.

The onboarding process will look different depending on the type of product you’re selling. For instance, if you’re selling software, the onboarding process might happen in-app with cues, like in HubSpot’s service software :

subscription model example: hubspot onboarding

Look at the box that says “Monitor deals & coach reps.” This little box gives a tour of the information you’ll find on the page.

If you sell a physical product, the onboarding experience might be done over email or mail. You might send customers a welcome message with resources or a package with goodies.

Here are some resources for onboarding:

  • The Ultimate Guide to Customer Onboarding
  • How to Onboard New Clients
  • How to Create an Email Onboarding Sequence
  • How to Streamline User Onboarding (Recommended Read for SaaS Businesses)

6. Make the billing process simple and easy.

With your well-designed packages, excellent onboarding, and strong customer service, you’re sure to have some renewals. So you want to make sure that your billing system is set up to easily accept and process recurring payments .

To do so, you can use HubSpot's payments tool to easily collect payments, including those that are recurring. No coding knowledge is required to get started. 

HubSpot's payments tool

Get started with accepting payments with HubSpot's payments tool.

You should have a payment gateway right on your website or app so that your customers don’t have to navigate to a wide variety of links to renew their subscription. A renewal is a chance to build an even stronger customer relationship and provide additional value to your customers. You might even consider tossing in extra goodies or exclusive features for customers who’ve been with you for a long time.

Now that you know how to build a successful subscription business model, let's look at a few companies who’ve launched profitable subscriptions.

Examples of Subscription Business Models

Subscription box business model.

Subscription boxes have become a very popular type of business model. Every month, customers receive a box filled with various products that are sometimes related to each other and sometimes not. The combined cost of these items typically outweighs the overall cost of the box.

Some companies let the customer choose what's in the box, while with others, customers get the element of surprise while experiencing new products they may not have sought out on their own. This is a great way for a brand to familiarize its customer base with all of its products.

Subscription Box Example: Butcher Box

Butcher-box-subscripton

Butcher Box is a subscription box service that sends customers boxes of meat each month. Each box includes different cuts of meat as well as a few recipes for you to cook them with. This is a great way for carnivores and BBQ enthusiasts alike to try out different types of meat they may not have tasted or cooked before.

Streaming Service Subscription Model

Streaming services grant you access to things like movies, television, and music, for a monthly price. The benefit of this model is that consumers can access all of the entertainment content they need whenever and wherever they want.

Streaming Service Subscription Example: Hulu

Hulu-subscription-model

Hulu is a popular streaming service that allows you to stream movies and TV shows from your computer, phone, or smart device. You can also access content on the go, so you can enjoy your favorite shows even when you're not at home. With its flexibility and competitive pricing, Hulu has become a preferred entertainment alternative for cord-cutters looking to move away from cable TV.

Food Service Subscription Model

If you're looking to mix up your dining routine, then you may want to consider a food service subscription. These companies not only deliver food to your doorstep, but they also provide you with recipes to cook with. That way, you're getting both the ingredients and direction needed to make a home-cooked meal — even if you don't have any cooking experience.

Food Service Subscription Example: HelloFresh

HelloFresh-subscription-model

HelloFresh is a food subscription service that delivers all of the ingredients needed to cook a complete meal. Each box includes individually wrapped packages of food — with each one measured out to the exact portion needed in the recipe. HelloFresh saves you time from having to do prep work since all of your ingredients are measured and prepacked when you receive the box.

Health and Wellness Subscription Model

Tired of going to the gym for your daily workout? With a health and wellness subscription, you can get access to classes, trainers, and workout equipment all for a monthly fee.

Health and Wellness Subscription Example: Yoga International

Yoga-international-subscription-model

Yoga International is an online yoga studio where you can attend interactive workout classes from the comfort of your home. Rather than having to adhere to a gym's set schedule, you can choose when and where you want to work out.

SaaS Subscription Model

SaaS subscription models are maybe the most common type of subscription model in the market right now. Google Workspace, HubSpot, Adobe, and Slack all have subscription models, meaning that you pay a monthly fee to have access to their software. If and when you stop paying, you only have access to the software until the end of the billing period.

Many software companies use subscription models because they often update and improve their products and services regularly. Rather than asking customers to repurchase the product every time a change is made, they use a software subscription model, which lets them make improvements without hindering the customer experience.

SaaS Subscription Example: HubSpot

HubSpot-subscription-model

All of HubSpot's products are offered on a subscription basis. And, this makes sense, too, since HubSpot routinely updates and improves its products daily. If they weren't offered as a subscription, HubSpot would have to update its pricing every day to reflect the changes made to its product. Not only would this be confusing for HubSpot, but its customers would be wondering why different customers are paying different prices for the same products.

A Subscription Business Model Will Help Your Business Grow

This is just a small taste of the industries benefiting from a subscription-based business model. With a little creativity and the right plan, you may find that this approach leads to happier customers and greater retention rates for your business as well, allowing you to grow exponentially.

Editor's note: This post was originally published in December 2020 and has been updated for comprehensiveness.

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Künstliche Intelligenz in Unternehmen: Innovative Anwendungen in 50 erfolgreichen Firmen

Der Bestsellerautor und Geschäfts renommierter KI-Experte Bernard zeigt, wie sterben Technologie des maschinellen Lernens das von Unternehmen verändert. Das Buch bietet einen Überblick über einzelne Unternehmen, beschreibt das spezifische Problem und erklärt, wie KI die Lösung erleichtert. Jede Fallstudie bietet einen umfassenden Einblick, der einige technische Details wichtige Lernzusammenfassungen enthält. Marrs Buch ist eine aufschlussreiche und informative Untersuchung der transformativen Kraft der Technologie in der Wirtschaft des 21. Jahrhunderts.

examples of business model subscription based

Bernard Marr

Bernard Marr is a world-renowned futurist, influencer and thought leader in the fields of business and technology, with a passion for using technology for the good of humanity. He is a best-selling author of over 20 books, writes a regular column for Forbes and advises and coaches many of the world’s best-known organisations. He has a combined following of 4 million people across his social media channels and newsletters and was ranked by LinkedIn as one of the top 5 business influencers in the world.

Bernard’s latest books are ‘Future Skills’, ‘The Future Internet’, ‘Business Trends in Practice’ and ‘ Generative AI in Practice ’.

Generative AI Book Launch

Bernard Marr ist ein weltbekannter Futurist, Influencer und Vordenker in den Bereichen Wirtschaft und Technologie mit einer Leidenschaft für den Einsatz von Technologie zum Wohle der Menschheit. Er ist Bestsellerautor von 20 Büchern, schreibt eine regelmäßige Kolumne für Forbes und berät und coacht viele der weltweit bekanntesten Organisationen. Er hat über 2 Millionen Social-Media-Follower, 1 Million Newsletter-Abonnenten und wurde von LinkedIn als einer der Top-5-Business-Influencer der Welt und von Xing als Top Mind 2021 ausgezeichnet.

Bernards neueste Bücher sind ‘Künstliche Intelligenz im Unternehmen: Innovative Anwendungen in 50 Erfolgreichen Unternehmen’

The Best Examples Of Subscription Business Models

9 March 2022

We’re now in the midst of the “As a Service” revolution, and subscription business models present an enormous opportunity for businesses. Take a look at some of the top subscription business models.

The Best Examples Of Subscription Business Models | Bernard Marr

Subscription-based business models are everywhere these days, from dog food deliveries that show up on your doorstep every month, to television streaming services that serve up your favorite shows.

The trend toward thoughtful subscription-based services and products is all about moving from the traditional business model – where the customer buys on an “as-needed” basis – to one where they sign up to receive the product or service on a regular basis.

Customers save time with convenient auto-renewals that take tasks off their to-do lists. Businesses generate predictable revenue and higher customer engagement as long as they provide ongoing value from their subscriptions.

What Is a Subscription Business?

In a subscription business model, customers pay a fee on a regular basis to get access to your product or service. Netflix and Spotify are both great examples of subscriptions businesses.

Subscription services mean you have a continuous agreement with your client, and they agree to pay for access to your products or services for a specific period of time, like every month or year. Customers also have the option to cancel their agreements with your company.

This model is part of a wider trend in the business world called the "membership economy," where consumers want “access” over “ownership.” For instance, Spotify members aren’t interested in owning compact discs or digital files from their favorite artists – what they want is access to Spotify’s streaming service so they can play their favorite music at any time, from any device, anywhere they want.

In the future, we’ll hardly own anything at all. Access to phones, music, clothes, cars, housing, and even the roads that we drive on will all be offered as a service.

This creates enormous opportunities for businesses. Research from Zuora showed subscription businesses achieved five times faster revenue growth than the S&P 500.

The Best Examples of Subscription Businesses

  • ClassPass – members get access to over 30,000 fitness studios around the world, so they can try different classes at a wide range of gyms.
  • Apple One – A bundle of Apple’s six most popular services (TV+, Music, Arcade, iCloud+, News+, and Fitness+) for one monthly price.
  • Amazon – Your Prime membership gets you access to Amazon’s TV and movie content, and their convenient “Subscribe and Save” will auto-order and deliver items on a set schedule. Imagine having your toilet paper on autoship! Amazon can do it for you.
  • Computing as a service – Companies like Oracle, AWS, Azure, Google, IBM, and Salesforce provide access to services like software, infrastructure, networking, and storage. https://www.parkmycloud.com/blog/aws-vs-azure-vs-google-cloud-market-share/
  • MonkeyLearn – Looking for an out-of-the box AI service? MonkeyLearn’s AIaaS (AI as a Service) provides a cost-effective, accessible way for companies to harness the power of AI to create better products and services and improve their business processes.
  • Mobility as a Service – MaaS goes beyond app-based ridesharing like Uber and Lyft, and provides a new way of thinking about accessible transportation. In today’s modern urban settings, people often combine types of transportation (like bicycle hires, trains, and ridesharing) into a single trip. MaaS will eventually let consumers subscribe to a model where they can combine transportation costs together, rather than paying for separate services.
  • Product subscriptions – There are tons of product-based businesses that offer subscription options. Harry’s offers personal grooming products like razors and shaving cream in a membership model. Birchbox delivers the newest makeup products. ButcherBox will send steaks and seafood directly to your door, and StitchFix offers intelligent fashion that combines style with artificial intelligence to select clothes that fit the customer.

Business Trends In Practice | Bernard Marr

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Bernard Marr is a world-renowned futurist, influencer and thought leader in the fields of business and technology, with a passion for using technology for the good of humanity.

He is a best-selling author of over 20 books, writes a regular column for Forbes and advises and coaches many of the world’s best-known organisations.

He has a combined following of 4 million people across his social media channels and newsletters and was ranked by LinkedIn as one of the top 5 business influencers in the world.

Bernard’s latest book is ‘ Generative AI in Practice ’.

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examples of business model subscription based

Subscription business models in 2023: Definition, benefits, tips & metrics to track

Find out what subscription models are, the key benefits, how to implement subscription pricing to your business and how to monitor business performance.

What is a subscription business model?

  • The state of subscription business models in 2023
  • 6 benefits of the model
  • Subscription model examples

6 tips for subscription businesses

  • Nailing your pricing models
  • Key metrics to track
  • How Paddle can help

Subscription business model FAQs

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Subscription pricing models continue to become a major part of modern software sales. The model has become one of the predominant business models for the software industry because it can be a powerful tool for growth. But in order to unlock that growth, subscription pricing must be implemented correctly.

examples of business model subscription based

A subscription business model is one in which customers are charged a recurring fee for access to a product instead of a one-time expense. This recurring fee is often paid monthly or yearly, and the customer is often given the choice of which frequency to purchase at. The subscription revenue model helps you capitalize on the compounding value of customer relationships; As long as your customers continually see the value your company provides for them, they'll continue to pay you for it.

6 main benefits of a subscription business model

We've talked about how the subscription business model has become a dominant model in the industry, and how much growth those who have chosen to employ it have experienced. But what exactly is it that drives the adoption of the model and the growth that it unlocks?

1. Predictable revenue stream

Once you've been operating long enough to collect data, the number of customers you gain and lose in a given time frame will be more predictable, making it easier to judge what your income will look like from one month to the next.

2. Recurring revenue  

One of the big disadvantages of selling software for a one-time price is that you need to make massive improvements to the product in order to get people to buy the next version. This means holding back updates until a new version comes out. Recurring revenue solves that problem; customers get updates quicker and you are constantly getting paid. 

3. Stronger & long-term customer relationships

With one-off pricing, customers pay you and the relationship largely fades into the background unless they need customer support or a new version is released. Because of the continuous update cycle of subscription-based software, your ability to respond to customer feedback in a timely manner and build the relationship is improved. 

4. Lower customer retention spend

One-off software, while only a one-time fee, is a much larger expense than subscription services. When customers have already spent that money on the older version, they are reluctant to upgrade to a newer one. Greater marketing effort is required to convince them to upgrade. 

5 . Easier demand forecasting  

With the right metrics, the same data that makes it easier to predict your revenue stream from month to month will make it easier to do demand forecasting. 

6. Opportunities for upselling/cross-selling  

subscription-based plans are more flexible. While you can offer different features for different prices on one-off software, moving between those isn't easy. A one-off purchase can't be downgraded the next month, for example. It's much more practical, then, to offer a wider range of options for subscription-based services. Because they can move between plans readily, customers are more likely to try out a higher tier.

6 subscription model examples

It doesn't matter if you're a SaaS company, streaming service, or a subscription box; the first step to better understanding the model is by looking at some successful subscription companies across industries.

1. Streaming services

Content streaming services are perhaps the most popular examples of subscription-based businesses. Companies like  Netflix  and  Spotify  are incredibly successful businesses thanks to their leveraging of the growth potential of subscriptions.

2. Monthly subscription boxes  

Subscription boxes like Stitch Fix and  Dollar Shave Club  streamline the process of shopping for consumer goods, such as clothing and personal hygiene products. Their subscription pricing works because it monetizes convenience for their customers.

3. Software subscriptions 

Paying for software as a subscriptions allows customers to get access to the latest and greatest software immediately, rather than having to wait for the next major release. Even big players such as Adobe and Microsoft have adopted the strategy.

4. Magazine subscriptions  

These are perhaps the oldest subscription-based services. Now, the magazines may be delivered in print or via digital means, but the concept remains the same. Customers who want to stay informed are willing to pay a recurring fee to get access to the latest info. 

5. Food services

Meal-kit services, like  Blue Apron and HelloFresh , also use a convenience-based subscription model. They're similar to the subscription boxes, but add value by providing access to niche products like selections catered toward different types of diets.

6. Health & wellness

This category spans many types of subscriptions. BeachBody, once famous for their DVD fitness videos, has launched a subscription-based streaming service. Whoop provides a fitness band for a monthly subscription fee. This works well because it lowers the initial investment for those who may not be sure they'll stick with it.

Subscription pricing is a powerful and versatile business model. But implementing it correctly requires the right tools and strategy. With our comprehensive knowledge of the subscription economy, we've put together six tried-and-true tips to use while building your own subscription business.

1. Calculate willingness to pay

A big mistake made by subscription-based businesses is charging more, or less, than customers are willing to pay . Doing due diligence about the market you're in will help you to optimize the price you charge for your products, and may even help you split your product into different subscription tiers. 

2. Determine your goals early

What exactly do you want to accomplish through subscription? More revenue, faster growth? Defining these goals early on helps ensure you're building the best pricing strategy possible for your specific goals. When your recurring revenue is tied directly to the monthly or annual fees, long-term strategic thinking is important.

3. Boost acquisition with a better experience

The more customers you have, the more revenue you'll get. This simple reality is why signing up for your subscription service needs to be as easy as possible. A great customer experience will improve your acquisition numbers over time. When combined with a great overall onboarding journey, you'll also find a higher average willingness to pay.

4. Streamline the billing process

Don't lose out on revenue because your subscription billing system isn't reliable. Most modern software services have a number of complex processes involved in account billing and you need to nail all of them. If your billing process is too complex, your customer won't stick around long.

5. Develop strong customer relationships

Without strong and lasting customer relationships, you'll be constantly losing customers and trying to replace them. Customers who aren't happy, or who aren't reminded of the value your service provides on a regular basis, won't stick around. Focus on retaining customers for as long as possible by fostering these relationships.

6. Plan for growth before it happens

A good subscription business model helps you scale. This steady stream of predictable income, evaluated against churn rates and operating costs, ensures the growth you project is sustainable. Without this knowledge, however, your growing customer base can quickly overload your infrastructure.

Key subscription business model metrics to track

Once you've got your basic strategy down, it's time to start tracking the  important KPIs  that will help you measure your progress and determine the health of your company. For subscription businesses, some of the most valuable KPIs to track include:

  • Monthly recurring revenue (MRR)  - This is simply the average amount of money that your company brings in per month. Ideally, this number will grow over time.
  • Annual recurring revenue (ARR)  - Annual recurring revenue is just like monthly recurring revenue, except it's calculated per year instead of per month.
  • Average revenue per user (ARPU)  - Like the previous two metrics, this one is based over a specific time period. Whether it's monthly or annually, the calculation is the same; simply divide the amount of revenue made during that time period by the number of paying customers for the period.
  • Customer lifetime value (CLV)  - This is the amount the customer spends with you from the time they sign up to the time they leave. Combined with CAC, below, it's a powerful metric.
  • Customer acquisition cost (CAC)  - This refers to the cost of marketing and other expenses required to get a single customer. If your CAC is higher than your CLV, you're losing money. 

How Paddle products ProfitWell Metrics and Price Intelligently facilitate your SaaS subscription model strategy

Thanks to our many years of experience in the subscription pricing industry, Paddle has a collection of tools and services to help companies just like yours make the jump to subscription pricing in the most profitable way possible. 

ProfitWell Metrics

We've seen some great metrics for tracking the success of your subscription business. But you can't track those KPIs without the proper tools.  ProfitWell Metrics  is a free analytics tool designed specifically for subscription businesses. Metrics will make it easy to track the metrics above, and many more, as you work to grow your company.

Price Intelligently

Finding the best price for your subscription service, and the best tiers to split it into is difficult.  Willingness to pay  calculations requires a healthy dose of industry expertise, along with a fair amount of very specific data.  Price Intelligently  helps you find the right pricing by using our years of experience to collect and analyze the right data on your behalf.

examples of business model subscription based

Take the headache out of growing your software business

We handle your payments, tax, subscription management and more, so you can focus on growing your software and subscription business.

Why do subscription business models work?

Customers and businesses alike prefer subscription models because they provide a great balance of price versus value. Customers get the convenience of automatically having the product when they need it, or getting immediate access to new features. Businesses get a more stable source of income.

What are the disadvantages of the subscription business model?

Because subscription businesses often rely on making their money in the long-term as opposed to in one lump sum, they require customers to stick around for a while. Businesses that aren't careful about  controlling churn  can find themselves spending more on CAC than they are getting back from existing customers.

What is the difference between a membership vs subscription business model?

These terms are often used interchangeably, and several different people may all mean something different when saying them. In general, memberships give access to physical locations, such as a gym or a golf club. Whereas subscriptions give access to the product or service being subscribed to.

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7 Surprising Industries Turning To Subscription Business Models

  • February 26, 2020
  • Emerging Trends
  • Retail & Services
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You've heard of subscriptions to meal kits and wine-of-the-month clubs — but what about to your annual physical, or access to overhead bins? From gaming to education, we look at service-focused industries that are embracing subscription business models.

Over the last few decades, industries everywhere have begun to adopt subscription business models.

Netflix subscriptions have replaced DVD collections, and Spotify has taken the place of CD shelves. Meanwhile, companies like Blue Apron , Dollar Shave Club , and Stitch Fix deliver everything from dinner to dresses straight to customers’ doors on a “set and forget” recurring schedule.

This is the subscription economy — and the sector is growing fast. Revenue among subscription businesses grew roughly 5x faster than both the retail sector and the S&P 500 from January 2012 through June 2019, according to data from Zuora.

There are several factors driving this growth, including advances in the tech infrastructure that supports it. Perhaps more importantly, the subscription model aligns incentives on both sides of the equation, offering stability for businesses and affordability and convenience for consumers.

Increasingly, subscription models have grown to include companies where the “product” being offered isn’t a product at all — it’s a service, and the value being provided isn’t ownership, but access. For example, car subscription companies are letting drivers rent cars for occasional trips rather than owning one, while fitness brands are turning customers’ basements and living rooms into membership gyms.

In this report, we dive into 7 surprising industries where subscription models are cropping up for service-based offerings from education to travel to home improvement.

Table of Contents

The rise of subscription business models

  • Appeal for businesses
  • Appeal for customers
  • Challenges facing subscription businesses

Surprising industries adopting subscription business models

  • In-home fitness
  • Health & wellness
  • Education & professional development
  • Home maintenance

Lessons from the expanding subscription economy

What’s next in service subscriptions, the rise of the subscription economy.

Well before the internet, people paid for subscriptions to services like newspaper and milk delivery. But adopting and implementing new subscription business models has historically been difficult for companies. For decades, one of the biggest challenges of subscription models was simply collecting payments. Businesses lacked sufficient infrastructure to collect recurring payments from thousands — or even millions — of customers.

Today, digital payments platforms such as PayPal , Stripe , and WePay  have made it possible to set up and process recurring payments without the massive investment of manpower that was once required.

Meanwhile, analytics platforms like Zuora , ProfitWell , and Recurly have given businesses better insight into consumer behavior, which companies can use to hone their subscription models over time.

On the physical product side, advances in logistics — best exemplified by Amazon — have made it more efficient and cost-effective to ship products reliably and at scale.

These infrastructural developments have made subscription business models increasingly feasible, but feasibility alone can’t account for the growth numbers that the subscription economy has seen. To understand that, it’s important to examine the appeal that the subscription model holds for businesses and the customers they serve.

Appeal for businesses: predictability, recurring revenue, and customer insight

Once a company has started acquiring subscribers and has a solid view into metrics like customer lifetime value and churn rate, subscription businesses become easy to track and predict. Because they’re based on recurring payments, subscription models offer a surer source of revenue that business leaders can count on for strategic planning and investment purposes.

Subscription models can also offer deeper customer insights. When interactions with customers are restricted to one-off purchases, it’s difficult to develop a nuanced understanding of consumer behaviors and preferences. But when businesses have ongoing relationships with their customers, they can maintain contact and gain deeper insights into how customers interact with products. Those insights can be used to inform a wide range of business choices, from product alterations and new products to marketing decisions.

Consumers also tend to stick with a subscription service once they’ve signed up. As angel investor Eric Stromberg notes:

“Subscription is a powerful business model because it creates an environment where the default customer behavior is retention, as opposed to one where the default behavior is churn.”

There’s some controversy about this idea: churn is mentioned as a risk of subscriptions as often as retention is identified as a benefit. But for subscription businesses that nail product/market fit and successfully spark customer obsession, being able to count on subscribers to stick around for the long haul is a huge benefit.

Appeal for customers: cost, convenience, and customization

For consumers, subscription business models address practical needs and promise added simplicity.

First, there’s cost. Consumers today have more demands on their budgets than ever before, as big-ticket expenses such as housing, health care, and education continue to climb faster than wage growth. For many types of goods, a monthly subscription fee is more accessible than a higher one-time expense.

Next, there’s convenience. As consumers seek out ways to simplify their lives, the “set and forget” nature of subscription services can help them do so.

The slogan on Audi ’s subscription service website captures this appeal: “All of the power. None of the responsibility.” Subscription business models offer consumers the promise of one less thing to worry about.

Audi’s subscription service website

Source: Audi select 

Subscription models can also offer variety. Rather than watching the same movies repeatedly, Netflix users have a library of thousands of films. Instead of deciding which car to purchase, people with car rental subscriptions can drive all kinds of different vehicles. Subscription models give customers the feeling of owning many different products without the cost, responsibility, and clutter of actually buying them.

Finally, subscription models can provide greater customization. Over the past few years, personalization and curation have emerged as major consumer trends. With tiered pricing structures and tailored recommendations, subscription models can let consumers choose the level of service that meets their personal needs — no more, no less.

Challenges of subscription models

While subscription businesses are enjoying unprecedented popularity, the model is far from bulletproof. High-profile struggles like MoviePass and Blue Apron serve as reminders that plenty can go wrong with a subscription business model if product, pricing, positioning, and incentives are not aligned.

Managing churn

Repetitive purchasing is one of the key benefits of adopting a subscription business model. But as the struggles of subscription meal kit service Blue Apron illustrate, that’s not always guaranteed.

Blue Apron was an early success story of the subscription economy, but it began to publicly falter after its 2017 IPO due to customer attrition. Blue Apron found itself on what a Harvard Business Review article called a “customer acquisition treadmill,” churning through customers in great numbers and constantly spending more money to replace them.

Churn rates vary from segment to segment within the subscription economy, ranging from 4.79% to 10.54%, depending on the industry, according to data from Recurly. But with month-to-month subscription plans that are easy to cancel, it’s a risk that businesses considering the model must address.

“Consumers are quick to cancel services that don’t deliver a superior experience — for example, because of poor product quality, dissatisfaction with the assortment or a lack of perceived value.” — McKinsey

Battling competition

Another challenge facing businesses in the subscription economy is the sheer volume of subscription options out there. In a 2019 survey by Fetch, 75% of respondents reported that the variety of options made it harder to choose a subscription, while 40% stated that they planned to reduce the number of subscription services they subscribed to.

Is the volume of the paid subscription services getting to be too much for US subscribers?

Source: Fetch 

In the earliest days of subscription video, Netflix was a mostly unchallenged giant in the space with Hulu in a comfortably distant second place.

But as major media brands and networks, including Disney , Apple , Facebook , CBS , NBC , and even Amazon Prime have thrown their hats into the streaming ring, the space is quickly growing more crowded — leading to frustration for consumers who feel overwhelmed by choice and intense competition among platforms vying to host the most in-demand content.

Some industry observers are even starting to warn of subscription fatigue, speculating that there may simply not be enough consumer dollars to go around and that consumers will start to drop one service in favor of another.

The phenomenon may already be underway: one research company estimated that as many as 1M Netflix subscribers canceled their subscription following the Q4’19 launch of Disney’s streaming service, Disney+.

Get the full report

Balancing profitability & accessibility.

Companies operating under subscription models must strike the right balance between accessibility and appeal for consumers on one hand and profitability on the other.

A marquee failure on this front is subscription movie ticket service MoviePass. The company grew its customer base to over 3M subscribers by promising unlimited movie tickets for a flat monthly fee. But it struggled to deliver on that promise profitably, ultimately shuttering in September 2019.

MoviePass’ struggles are a case study in what happens when a subscription service’s success is contingent on customers not using it. As Rafat Ali, founder and CEO of Skift , explains:

“The subscription economy works because they’re betting on people not using it that much. If the utilization is very high, that will affect their margins.”

Surprising industries using a subscription business model

Potential perils aside, a growing number of businesses are adopting subscription business models — in many cases, in industries that you might not expect.

Cars: OEMs turn to subscriptions to adapt to the realities of shifting consumer habits

In March 2019, prominent tech journalist Kara Swisher published an op-ed in the New York Times proclaiming that “Owning a Car Will Soon Be as Quaint as Owning a Horse.”

The evidence to support that claim is growing: private car ownership declined globally for the first time in 2018. For more and more people, car ownership is not a daily necessity in the same way that it was for previous generations.

Faced with this paradigm shift, car companies are embracing the ethos of “usership instead of ownership” to offer subscribers all-in-one subscriptions that include insurance, roadside assistance, maintenance, and the car itself for a monthly fee.

The rise of subscription car services comes at an inflection point for the automotive industry. Cost is one likely factor in the decline: the average price of a new car in the United States hit a record high of $37,401 in 2019. Increased urbanization also plays a role, as more consumers — particularly younger ones — opt to live in metropolitan areas with plentiful alternatives to car ownership.

However, car access continues to have its appeal, and a growing number of car companies are harnessing subscription models to meet that demand.

One of the earliest companies to do this was Zipcar . Founded in 2000, Zipcar allows members to reserve vehicles on demand for $7 per month, plus an hourly rate for each individual drive. Legacy car-rental companies Hertz and Enterprise have also introduced subscription car services as a way to expand beyond their core use case of short-term travel rentals.

Automotive OEMs are also testing out subscription models. Audi, BMW , Cadillac, Jaguar Land Rover , Mercedes-Benz, and Volvo have all introduced subscription-based models. These programs can offer companies a way to get unsold merchandise off their floors while generating some revenue. Piloting a subscription product can help OEMs fine-tune their business models in anticipation of the arrival of autonomous vehicles, which many in the industry expect to be used in proprietary fleets before they’re used as vehicles for personal ownership.

The takeaway: The shift toward subscriptions in the car industry highlights how a subscription business model can help legacy businesses adapt to the changing habits and preferences of their target market. Consumers aren’t buying cars as frequently, so OEMs are evolving to engage with consumers in a way that works for them.

The automotive industry’s approach to subscriptions also illustrates the power of all-in-one pricing. Virtually all car companies pursuing subscription models offer all-inclusive subscriptions, bundling roadside assistance, maintenance, insurance, and access to the car itself into one monthly payment, and eliminating the need for consumers to manage those components individually through additional vendors.

Airlines: Subscriptions reward loyalty with convenience

Travel companies turning to subscription models can offer a couple different value propositions: subscription models can make travel cheaper for frequent travelers, but the more attractive benefit may be saving time.

For example, for frequent business travelers who put a premium on their time, the promise of less time spent in airports can justify a costly subscription.

Surf Air  bills itself as California’s “private air travel membership,” offering members unlimited flights on its private planes for $1,950/month — and claims to be a more efficient service than commercial flying.

Another company looking to take the annoyance out of air travel with a subscription service is FlyLine, which focuses on saving subscribers money on tickets. For a $49.99 per year Basic subscription or $79.99 per year Premium subscription, FlyLine promises “extraordinary flight deals you can’t find anywhere else.” The company reports that its customers save an average of 10-15% on domestic multi-carrier bookings, and anywhere from 20-60% internationally.

Surf Air and Flyline can also aim to simplify choice, saving loyal customers from having to hunt for deals on multiple websites or airlines.

What is flyline? A flight membership service

Source: FlyLine

Major commercial airlines are also introducing subscription services, often in a bid to boost customer retention and loyalty.

In October 2019, Delta introduced SkyMiles Select, a $59-per-year “travel benefits bundle” that offers subscribers perks, including drink vouchers and priority boarding, with the promise of guaranteed overhead bin space. As one travel industry expert notes, the offer appears to be geared toward “Average Joes and Average Janes” who fly a few times a year, with the goal of incentivizing these travelers to keep choosing Delta for their flights.

United , JetBlue , and Southwest also offer subscriptions, with perks such as priority boarding and overhead-bin access.

The takeaway: The expansion of airline subscription services shows that subscriptions models don’t have to just offer cost savings to be attractive. Comfort and convenience — like saving time in airports, or making flying a little more comfortable in the case of commercial airline offerings — can carry as much or even greater weight with customers if the overall improvement to their experience is significant enough.

In-home fitness: Personalization in every way

Subscriptions aren’t exactly new to the world of fitness: gyms have run on monthly and annual membership plans for decades.

But in the digital era, subscription fitness programs that let customers sweat it out in their own homes are becoming more popular.

Fitness is emerging as a top priority in a culture that emphasizes the importance of wellness and self-care, but as personal and professional obligations continue to mount, people are looking to streamline their lifestyle. At-home workout programs offer a solution that lets consumers work out when they want, how they want — going beyond an at-home treadmill or exercise video with offerings like interactive digital classes or one-on-one remote coaching.

Subscription models also enable brands to reach consumers in smaller cities and less-populated regions, where high-end brick-and-mortars gym like SoulCycle or Equinox might not be accessible.

Peloton is the most prominent player in the emerging subscription-fitness space. The company combines one-off product sales of its bikes and treadmills with a $39/month subscription for ongoing access to a library of workout-related content.

According to public offering documents filed in 2019, Peloton had sold 577,000 of its “Connected Fitness Products” as of June 2019 — but it sold 1.4M members to its subscription services.

Peloton's all access pass for thousands of live on-demand workout classes

Source: Peloton

Several other brands in the fitness space are following in Peloton’s footsteps, combining high-end, single-purchase hardware with ongoing subscriptions for access to content.

For example, Mirror combines its $1,500 smart mirror with an ongoing subscription. Like Peloton, Mirror puts a lot of emphasis on convenience and personalization, offering the ability to customize workouts based on personal preferences and goals. The company, which started selling its product in September 2018, has raised $72M at a $300M valuation, and counts Lululemon among its backers.

Tonal  applies this model to weight training, combining a digital weight system and interactive display with a library of personalized workouts available for a $49/month subscription. Tonal closed a $45M Series C funding round in April 2019.

While the sticker price of products like Peloton and Mirror might seem prohibitive, their costs can end up being lower than that of boutique classes in the long term — for example, one SoulCycle class costs while Peloton’s  stationary bike and streaming membership is $97 per month.

And not all subscription-based fitness brands require hefty initial purchases. Daily Burn offers subscribers a library of video fitness content for $15-$27 per month, depending on the program. Apps like Glo and CorePower apply the subscription model to yoga and pilates. Aaptiv takes an audio-only approach, offering more than 2,500 classes for $14.99/month.

The takeaway: The explosion of subscription businesses in the fitness space underscores how important experience is to a successful subscription brand. Companies like Peloton and Mirror place a lot of emphasis on personalization because they recognize that this that will keep customers engaged and help combat churn.

Gaming: The power of variety

Last year, GameSpot dubbed 2019 the “Year of Subscriptions” for the video game industry. As broadband connectivity and streaming technology have improved, millions of gamers have started playing through subscription services, paying a monthly fee for access to a variety of games rather than buying individual ones outright.

In a digital ecosystem, the concept of owning a video game makes less and less sense: when games are purchased and streamed over the internet, there isn’t a physical product to own in the first place. Subscriptions can offer players variety and novelty while still allowing platforms and publishers to maintain control of their products.

As Dr. Daniel Joseph, an academic specializing in the economics of digital app stores, notes:

“Subscriptions give platform owners a lot of power. It lets them curate and gain control of distribution.”

Early concerns that switching to a subscription model would hurt the play time of individual games have proved to be unfounded. In fact, subscribers spend 4x the amount of time, 3x the amount of money, and play 2.5x the number of games compared to non-subscription-based gamers, according to The Gamer.

The model has particularly benefited smaller publishers and independent game creators, as subscribers are more likely to take a chance on a new game that they would not have bought themselves.

Price and catalog size are the most important factors for subscribers

Source: SuperData  

Most of the major video game console creators have launched subscription services in the past 3 years:

  • Xbox Game Pass gives subscribers access to over 100 games for $10 per month. Microsoft has not disclosed total subscriber counts since launching the service in 2017, but some reports place monthly players as high as 9.5M, and 30% of total Xbox revenue.
  • PlayStation Now has a library of 650 games available for $9.99 per month or $59.99 per year. Sony placed PlayStation Now’s subscriber count at 1M at the end of October 2019 — a 40% increase from 700,000 subscribers 6 months earlier.
  • EA Access offers subscribers early trials and 10% off purchases. Estimates put the total subscriber count for EA access at 5M across PC, Xbox One, and PS4.

Even major tech companies that aren’t primarily known for gaming are following suit. In September 2019, Apple introduced its own gaming subscription, Apple Arcade, which is playable only on Apple hardware and has a selection almost entirely made up of exclusive games.

The same month, Google introduced Google Play Pass, which grants subscribers access to 350+ games for $4.99 per month.

The takeaway: Subscription business models’ success in gaming highlights what powerful value propositions selection and variety are for consumers. The appeal of the ability to discover and try out a variety of games without the financial burden of having to buy them all individually is exactly where the subscription business model thrives.

Health & wellness: Subscriptions building mutually beneficial relationships

The idea of access rather than ownership has particular relevance in the health and wellness space. Healthcare providers are exploring how subscription services might offer a solution that lowers point-of-service cost and reduces the load on individual providers.

One example of a subscription-based approach to healthcare is MDVIP . Rather than covering visits through a combination of insurance and out-of-pocket expenses, MDVIP members pay a flat yearly fee (ranging from $1,650 to $2,200) that covers preventive care and diagnostic tests, as well as a variety of value-added services like meal plans, fitness plans, and 24/7 physician availability.

MDVIP illustrates how a subscription model solves problems on both sides of the interaction.

Under a subscription model, a physician can earn the same amount as they would by working under a traditional model — and sees only about one-sixth the number of patients. For doctors, this means lessening case loads without losing money. For patients, this means more personalized care and reduced up-front costs, because they pay gradually throughout the year rather than all at once at the point of service.

Subscription business models in the health and wellness space are not limited to in-person medical care. A growing collection of software and services are emerging, with the goal of improving users’ physical and mental health.

In 2019, wearable tech company Fitbit launched its first paid subscription service, Fitbit Premium. The program provides “advanced insights” that go beyond those offered to all device owners; coaching tailored to address common health concerns, such as diabetes and weight management; and health and wellness reports that subscribers can share with their doctor.

Personalized insights with Fitbit's Premium subscription

Source: Fitbit

Meanwhile, sleep-tracking app Sleep Cycle follows a freemium model, offering core features like intelligent wake-up and sleep analysis free of charge, while reserving certain advanced features — like sleep aid, snore detection, and heart-rate tracking — for paying subscribers.

Meditation app Headspace offers subscribers a full library of themed courses, as well as new daily meditations and sleep assistance, for $12.99/month or $69.99/year, down from its early pricing of $99.99. Headspace has been gaining traction with employers, as well: Starbucks announced in January 2020 that it was adding Headspace subscriptions to its list of employee benefits.

Another subscription service aiming to improve users’ wellness is Happify , which provides personalized programs aimed at improving users’ emotional health and happiness. Like Headspace, Happify is seeking greater market penetration through employers with its Happify Health program.

Happify and Headspace’s moves into the workplace are part of a larger trend of health and wellness businesses seeking access to large groups of customers through employers. Benefits of employee wellness programs include reduced healthcare costs, higher engagement and productivity, greater job satisfaction, and higher retention — all things likely to appeal to employers looking to optimize their workforce.

However, the transition to subscription-based health care hasn’t always been smooth. Online medical booking service Zocdoc discontinued its subscription offering in early 2019, opting to switch to a per-patient fee. In a letter to New York doctors explaining the decision, Zocdoc wrote:

“As we have grown, we have realized that our flat subscription fee is a financial barrier that excludes too many providers from participating in Zocdoc. Importantly, it also limits patients seeking care from finding providers. On Zocdoc, the total number of patient bookings a provider receives varies widely, but a flat subscription fee does not account for that.”

The takeaway: Subscription healthcare services highlight how a subscription business model can provide value to stakeholders on both sides of an equation. In the case of subscription healthcare like MDVIP, patients get more personalized, attentive care, and providers get less hectic case loads. In the case of services like Headspace and Happify, employees gain access to wellness services while employers get the benefit of a calmer and more focused workforce.

Education & professional development: Meeting continuous customer needs

With the economy evolving at an accelerating pace, workers are facing more pressure to update their skills to stay in an increasingly global job market.

In one survey by West Monroe Partners , 55% of respondents agreed with the statement, “I need to learn new technologies to remain competitive in my skillset.” Twenty-four percent of respondents in the same survey said, “The skillset needed in my role is becoming more complex.”

For decades, that meant going back to school for a continuing education course or an advanced degree. But with the costs of higher education continuing to climb and student debt already at an all-time high, professionals and employers are seeking alternative models for education and training — and businesses are looking to subscriptions as a way forward.

Codecademy , a virtual platform that teaches computer programming skills, offers many of its courses free of charge; however, a subscription to the platform’s Pro service gives learners a more focused learning experience that includes exclusive content.

Codeacademy Pro subscription

Source: Codecademy

Perhaps the biggest player in subscriptions for professional development is LinkedIn . The social network for professionals acquired e-learning startup Lynda in 2015 for $1.5B and rebranded it as LinkedIn Learning. For $19.99–$29.99 per month, LinkedIn Learning subscribers can choose from more than 15,000 expert-led “business, tech, and creative” courses.

LinkedIn Learning subscription plans

Source: LinkedIn

LinkedIn also partners directly with businesses to offer LinkedIn Learning courses to employees. The company website reports that 78% of Fortune 100 companies offer LinkedIn Learning.

Other companies offering learning-as-a-service include employee coaching platform Bravely , online educational platform Coursera (which now offers bachelor degrees), and language learning apps like unicorn company Duolingo , which offers a premium version of its app for a monthly charge.

Not all subscription businesses in the e-learning space are focused solely on professional development. For $15/month, MasterClass offers subscribers the opportunity to learn a variety of skills from top practitioners in their field. In addition to career and business courses, classes include TV writing with Shonda Rhimes, cooking with Gordon Ramsay, and tennis with Serena Williams.

The takeaway:  The subscription model’s expansion into the professional development space shows how subscriptions work well for industries where customers need a continuing service. Businesses need to be able to train new employees continually, and offering professional development opportunities for employees has been shown to be essential to employee retention. With a subscription model, that service is “always on.”

Home maintenance: Startups introduce supers-as-a-service

In the home maintenance space, companies are exploring ways to turn everything from home repairs to tree removal into a subscription service.

One company in this category is Super , which bills itself as “subscription care” for the home. Super fills the role of a superintendent for homeowners, offering on-call maintenance staff in exchange for a monthly subscription fee.

Super falls in the consumer sweet spot for subscription services on a few fronts. One way is cost: members pay a monthly or yearly fee, and Super covers the cost of home maintenance and repairs, from a broken refrigerator to a malfunctioning AC unit, that could otherwise cost homeowners hundreds or even thousands of dollars. Super also offers homeowners convenience, eliminating the need to find and vet service providers individually, which can involve a lot of time and uncertainty.

Super's subscription service for household products

Source: Super

Another startup bringing the subscription approach to home maintenance is Handy . From its core service of house cleaning, Handy has expanded into a range of home maintenance services, from tree removal to furniture assembly. The startup has also partnered with retailers to sell its services, with companies such as Walmart making it possible for online shoppers to add Handy’s in-home installation services at checkout.

Handy’s move toward subscriptions comes in the wake of the failure of another high-profile startup in the space: Homejoy , which foundered after the service “pushed relentlessly for high growth numbers instead of fixing its poor retention rates,” according to Forbes. Just 15%-20% of Homejoy customers booked a second cleaning within a month — not nearly the retention rate needed to make the model work.

How Handy's home maintenance subscription works

Source: Handy

By adopting a subscription model, Handy sidesteps Homejoy’s customer retention problem, as customers are prompted to set up recurring appointments. With an expectation of recurring service built in from the outset, Handy has seen better retention rates than Homejoy: 35% of Handy customers book a second cleaning within a month, and the number reaches 45% in larger markets.

“Our product is almost entirely a recurring business product — the economics are all about driving repeat use. That’s so, so important in this category.”  — Handy CEO Oisin Hanrahan

The takeaway: Frequency of use is commonly thought of as the key to a “sticky” subscription service, but the success of subscription models in the home maintenance space underscores the value of convenience. Sometimes, the peace of mind that comes with knowing that a problem will be taken care of with minimal time and effort on your end is worth the price — even if you’re not using the service on a constant basis.

Businesses in the above industries that have found success with subscription models have tapped into principles of the subscription economy that go much deeper than price. Here are a few of the most important things they teach us:

Reclaim or re-engage customers: Several of the businesses and industries above show that adding a subscription model can help bring fleeing customers back into the fold, or increase engagement when an audience is flagging.

Car companies are using subscriptions to retain drivers, if not owners; and game publishers are using subscriptions to expand payership for their games, even if they no longer buy the games outright.

For those worried that younger consumers in particular are fleeing their industry , exploring a subscription model as a means of reducing commitment could be well worth the try.

Synergize stakeholders: In many of the industries above, businesses are finding success by using the subscription model to balance interests between multiple communities of stakeholders: employers and employees; healthcare providers and patients; and gamers and game publishers. It’s worth considering what other sectors present a similar balance to strike.

Not all value is visible: In product-based subscription businesses, as well as the traditional buy-sell paradigm, the value-for-value exchange is clear-cut: pay money, get the product. In the service-based subscription economy, that dynamic isn’t always so simple.

As the implementation of subscriptions in home repair, air travel, and video games show, sometimes just the knowledge that the service is there is worth the price of membership. Each of these businesses promises a service in addition to   some higher-order practical or psychological benefit, whether that’s saving time with air travel, eliminating the effort and responsibility of owning a car, or providing greater selection of goods.

The subscription economy is growing, and the opportunities it presents aren’t just limited to SaaS products and subscription boxes. As the logic of the subscription economy continues to expand into new industries, it’s likely we’ll see even more unexpected verticals adopting service subscription models in the years to come.

Some likely candidates include:

Elder care: As the Baby Boomer generation ages, ensuring their comfort and care is a growing problem, both personally and for the economy at large. “Grandkids on demand” service Papa already connects older adults with college students for help with transportation, chores, and technology on an on-demand basis, while Umbrella focuses on home help. These companies and others could introduce subscription models as a way of ensuring consistent service and convenience to their populations of older customers.

Camping: Revenue from camping equipment sales topped $2.5B in 2018. But in the spirit of “access, not ownership,” introducing a subscription model could help the industry expand its reach still further to those who want to enjoy the experience of camping, but are unwilling or unable to buy equipment of their own.

Camping is particularly popular among millennials , who are already a prime subscription demographic, and there are currently several product-based subscription boxes in the camping space. Meanwhile, property is already being commoditized and modularized for camping via services like Hipcamp — it’s reasonable to imagine that subscription campsites might not be far behind.

Skincare & nutrition: Skincare and nutrition are next logical steps for companies looking to offer a wellness-focused subscription service. Skincare company Atolla expands its subscription service beyond the typical replenishment model by offering subscribers personalized serums based on their individual skin measurements. In the nutrition space, Lumen pairs a hardware device that assesses the customer’s metabolic levels with personalized meal plans calibrated to subscribers’ unique needs. In a similar vein, Little Spoon provides custom baby food formulated to a baby’s individual nutritional needs.

Fashion & apparel:  Rent the Runway was the first to validate that the “access instead of ownership” model best exemplified by Netflix’s original DVD rental business could be applied to fashion — with significantly less risk of obsolescence, since there’s no digital alternative to clothing. The clothing rental service became a unicorn in 2019 and has launched a number of new services, including athleisure and maternity rental services. Le Tote is following a similar model, offering members the option to either wear and return products or purchase items they love for up to 50% off the retail price.

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Business model by subscription: 11 examples analyzed

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Subscription is a business model that has been adopted in many industries. Companies have realized that they can earn more revenue in the long term and increase their profitability. Subscription models often use specific pricing techniques to reduce the perceived price paid. The subscription business model is so profitable that it leads some companies to abuse it to prevent you from terminating ( e.g., Amazon Prime ). In this article, we analyze 11 strategies based on subscription.

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Esteban Hendrickx

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examples of business model subscription based

Subscription-based software: the dawn of a new era

The introduction of the subscription model has turned the software world upside down. While perpetual licenses were still the rule 10 years ago, all software vendors have turned to subscriptions to increase revenue and better control usage . This has been made possible by the advent of the Cloud and SaaS.

Here are a few examples that are symptomatic of this conversion to the subscription business:

  • Adobe proposes its consumer software only through its Creative Cloud
  • Adobe Lightroom now costs a minimum of €11.99/month, whereas we could previously purchase a perpetual license starting at €120
  • Microsoft proposes its Office 2021 “Home and Student” suite for $149.99. In parallel, Office 365 (which gives access to the same applications while adding some peripheral features) costs between 69€ and 99€/year.

IntoTheMinds’ opinion

The subscription business model was a breakthrough for the software industry. Today, this model is accepted by consumers even though it does not objectively favor their interests in most cases.

The “Dash button” precursor of subscription-based services

Amazon’s Dash Button was a real revolution in subscriptions. It was the first time an object made order recurrence tangible. Dash Buttons were launched on March 31, 2015, and discontinued on August 31, 2019, because the system was unsuccessful.

The “Dash Buttons” were not just for ordering Dash detergent. These little boxes were programmable to order different items via AmazonFresh. Glued in different places of the house, they allowed ordering with one press a product which one needed: dishwasher capsule, powder for the washing machine, toilet paper, … The “Dash Button” was then connected to the house’s WIFI, and the order was effective. It was a transposition in the real world of the order in a click.

service amazon d'abonnement pour produits alimentaires

Amazon proposes to its customers to opt for recurring deliveries of food products.

The Dash Button has been rivaled by the Dash Replenishment Service, a subscription delivery service. This recurring delivery feature is available on Amazon’s website for certain consumable products (food, home care). The subscription formula is even the one that is proposed by default (for a discount).

The Dash Button had everything of a revolutionary invention. However, the Dash Button had 2 drawbacks:

  • it had to be configured
  • you had to press it

What should we learn from this failure? The less effort the consumer makes, the more likely the system will work.

Amazon Prime: The Jackpot

Amazon Prime is a subscription-based service that gives you access to several benefits with Amazon:

  • Faster, unlimited delivery on 350 million SKUs
  • Photo storage

Amazon hit the Jackpot with Amazon Prime. In fact, according to a September 2021 research, American Amazon Prime subscribers spend 4 times more than non-subscribers! The annual ticket for Prime subscribers reaches 1968$.

A subscription is not just about generating an immediate income. In the case of Prime, subscribers feel “motivated” to spend more to make their “investment” profitable. The calculation is, therefore, excellent on the part of Amazon. The only concern is that the cost of the benefits tends to increase:

  • Amazon spent $15 billion on the creation of video content (available via the VOD offer)
  • Taking care of delivery costs is a significant additional burden in the current inflationary environment

Subscription prices recently had to be increased by 25% to 43%, depending on the country. To avoid hemorrhage, Amazon uses dark patterns ( nudge technique).

900.care: hygiene products by subscription

900.care is a DNVB (Digital Native Vertical Brand) that proposes selling hygiene products in refill form. We did a podcast with its founder that you can listen to again below.

900.care proposes that you receive hygiene products based on a frequency that depends on your choices and the number of people in the household. So far, it looks like the subscription-based box model. Except that 900.care has designed its products to be environmentally friendly by eliminating plastic packaging.

900.care mixes ecological awareness and a subscription business model to differentiate itself. The products proposed are quite different from what is proposed via the monthly “box” model.

examples of business model subscription based

Nespresso: coffee by subscription

Capsules were Nespresso’s golden goose for years until the patents that protected them fell into the public domain. A subscription was imposed to “capture” demand and prevent customers from switching to the competition. Finally, Nespresso uses nudge marketing techniques to push the subscriptions that bring in the most money. Nothing is more dangerous than customers who “tide themselves over” by buying compatible capsules at the supermarket. They might discover that cheaper coffee is just as good ?.

Nespresso : offre par abonnement

Nespresso pushes its customers to opt for a subscription-based offer. This allows Nespresso to ensure that customers are never tempted to try the competitor’s capsules if they have run out.

IntoTheMinds’ opinion

In the case of Nespresso, a subscription is a way to “capture” demand and lock it into a more expensive system than the competition. With its connected machines , Nespresso is also trying to automate the sending of capsules by calculating the amount of coffee left since the last order. This connection to the real world is similar to what has been done with Amazon’s Dash Button.

examples of business model subscription based

Costco: the subscription as an entry fee

To enter Costco, you must pay an entrance fee. This is a subscription that is renewed on an annual basis (36€/year in France). The promise is to benefit from lower prices than those of the competitors.

The challenge for Costco outside the US is to build a compelling offer to recruit the right targets. Costco’s business model is based on the assumption customers want to “make their subscription profitable” and spend more. Amazon Prime is a good example of how this strategy can work.

examples of business model subscription based

Beauty products by subscription

Blissim proposes boxes that allow you to receive 5 beauty products each month for 14,90€. The concept has been adapted for many products (razor blades, cleaning products, hygiene products, beers, wines, …). It has almost become a business model of its own.

Boxes by subscription are now a very classical business model. However, there are plenty of candidates, but few are elected. A website is no longer enough to sell boxes. Operational marketing is crucial, and mastering online promotion (especially on social networks) is essential. If this business model seems simple on the outside, it is currently very complicated to apply successfully. The competition is very tough, and the consumers’ wallet is less compatible with this excessive expense.

Netflix: unlimited VOD

Netflix has transformed from a DVD rental company to n°1 of VOD by subscription. The business model is so good that everyone else has joined in (Disney+, HBO, Amazon, etc.). Americans have an average of 4 VOD subscriptions per household . Faced with eroding growth and increasingly fierce competition (Netflix has an 18% market share in 2022), Netflix has announced the launch of a cheaper offer with advertising .

The weight of VOD platforms has become a threat to national players . The recession announced in 2023 should lead to an unprecedented wave of consolidation. American households, the most significant contributors to these platforms, will make choices and eliminate superfluous subscriptions. The catalog of available titles and the “breadth” of content will be the key to success.

examples of business model subscription based

Darty Max: subscription-based repairs

Darty Max is an offer related to Darty’s historical activities. The principle is simple. Members can maintain and repair all their appliances for a subscription whose price varies from 9,90€ to 19,90€/month. The subscription fee varies according to the number of appliances to be covered. For a normally equipped household, the bill climbs quickly, and the subscription at 19,90€/month is quickly the one advised. This is an interesting offer for those who want to adopt a responsible approach and bet on the “reparability” of appliances.

offre darty max

Darty must convince subscribers to commit to a one-year contract to break even. However, the risks are limited for Darty because a whole series of precautions are taken to avoid the most expensive repairs. The terms and conditions of sale allow Darty to declare a product “irreparable” to avoid the obligation to repair it.

Decathlon proposes a subscription to rent sports equipment (tents, bikes, …) This subscription includes a maintenance and repair service. The “bike” offer thus highlights a bike that is always suitable for your child.

offre Decathlon par abonnement

An example of a subscription offer proposed by Decathlon.

On closer inspection, this subscription offer looks like leasing but without the purchase option. It’s a very smart move on Decathlon’s part, and the rental represents a real added value compared to purchasing new equipment.

Casino Max is a subscription formula (10€ per month or 90€/year) that allows you to access a permanent 10% discount on the whole Casino assortment. The subscription amount is thus “refunded” from 900€ of annual purchases or 100€ of monthly purchases. At first sight, the formula seems attractive because with inflation, the price of shopping has increased significantly, and the 100€ monthly mark (110€ without discount) is easily reached.

The Casino Max model leads us to make 2 remarks: Is it profitable for Casino to offer a 10% discount knowing that the average margin on consumer products is generally low? Casino claims that it is. Doubtless, impulse purchases realized in higher margin categories have something to do with it. The challenge is to build customer loyalty by capturing their purchases and preventing them from going to the competition. The subscription makes the customer desire profitability, making him buy, in priority at Casino.

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Subscription Based Business Model

The Subscription Based Business Model – A Complete Guide

Let’s face it: it’s 2022 and almost anybody we know is subscribed to some sort of service. Whether it is Netflix or Spotify, subscriptions have taken over the way we consume products.

This article covers the ins and outs of subscription based business models, ranging from pros and cons to various examples and how to measure success through different metrics.

In the subscription business model, customers have to pay recurring fee at a continuous interval to receive access to a product and/or service.

Subscription business models focus on retaining their customers while steadily adding new ones. A special emphasis is thereby put on maximizing the amount of time the customer stays subscribed.

And subscription models are certainly here to stay. According to a survey conducted by McKinsey & Company , 46 percent of customers already pay for at least one subscription service. That is supported by a 300 percent growth of the subscription industry in the past seven years alone!   

Examples Of Subscription Business Models

When we think of subscription businesses (or look at our bank account, for that matter), a few examples immediately come to mind. Netflix and Spotify are often seen as the de facto poster boys of this business model.

There is a multitude of other examples of successful companies built on subscription models. They differentiate themselves by the type of service they offer or the frequency at which the subscription is paid.

Let’s have a look into some of those.

Traditional Subscriptions

Although the subscription model has risen tremendously in popularity over the past few years, it is certainly anything new or revolutionary.

Whether it’s your electricity bill or the gym membership, subscriptions have been part of our lives for decades. What has changed is the ease with which these can be cancelled as well as the internet allowing it to be distributed to exponentially more people.

Physical Subscription

Over the past couple of years, we have seen the rise of subscription models based on physical products. Customers pay a reoccurring fee to receive a steady supply of a given physical product.

Two companies, who were built on this premise, are Dollar Shave Club and the Quip toothbrush .

examples of business model subscription based

For instance, with Dollar Shave Club, customers can create a list of grooming products they need. Dollar Shave Club then sends you a set four times a year (or on any other preferred schedule).

As usual with subscription business models, customers can cancel the service at any time while enjoying free deliveries and a money back guarantee.  

Content subscriptions haven’t just started with Netflix. Thinking back a couple of decades ago, people were already subscribing to content in the form of news magazine or cable TV subscriptions.

As of recently, the likes of Apple and Disney have made a substantial push into subscription streaming services with the launch of Apple TV+ and Disney+.

Software as a Service (SaaS)

Another big trend in the subscription space is selling software at a monthly fee (called Software as a Service, or SaaS ).

Back in the early days, companies like Adobe (creator of Photoshop, amongst others) or Microsoft used to charge a one-time price to get access to a piece of software. What happened oftentimes is that companies stopped improving and offering support for that software, resulting in angry customers.

Nowadays, companies such as Grammarly or Slack have built their entire business around subscriptions.

Coupled With Hardware

A new trend we see is coupling existing hardware with a subscription based component. One of the companies perfecting this approach is Peloton, which recently went public .

Peloton is a producer of workout equipment such as treadmills and bikes. What is interesting about their business model is that customers, for a monthly fee of 39$, can subscribe to join live online workouts.

One of their many instructors leads these workouts, with people joining them from all over the world. Trainees can then compare their score to others and thus work to improve performance over time.

Discounts On Main Service

The best example of that approach is Amazon’s Prime service. Customers not only enjoy free deliveries, but can use Prime Video or Audible for free or receive discounts at various Amazon partner stores.

Amazon is thereby enhancing their core e-commerce service through the addition of a subscription. This has two major advantages:

  • Customers have a greater commitment to the service and want to get break-even on their yearly Prime payment (and are thus more likelier to buy)
  • Amazon can not only get to know their customers better (through higher engagement), but can cross-sell other products to them

Advantages Of The Subscription Business Model

If even a company like Apple moves from selling hardware to adding subscription-based layers to their business , you know that business model can be very profitable. Listed below are some of the major pros the subscription business model has to offer.

Predictable revenues. Every month, over 95 percent of Spotify customers remain loyal to and keep using their service. And that is certainly no outlier in this space. One major advantage of the subscription business model is that customers tend to stick to a service more often than not. That makes predicting revenue much easier and allows you to plan ahead long term.

Deep customer relationship. Customers are often deeply committed to their subscription and therefore use them very frequently. That allows the company to deepen their customer relationship. For instance, it becomes easier to collect customer feedback (as customers are more willing to share information). You then get to know them a lot better compared to a business, which only sells you a product once and then leaves you alone with it.

Ability to raise prices. If your customers are deeply interconnected with your product, it can be easier to raise prices. But beware: customers won’t swallow too many of those! Netflix, for instance, had 800,000 people leaving its DVD subscription service after a price increase.

Simplicity. Consumers often profit from the simplicity of subscribing to a given product or service. No complicated set-up process or hidden fees make it easier for subscription business to acquire customers.

Building an ecosystem. TheAmazon Prime subscription not only offers free delivery, but gives customers access to Prime Video and Music, discounts at Whole Foods or early access on Prime deals. As Amazon holds a deep relationship with its customers and receives constant feedback, they were able to build a complete ecosystem around their prime membership. The multitude of benefits and simplicity of the service makes it very difficult for customers to unsubscribe.

Disadvantages Of The Subscription Business Model

While the subscription business model certainly has its pros, it isn’t completely without flaws.

High initial investments. Think about it: would you subscribe to Netflix if it had only ten movies? Most likely not. And it cost them a fortune to build up both the technology and content to have users sign up.

Easy to cancel. As easy as it is for you to sign up, canceling your subscription is equally simple. And it has to be. Part of the appeal of signing up to a subscription is the flexibility to cancel it and not drown in monthly payments.

Providing constant value. If your subscription starts to decrease in quality, you’d simply just cancel it (see previous point). Therefore, subscription based companies have to constantly update their product. Furthermore, you cannot afford too many major hiccups such as your servers not working or delays in delivery. Otherwise, those customers will switch to your competitors in no time.

Contract nerves. If you subscription business requires longer-term contracts (e.g. gym memberships), signing one can make people a little skittish. After all, they will commit to paying you for a fixed amount of time. It therefore can feel like a great commitment to the customer and something they might not be willing to take on.

Essential Metrics & KPIs

Subscription-based companies often require heavy upfront investments to build the product and user base.

Sometimes, it can take years to become financially break-even. Therefore, it is crucially important to track these four Key Performance Indicators (KPIs) .

  • Customer Acquisition Cost (CAC)

Churn Rates

  • Customer Lifetime Value (CLV)
  • Annual and/or Monthly Recurring Revenue (A/MRR)

Customer Acquisition Cost

Customer acquisition cost refers to the amount of money you spend to acquire a new customer.

Customers can be acquired through multiple channels, ranging from online ads on billboards, TV, podcasts, and social media over to classic face-to-face sales.

Customer acquisition cost is calculated by adding all the sales and marketing expenses (in a given period) and dividing that by the customers acquired in that timespan.

CAC = (Sales and marketing) costs ÷ new customers

For example, if you spend 100$ on Instagram ads and receive 10 new customers, your CAC is 10$.

A high CAC in itself is not problematic, as long as the customer acquired yields enough revenue to pay for the acquisition. The problem is a combination of high CAC and fast leaving customers. You then end up losing money on every new customer you acquire.  

It is therefore important to have not only decrease your CAC, but improve on your churn rate and overall customer (lifetime) value.

The churn rate (also called customer churn ) is one, if not the, most important metric for subscription businesses. It refers to the rate at which you lose customers for a given period (i.e. monthly, quarterly, or annually).

The churn rate is calculated by subtracting the amount of users at the end of a period by the amount of users at the beginning. That result is then divided again by the user count at the beginning of a given period.

Churn Rate = (Users At Beginning Of Period – Users At End Of Period) ÷ Users At Beginning Of Period

While churn can fluctuate heavily in any given period, it is one of the best indicators at how satisfied people are with your product.

In order for your business to expand, your churn rate needs to be lower than the rate you grow at. For instance, if your user count is 1000 at the beginning of the month and 900 at the end, your churn rate is (1000 – 900) ÷ 1000 = 10 percent.

The opposite of churn is often referred to as retention . It is the number of customers, which did not leave your service. So an 80 percent retention rate is equal to 20 percent customer churn.

Customer Lifetime Value

The customer lifetime value is the total amount of revenue a customer yields over the course of their membership.

While it is hard to estimate early on, understanding CLV can allow you to predict what each new customer can potentially generate in revenue.

There are many different ways to calculate CLV, and results may therefore differ substantially. The simplest method of getting to your CLV is as follows:

CLV = ARPA ÷ Churn rate

With ARPA being your average revenue per account for a specified period (e.g. monthly). For instance, monthly ARPA is calculated by dividing the revenue for that month by the number of customers in that same period.

With that in mind, let’s look at an example for CLV. Say you make, on average, 10$ per customer per month and your customers churn at a rate of 5%, you’d get the following CLV for monthly customers:

CLV = 10 ÷ 0.05 = 200$

Lifetime value is important in assessing how much you should spend to acquire a customer. The more a customer is expected to spend, the more you can allocate on acquiring them.

Annual and/or Monthly Recurring Revenue

MRR or ARR tells you how much revenue you can expect to make in a month or year. Tracking the two metrics helps you assess how much you can spend overall and how long that your money can last you.

Whether you make changes to a marketing campaign or implement new features, knowing what monetary gain it yielded can be told through your MRR or ARR.

MRR and ARR respectively are calculated by multiplying your monthly (or annual) revenue per customer by your overall amount of paying customers.

MRR = Monthly revenue x Total customers

So if you have a 1,000 customers paying 5$ a month, your MRR is 5,000$.

Startup investors often consider MRR and ARR as the key metrics when investing in subscription based businesses. These metrics (in combination with your churn rate) can tell you how long a business can last before running out of money (often referred to as run rate ).

examples of business model subscription based

Viktor Hendelmann

Hi folks, Viktor checking in! Years of experience in various tech-related roles have led me to start this blog, which I hope provides you with as much enjoyment to read as I have writing the content.

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Last Updated on January 5, 2023 by Viktor Hendelmann

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The Subscription Business Model Complete Guide

Subscription-based business models are built on a recurring customer base, where customers rather than own, usually have access to the product or service. The customer can have the upside of the service, without owning the good underlying it, which is maintained by the company running the subscription-based business.

Table of Contents

Simplified anatomy of subscription-based business models

With the subscription-based business model , customers or members pay a set amount each week, month, or year, and in return, they get a product or service in exchange.

Today the subscription-based business model has become the standard for many tech companies. 

From Netflix to Spotify and Amazon Prime , the subscription-based business model is appealing to companies because it allows them to build a more stable turnover. 

Let’s take two scenarios. In the first, you launch a product that sells at $200 to 100 people. In the end, you have $20,000 at the bank. 

Let’s take the case in which you sell a service for $100 to 100 people. In this case, you made $10,000. 

Yet, in the coming month or year, you’ll not start from zero but you will have a predictable revenue (at least in theory, we’ll see why in practice that still isn’t the case).

That is why many businesses are adopting the subscription-based business model .

In other cases, like Amazone Prime , or Costco members those are not just additional revenue streams, but also programs that help those companies lock-in repeat customers.

Lastly, the subscription-based business model has also risen in the last decade as an alternative to the prevailing advertising-based business model (See Google and Facebook ) dominating the web.

The subscription business model is as old as the newspaper

As reported via  psprint.com :

At first, newspapers were only available to wealthy Americans, those who were literate and could afford to pay for subscriptions in advance. The subscriptions typically cost what a general laborer would make in an entire week of work, so most could not afford them. That all changed in the 1830s, when advances in printing and papermaking made it possible to sell newspapers for one cent per copy.Increased literacy as well as technological advancementssuch as the telegraph – which made it possible to quickly share news over great distances – and the rotary press contributed to newspaper growth. The “Penny Press” made newspapers affordable to the entire public and spurred an explosion of newspaper publishing across the United States.

Thus the subscription business model isn’t new. However, what’s new about it is where it is getting applied.

For instance, since a few decades back it was hard to think of music as a service (see Spotify ) or media that before was consumed at fixed time slots now it gets served at any time with streaming (see Netflix ).

Is it the end of ownership?

As Tien Tzuo, chief executive officer and co-founder of Zuora pointed out:

The signs are everywhere — ownership is on the outs. From Spotify’s IPO to Amazon Prime hitting a hundred million memberships to Lyft’s new monthly pass, more and more people are opting for fluid services rather than static products. In fact, our physical world seems to be rapidly diminishing all around us. Companies aren’t buying buildings, they’re renting from WeWork or Servorp. Teenagers aren’t saving up to buy cheap cars, they’re catching rides with their phones. Even the malls are disappearing. The world is switching from capex to opex.

The reason for opting to usage rather than ownership can vary.

Some of the major drivers of change are related to the fact that as technology allows us to track and connect people it becomes also possible to transform traditional products in services. 

Also, as on-demand services have become available, many people have become aware of the total cost of ownership, thus opting for access over ownership. 

The total cost of ownership and why cars become expensive in the long-run

When you purchase a car, its initial cost is just one part of the expense. Real costs associated with the car will be the whole set of maintenance costs and operating costs to keep the car working.

As pointed out by  consumerreports.org  “ many brands have low ownership costs during year three. Keep in mind that some—including BMW and Mini—have free maintenance for the first few years, making them relatively affordable out of the gate. But costs can skyrocket when the warranty and free maintenance periods are over.”

If you own a car, you know what we’re talking about. When you purchase a car you might have coverage for a few years, but the more the car gets older, the more expenses you’ll have. At the point in which maintenance expenses skyrocket.

The same issue applies to homeownership. If we take an estimate from caniretireyet.com  you can see many of the hidden costs of homeownership:

cost-of-ownership-home

In short, in the example above for a house valued at around $100k, we have several costs on a monthly basis which amount at $834.

Thus, if you could rent the same home for a lower price than renting might be an option.

One thing is important to point out. In many cases, ownership vs. renting is not about financial considerations alone. In many instances, emotional reasons apply.

At the same time companies like Airbnb are building their success more based on the home as a place to share and around experiences.

Online vs. physical? That might be the wrong dichotomy

As remarked on Zuora :

Retailers are mistakenly seeing the issue as e-commerce versus brick and mortar, but that’s not the problem,” says  Tien Tzuo , chief executive of enterprise-software firm  Zuora . “Online, in-store, it shouldn’t matter, it should all be blended: Consumers can shop wherever they want–it’s the retailers that build one-on-one relationship customers that will win.

Thus, it’s not about the channel it’s about the relationship. Tzuo remarked , “ Amazon isn’t successful just because it’s an e-commerce site, but because it knows how to think like its customers. ”

In other words, what makes Amazon’s strategy effective isn’t just the fact it has online stores. 

The company uses data to make the user experience as personalized as possible. In short, w hen you go to an Amazon store, the way books are organized isn’t random. 

Why subscription model might actually be easier for consumers

examples of business model subscription based

What makes the subscription model so successful today isn’t only about ownership vs. usage.

That is also about how things get consumed. In an ownership model, the interaction between the provider and the consumer is entirely different compared to a model where the provider needs to establish a relationship with the “member.”

Where a provider that sells a product won’t need to know its customers.

The subscription business model to be successful requires an ongoing relationship with continuous feedback from members to the service provider.

This is also the reason why companies like Spotify and Netflix spend billions on producing TV Series and Music.

In short, to avoid the members to churn from their accounts any time soon they need to keep providing great experiences on a regular basis.

Also, as companies like Netflix gain a better and better understanding of their members (through the data fed to its algorithms), waiting for the next big hit coming from the Hollywood Studios might be too risky.

Instead, with all that data, Netflix can produce series that its members will find more compelling and stick to their premium plan longer.

That is also why as of the end of 2017, Netflix reported over $17 billion in streaming content obligations “ primarily due to multi-year commitments associated with the continued expansion of our exclusive and original programming. “

Building and maintaining a relationship it’s quite expensive. Let’s dive a bit into the numbers of the subscription economy.

Software ate the world

what-is-saas

Venture capitalist Marc Andreessen famously said, “Software is eating the world.” That was back in 2011, and that has become a reality. However, software companies have mostly found their realm in the subscription-based business model.

The so-called SaaS companies built software who continuously updates, and with that, a subscription economy worth billions. SaaS models though are all but easy to scale.

The SaaS industry has become competitive. Companies to differentiate had to add support teams on top of the software (what in SaaS lingo is called Customer Success) and professional services to help customize those otherwise commoditized services.

SaaS companies, as we’ll see, run against its greatest enemy: the churn rate (or what I like to call “the leaky bucket”).

Are we sure that the subscription economy is the answer?

Where the subscription economy has risen to become a multi-billion industry. And a great alternative to the otherwise dominating, advertising-driven business model.

It also has its drawbacks.

The real cost of not owning? Ask it when it all goes wrong!

One of the key advantages of only having access and usage is you don’t have to deal with the inconvenience coming with maintenance and ownership. However, if you don’t own it you don’t control it in full.

And when it all goes wrong, you would be better owning it. Thus, it’s great to have an access economy, where people can conveniently share things. However what happens when it all goes wrong?

Let’s take a simple example. Let’s say, you sold your car (who needs a car if we have Uber or car-sharing apps). Yet one day, you feel so bad you have to run to the hospital.

Right in that moment, there is no Uber available, no car shares, neither a cab that will take you there. You almost risk your life if you didn’t have your friend (owning a car) bringing you there.

True, you saved on the total cost of ownership for years, yet you risked your life once. Of course, this is an extreme example. But you get the point. Even if you only have access, are you sure you don’t need ownership if it all goes wrong?

The obsession to smooth things up

Running a business is a risky endeavor. Sales usually don’t follow a linear path. It is the dream of any manager to run a business with smooth revenues.

And a predictable revenue stream is as good as it gets. That makes subscription-based companies look for ways to lock-in customers. This can result in better service, in many cases.

However, in many others, it could also result in an attempt to create useless lock-in, which instead of creating a better customer experience, might actually worsen it.

In addition, where unit sales are less predictable, they also have a potentially unlimited upside. As Hollywood has known for years, a single blockbuster can make your bottom-line for years.

A subscription-based business instead, might try to bundle its blockbuster with the series of mediocre products it has to keep pushing its subscriptions up by creating a sort of lock-in effect.

Thus, building up a great subscription-based business model can be tricky.

Is it more expensive to run a subscription-based business model?

is-netflix-profitable

Netflix is dominating the subscription economy in the consumer segment. As it is among the most recognized brands in the world. While the company is extremely profitable, it also runs a negative cash flow business.

netflix-cash-flows

The company had over $5 billion in cash at the bank, however, most of that cash comes from financing activities.

There are several reasons for that, and of course, Netflix had to become a strong brand in a market dominated by established brands like Disney. Yet, the key point here is, running a successful subscription-based company is not simple.

Indeed, building a strong subscription-based business also means strengthening things like infrastructure, and support, that are very expensive parts of a business, to maintain.

Careful to the “Leaky Bucket” effect

Among the things that can affect a subscription business, that is what in the SaaS world is called churn (or the percentage rate at which  customers cancel their subscriptions with respect to those who join).

Just like a bucket that fills but it has a hole that becomes larger and larger. Many companies fail to build a successful subscription-based business as the number of people joining cannot keep up with those who leave.

Finding a balance is tricky and not as simple as it might seem.

The Subscription Economy

subscription-economy

According to the McKinsey report , top five subscription business models include companies like Amazon Subscribe & Save, Dollar Shave Club, Ipsy, Blu Apron, and Birchbox:

Amazon Subscribe & Save

amazon-subscribe-and-save

Dollar Shave Club

dollar-shave-club

Blue Apron 

blue-apron-business-model

As pointed out by  McKinsey report :

Both men and women, buying for themselves or for others, use many of the leaders, but women are more likely to subscribe to beauty and apparel services, including Stitch Fix (apparel), AdoreMe (lingerie), and ShoeDazzle (shoes). Men, by contrast, are much more likely to gravitate to razors (Harry’s is the third-most-popular service for men but the seventh overall), video-gaming gear and collectibles (Loot Crate), and meal-kit or food-delivery services (Home Chef and Instacart’s subscription delivery option, in addition to Blue Apron and HelloFresh).

The interesting part of the Subscription Economy is that any kind of product can be transformed into an experience, thus a service that can become a subscription business model.

In fact, in some cases, the subscription business model depends upon creating a surprise box.

In other cases building up a subscription business model is really up to your creativity. Don’t believe me? See the next example.

Take a snack box mix it up and you get Gaze  mini-snack subscription box

Graze  is a mini-snack subscription box that sends a customized selection of treats weekly, bi-weekly, or monthly.

The process is simple:

  • Create your account and tell them what you like
  • Graze tailors your box and delivers it for free
  • Once receive your snacks you can rate them so that Graze will learn your preferences

graze-business-model

One thing you might notice. This isn’t a one-time relationship but a continuous process.

A feedback loop, between Graze and its members. After a few iterations Graze will know the tastes of the members so well that with no effort at all Graze will be able to deliver the best experience ever.

Three models of subscriptions

Although subscription business models can have unlimited applications. They can be categorized into three main groups.

Replenishment subscription

In the Replenishment subscription model, consumers get an automated purchase process of commodity items. 

T hink of razors or diapers that can be bought with one click.

amazon-dash-button

You might think that the Amazon Dash Button is about making a transaction frictionless (in fact it is).

Yet this is only part of the story. Dash Buttons can be used by the “exclusive” Amazon Prime Members.

amazon-dush-button-only-for-members

Thus, this is just one of the many strategies Amazon is employing to get more subscribers.

Also, all the data provided via those buttons will be a precious asset for Amazon in the long run!

amazon-dush-button

You get toilet paper effortlessly. Yet Amazon receives valuable data about you, anywhere at any time.

Curation subscription

Just like we saw in the Graze business model above. That is based on “curation.”

Graze does a great job in personalizing the experience from time to time until it gets better over time:

graze-business-model

For a curation subscription to be sustainable, it has to surprise and delight with highly personalized experiences.

Access subscription

The Amazon Dash Button above can also be included in the access subscription. 

Here you pay a monthly fee to obtain lower prices or members-only perks. 

Getting the dash button is itself a “perk” exclusively granted to Amazon Prime customers. 

Another example might be Apple Music. Rather than buying a single song you can get a membership and listen to any:

apple-music-prime-subscription-business-model

Other subscription business model examples  

Let’s see some other examples of subscription-based business models.

The NY Times successfully converted to a subscription-based model

the-new-york-times-business-model

The NY Times has been among the leading publishers in converting its business model to primarily driven by subscriptions.

How do you decide whether it makes sense to rise a paywall for your publishing business?

paywall-decision-tree

One way is to start from the decision tree above, where you can evaluate, if, and what kind of paywall might make more sense for your business.

Amazon Prime as a key for Amazon repeat customer

amazon-prime-subscription-business-model

Those companies’ financial success depends upon their ability to keep their members churn.

amazon-case-study

Amazon Prime is an important component of the overall Amazon Business Model.

Costo members also matter to lock-in the repeat customer.

costco-business-model

The Netflix business model  is a powerful example of a subscription-based model. Indeed, Netflix has used its monthly fee to boost its recurring revenues.

The subscription revenue model is also what allows Netflix to make substantial investments in content compared to traditional mass media, where each deal needs to be secured again:

netflix-business-model

Related :  How Does Netflix Make Money? Netflix Business Model Explained

examples of business model subscription based

Spotify is another powerful example of a subscription business model. The company has been able to create a massive base of users worldwide in a relatively short period. Spotify benefits from classic two-sided network effects .

When more users join the platform, the platform itself becomes more valuable for artists that decide to launch their music over the platform. And the more artists decide to feature their content exclusively on Spotify, the more the platform becomes valuable to more subscribers.

spotify-business-model

Related :  How Does Spotify Make Money? Spotify Business Model In A Nutshell

Other enterprise subscription business models

netflix-subscription-business-model

Sumo Logic 

sumo-logic-business-model

Unity Software 

unity-business-model

Beware of members churn

Getting a fixed amount of money in the bank account each month is the dream of any company.

Yet, having members stick might be the hardest task. Why do members churn? Hubspot mentions five main reasons:

  • Lack of (or Zero) Engagement
  • Poor Product -Market Fit
  • Product Bugginess
  • Difficult User Experience
  • Lack of Proactive Support

To make sure your subscription business model is sustainable in the long run you want to keep a careful eye on some key metrics.

The key metrics to measure whether your subscription business is successful over time

Running a successful subscription business model is about balancing things up.

Just like having your revenues cover your expenses, in a subscription business model your customer acquisition costs have to be lower compared to the lifetime value for your customers.

Thus, the following metrics are critical:

Subscriber acquisition cost

The subscriber acquisition cost comprises aggregate costs, such as marketing , sales commissions, installation for acquiring one subscriber.

Monthly recurring revenue ( MRR)

This is the magic number many subscription-based startups need to look at to grow their business in the long run. This is the amount of fixed revenue retained every month.

This metric is pretty simple to compute: multiply net users per month by the subscription fee. A growing MRR is critical for the healthy growth of your subscription business model.

Churn rate 

This is computed by multiplying net users left per month by the subscription fee. Keeping the churn rate in check is critical.

Monthly recurring costs (MRC)

The monthly recurring costs are the cost incurred to earn the recurring monthly revenue.

For instance, if you offer a software as a service, you will have server costs and support costs for those accounts.

They do bring you money each month, but also costs.

Lifetime value (LTV) 

The Lifetime Value is the total revenue earned per subscriber.

Monthly active users (MAU)

Another key metric, especially used by tech companies in which survival depends upon the continuous interactions of its users with the platform is the monthly active users. Spotify is an example:

spotify-mau-metric

Does a freemium work with the subscription business model?

The freemium business model (or growth strategy depending on the perspective) has become omniscient in the tech startup world. Thus, many associate it with the subscription business model.

In reality, the freemium makes sense when the cost structure allows it. 

freemium-business-model

What subscription models can you apply to your business?

According to The Automatic Customer , there are seven models you can apply to your business.

  • Membership website model 
  • All-you-can-eat content model 
  • Private club model
  • Front-of-the-line model
  • Consumables model
  • Surprise box model
  • Simplifier model
  • Network model
  • Peace-of-mind model

Subscription Box Business Models Case Studies

dollar-shave-club-business-model

Key takeaway

The subscription business model has become by itself an economy. In fact, if you look more carefully and dive deeper you’ll find examples of subscription business models anywhere.

The subscription business model is the financial dream for many companies because you can create a constant stream of revenues each month from your business.

However, maintaining that revenue stream is also quite costly. We saw how companies like Netflix and Spotify spend billions in content just to have their members stick.

A subscription business model requires community building, continuous engagement, and a feedback loop to keep personalizing the experience of the members.

What to read next?

Business Model Innovation

  • Business Models
  • Digital Business Models
  • Business Strategy
  • Value Proposition
  • Marketing Strategy

Key Highlights

  • Subscription models involve customers paying a regular fee to access a product or service.
  • Examples include Netflix, Spotify, and Amazon Prime.
  • Subscription models provide stability, predictable revenue, and customer retention.
  • Predictable Revenue: Subscribers provide a consistent income stream.
  • Customer Retention: Subscribers are more likely to stay loyal.
  • Personalized Experiences: Companies need to engage and continuously improve to keep subscribers satisfied.
  • Subscription models are not new and have historical roots in industries like newspapers.
  • Technology and changing consumer preferences have expanded subscription models into various sectors.
  • The rise of on-demand services and the sharing economy has led to a preference for access over ownership.
  • Total cost of ownership and changing consumer behavior are driving this shift.
  • Maintaining Engagement: Ensuring subscribers remain engaged is crucial to prevent churn.
  • Balancing Costs: Subscription companies must manage costs to ensure profitability.
  • Loss of Control: Customers may expect access but not ownership, leading to potential issues.
  • Subscriber Acquisition Cost: Costs to acquire new subscribers.
  • Monthly Recurring Revenue (MRR): Predictable income from subscribers.
  • Churn Rate: The rate at which subscribers cancel their subscriptions.
  • Monthly Recurring Costs (MRC): Costs associated with maintaining the service.
  • Lifetime Value (LTV): Total revenue earned per subscriber.
  • Monthly Active Users (MAU): Number of users actively engaging with the service.
  • Membership Website: Exclusive access to content or resources.
  • All-You-Can-Eat Content: Unlimited access to a range of content.
  • Private Club: Access to exclusive perks or experiences.
  • Front-of-the-Line: Early access to products, services, or features.
  • Consumables: Regular delivery of essential goods.
  • Surprise Box: Curated surprise items delivered regularly.
  • Simplifier: Streamlining or simplifying processes for subscribers.
  • Network: Building a community or network around the service.
  • Peace-of-Mind: Offering security or convenience to subscribers.
  • Dollar Shave Club: Disrupted the razor industry with a subscription model.
  • Birchbox: Introduced beauty product discovery through subscription boxes.
  • BoxyCharm: Focused on delivering trendsetting beauty products to subscribers.

Connected Business Model Types And Frameworks

What’s A Business Model

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Level of Digitalization

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Digital Business Model

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AI Business Model

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Blockchain Business Model

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Asymmetric Business Models

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Attention Merchant Business Model

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Open-Core Business Model

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Cloud Business Models

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Open Source Business Model

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Freemium Business Model

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Freeterprise Business Model

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Marketplace Business Models

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B2B vs B2C Business Model

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B2B2C Business Model

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D2C Business Model

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C2C Business Model

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Retail Business Model

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Wholesale Business Model

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Crowdsourcing Business Model

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Franchising Business Model

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Brokerage Business Model

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Dropshipping Business Model

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The Ultimate Guide to Subscription Box Business Models

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If there’s one common struggle in the eCommerce world, it’s getting repeat customers. It’s actually up to five times more expensive to gain a new customer than it is to keep an existing one. 

That’s why businesses put so much effort into customer retention and improving the overall customer experience. You don’t want a revolving door of customers coming and going. You want a loyal base that returns over and over again, with new customers adding to that constantly. 

That’s the secret to profitability. It’s also why so many businesses are turning toward subscription-based business models . Streaming companies like Netflix and Disney+ make a lot of money from subscriptions, but they’re selling digital entertainment. 

Businesses that sell material goods can package their wares together and sell them in the form of a subscription box service . These popular eCommerce subscriptions deliver a variety of products to customers on a regular basis, and customers pay for these products with a recurring charge. 

Whether weekly, monthly, or yearly, ecommerce businesses can create an ever-growing base of recurring revenue by adopting a subscription box model. 

But how do subscription box business models work? How can you implement one? And what are the challenges that come with such a venture? 

In this article, we’re going to answer all of those questions, plus more. 

What is a Subscription Box Business Model? 

A subscription box business model is marked by the charging of r ecurring payments for customers in exchange for a regularly delivered box of services. 

This could be daily, weekly, monthly, quarterly, or even yearly. As long as there is an automatic recurring charge, you have a subscription business model . It’s similar to how Software as a Service (SaaS) products work, only with boxes of products in place of software services. 

examples of business model subscription based

Renewal is the backbone of subscription box profitability. You want to see your customers renew their subscriptions and continue to receive your products regularly. Some services have a commitment period, offering lower prices for a longer subscription. However, others work on a month-to-month basis, with customers able to renew at certain times. You can also set your subscription box service to auto-renew. In this case, the customer takes no action to re-up their purchase. They would only take action if they wanted to cancel. 

The concept of subscription boxes is built around product kitting, where you package several items together into one purchase. This also allows you to streamline your order management process by creating ready-to-ship product sets. 

A great example would be BarkBox , a monthly subscription box service tailored to pet owners. Instead of buying individual products like dog treats and toys, BarkBox packages them together and sends them to you like one product. 

So, why would you want to offer one of these subscription box business models? Simply put, they create a steady income stream that builds over time.

Let’s take a quick look at how that works. 

You only have one customer paying $10 for your subscription box in your first month of operations. In the second month, you’ve added two more customers, each of whom is paying you $10. Because the customer from month one has continued, you’re now getting $30. 

Fast forward to six months in. The business has been growing, and you have 600 customers , each of whom is paying you $10 . You’re now getting $6,000 per month , with unlimited potential for more profits.  

examples of business model subscription based

The monthly subscription boxes business model is also highly convenient for customers because they can continue receiving the products they enjoy without renewing manually or making a new purchase every month. 

This also ensures regular revenue for your business on a recurring basis, which ideally will grow month to month. The value of your customer relationships will compound over time, creating a higher lifetime value. You can keep your subscription box business model growing by keeping the value of your offerings obvious. 

How Does the Subscription Box Model Work? 

The basic principle here is that the customer pays a business regularly and receives a package of products at their door.  If you wanted to implement a subscription-based model for services in your eCommerce store, you would be charging customers on a recurring basis. This is not a simple one-time add-to-cart option like you’d find in your typical eCommerce shop. 

Whereas in a regular eCommerce store, you’d have to worry about wooing your customer back to make additional purchases, subscription box eCommerce makes every purchase that much more valuable because of the probability of recurring revenue.   

Some subscription box models carry a commitment period. This could be six months or a year, usually paid for upfront. This is typically followed by a month-to-month subscription. Once a subscription plan moves to a month-to-month basis, the customer can cancel it at any time. 

Typically, it’s a good idea to have your subscriptions auto-renew. This ensures that no action needs to be taken by the customer to re-up. Services like LootCrate and HelloFresh offer this option. If the customer doesn’t take action to cancel the service, they’re charged again automatically.  

The average profit margin of a subscription-box business is 40-60% . The basis for profitability in this model is recurring payments; however, one-time payments can also be applied on top of the recurring subscription price. A great example of this would be a delivery service like HelloFresh.

When customers pay the base subscription price for HelloFresh, they’ll receive their chosen meal kits. But, certain menu items carry an additional price point. So, if the customer was in the mood for something a little different one week, they can add this meal to their purchase and pay a one-time premium. 

Benefits of Having a Subscription Box Model for Your Traditional Ecommerce Business 

If you’ve been running a successful traditional eCommerce store up to this point, you might be wondering whether adopting a subscription box model is the right move for you. There are several benefits that eCommerce business owners can reap by turning to this increasingly popular option. 

1. Introduce New Products

You can use your subscription box business model to introduce new products to your customer base. 

If you have certain products that you’re looking to get eyeballs on, a subscription box can be one of the most efficient ways to get them out there. You simply package the item in question with other more popular products. 

2. Attract New Customers and Forge Stronger Customer Relationships

A subscription box business model is going to help you attract more customers. 

Due to the recurring nature of these subscriptions, you can offer a variety of products at a more affordable price point. If the people you’re marketing to want your eCommerce products, bundling them together at a lower price is a great way to get them coming back for more. 

By doing this and creating a recurring monthly connection with your customers, you create stronger customer relationships. You become a trusted source of quality in the eyes of your subscribers, and the delivery of your subscription box becomes a regular part of that customer’s life. 

3. Accurately Forecast Revenue

Subscription-based business models also allow eCommerce business owners to forecast revenue more accurately. 

By understanding both the number of subscribers you currently have and your average churn rate, you can accurately predict how much money will be coming in over a specific period. This will help you identify periods of high churn, which could mean there are issues plaguing your service that need to be addressed. 

Once you notice a difference in revenue from what was initially forecasted, you’ll be able to figure out what’s wrong and determine how to fix it to hold onto as many customers as possible. 

4. Convenient for Customers

Finally, one other major benefit of offering subscription boxes through your eCommerce store is increased customer convenience, which, in turn, improves the customer experience. People can have the product they want at a price they enjoy, and they don’t have to remember to make a purchase manually.

How to Build a Successful Subscription Box Business Model That Works for You ?

If you’re looking to create a subscription box for your eCommerce business, there are several steps that you’ll need to take. We’ll go through the process briefly here, but if you’re interested in starting such a business, we invite you to check out our in-depth guide on how to start a subscription box business .

First, you’ll need to determine whether you’d actually benefit from such a service. It has to make financial sense in order to be a viable business option, and the financial needs of every business are completely different. 

To determine whether running a subscription box business model makes sense for you, you’ll first have to determine your goals and what you’re trying to accomplish. 

For example, if you’re trying to raise profits by 35% in the next quarter, you’ll have to analyze how adopting a subscription box financial model will help you get there. 

There are several steps you can take to figure this out. 

1. Work Out Your Pricing

The first thing you’ll have to figure out when starting a subscription box business is the total cost of the product.  

When determining pricing , you will have to take a long, hard look at everything you’re including. The price you’re charging needs to cover operating costs and leave some room for profit while still being affordable. 

Since they include various products with differing values, operating costs for subscription boxes can be difficult to nail down. 

You also need to look at your fulfillment costs, meaning what you’ll have to spend to ensure that your box arrives for the customer in a timely manner. 

Ask yourself how much the packaging will cost and what you’re paying for shipping. Remember to keep the future in mind here as well. Fulfillment costs will only increase as your sales volume grows. 

examples of business model subscription based

It’s also important to figure out your customer acquisition costs , as they are a major factor in profitability. You obviously can’t spend more to attract customers than you’re making off the boxes. So figure out your average cost per new conversion and see what you can charge to remain competitive while pulling a profit. 

2. Determine Your Subscription Pricing Method

Every subscription box business needs to understand how it will offer its services. There are three different tried-and-true methods that businesses turn to when displaying options to consumers. 

First, there’s the freemium model . This is where customers are given limited access to a product or service for free. They can then convert to a paid subscription to get full use.

The project management SaaS product Trello is a great example of a subscription-based business that uses a freemium model effectively. Trello allows users to use its service for free for as long as they’d like. But if you want to integrate the service with the other tools that you’re using, you’ll have to upgrade to a paid subscription. Businesses thrive on efficiency, and integrations create enhanced efficiency and save a ton of time and money. 

While the freemium model doesn’t lend itself fully to a subscription box model, you could take some of its concepts and make them work for you. This could be offering a free trial with sample-sized items for people who want to try your products. However, you’ll still need to cover shipping costs. 

Then you have tiered pricing , where you offer different subscription levels that are all priced differently. The more you spend, the higher quality products you’re receiving. 

LootCrate is one of the most famous examples of a subscription box service with tiered eCommerce pricing. The typical base model LootCrate, which features various pop culture items from shirts to collectibles, currently costs $24.99 per month, plus shipping. However, if you wanted more premium gear, you could order LootCrate DX, which is $49.99 per month, plus shipping.

On the other side of the coin, if you only wanted whimsical pop culture-inspired socks and had no interest in LootCrate’s other items, you could subscribe to LootSocks, for only $9.99 per month, plus shipping.

When working on a tiered pricing model, you can focus some marketing efforts on upselling existing customers and retaining their business at a higher price point.

Finally, there’s adjustable pricing. This is a pricing model that changes with the market. As the industry shifts, you would adjust your pricing and communicate these changes with your audience. This should not be done too often, as it may cause longtime subscribers to churn.

Allure Beauty Box is a prime example of adjustable pricing. This beauty product subscription box was priced at $15 per month, but that price went up in 2020 to $23 per month. However, Allure Beauty Box tried to justify this increase with new benefits meant to establish more value. 

3. Keep Customer Satisfaction High

Once you’ve got your subscription box up and running, you’re going to want to ensure that you can keep people coming back for more. Getting the business off the ground is one thing, but sustaining it is even more important.

examples of business model subscription based

If you want to improve customer satisfaction, it’s important to avoid changing your pricing too often. People should be able to rely on your pricing. Don’t make them shell out even more just to stay with you unless it’s absolutely necessary.

You’ll also need to simplify the ordering process to avoid checkout abandonment — when a shopper begins the checkout process but leaves before completing their purchase. If people can’t easily and efficiently sign up for your subscription box, they’ll take their business elsewhere. That means clear calls to action, a straightforward checkout process, and no hidden fees. 

The products they’re purchasing also need to be of a certain quality if you want your customers to return for more. Nothing screams “unsubscribe” louder than cheap products that don’t hold up under pressure. 

Customer support is essential for your subscription business to thrive. A massive 83% of eCommerce customers require customer support when making a purchase online. On top of that, 55% of consumers have said that they wouldn’t mind paying more for a service with excellent customer service.

examples of business model subscription based

Finally, and most importantly, you need to ensure there are no subscription box billing mistakes. If your recurring charges aren’t consistent and accurate, people will unsubscribe from you in droves. 

That’s where a service like Chargebee comes in handy. Our subscription management and recurring billing will be the ultimate partner you need for maximum profitability in the subscription box industry. 

Things to Consider While Introducing the Subscription Box Business Model 

When turning your eCommerce operation into a subscription box business, there are a few things you’re going to need to consider as you introduce your audience to this new offering. 

1. Packaging Costs

The first thing you’ll have to consider is packaging costs. Typically, subscription boxes come in vibrant branded packaging. This helps your customer feel as though they’re receiving something unique that’s of a higher quality. 

But what is it going to cost you to send out your boxes in specialty packaging? What kind of shipping costs are associated with them? And when your customer opens their box, how will they see their items displayed? 

Everything needs to be arranged neatly, and some subscription box businesses even throw in some extra decorative items like confetti or colorful paper to improve the experience. 

2. Production Costs

Production costs are another area for consideration. When putting together your monthly offering, you want to make sure that the items you include work within the confines of your pricing. If you’re considering including an item with a high production cost, then perhaps that item should be an add-on that subscribers can receive for an additional cost. 

The production cost of every item that goes into your box altogether should be far less than the money you’re charging for it. 

3. Market Demand

Ask yourself whether the market has a demand for what you’re offering. If you’re marketing another meal kit service, you must realize that there’s a lot of stiff competition. But if you’re marketing allergy-friendly meals or specifically gluten-free items, you might be able to carve yourself a piece of the market. 

4. Fulfillment Costs

You should also keep a close eye on fulfillment costs, including shipping. How high will these costs rise as time goes on? 

As we said before, fulfillment costs rise as volume increases, so make sure that you’re pricing your subscription products correctly to adjust for this increase. It’s also important to factor marketing costs into the pricing process, as this will be essential to your market penetration and ultimate success. 

5. Industry Pricing

Finally, you’re going to need to do some market research to understand the average industry pricing. You don’t want to price yourself too far above your competitors. You also don’t want to price yourself too low and limit your profitability. 

Take a look at what your competitors are charging, then figure out how you can either beat that price point or offer more value for the products included in your subscription box. 

Subscription Box Business Model Challenges 

Starting a subscription box business isn’t easy, even when you already have a successful eCommerce operation. 

Many eCommerce subscription challenges can stand in your way.  

While no one wants to hear it, price increases will sometimes be necessary. Whether your shipping or production costs have gone up or the market has suddenly changed, you’re not going to be able to keep your pricing static forever. 

When this happens, there will be customer outrage, and some might even cancel on you. 

Then there’s the issue of data security. Cybercrime is a huge threat to the eCommerce world, and subscription-based services have to hold onto the financial information of subscribers. If you don’t have adequate security in place and malicious actors manage to breach your system, it can cost you in terms of both money and reputation.

The average cost to a business from a data breach is a massive $4.24 million . On top of that, 60% of small companies go out of business within six months after experiencing a data breach. 

Subscription-Based Ecommerce Businesses Examples 

If you were looking for proof that the subscription box business model works, look no further than these major success stories. 

These four companies have shaped the landscape of the subscription box business world and carved a huge piece for themselves in their respective markets.

1. Birchbox

examples of business model subscription based

Birchbox is a beauty product subscription service sent out once per month. Boxes can be personalized to fit the needs and preferences of individual customers. Subscribers receive five handpicked miniature beauty products every month. They also receive an instructional guide on their use. 

Birchbox items come in a keepsake box that can be reused around the house. 

The average cost of Birchbox is $15 per month. 

2. HelloFresh

examples of business model subscription based

HelloFresh is the largest name in the home meal delivery subscription box industry. It’s a weekly subscription box with a preselected menu of meals, separated into individual ingredients. 

The ingredients are pre-measured, meaning that you’re receiving everything you need in the proper quantities. The menus you can select from can be upgraded with premium offerings for an additional one-time charge. 

All HelloFresh meals arrive in a branded insulated box with a large ice pack at the bottom that helps keep perishable ingredients from spoiling. 

For two people, a starting price for two recipes per week comes out to $47.96 per week, plus shipping. 

examples of business model subscription based

BarkBox is a monthly subscription box featuring treats, grooming products, and toys for dogs. Pet owners who subscribe to this service will receive a themed box that can be personalized to the breed and size of their dogs. 

The contents of each box adhere to a monthly theme, like Marvel or Star Wars. 

BarkBox starts at $29 per month and comes packaged in a branded box.

4. ButcherBox

examples of business model subscription based

ButcherBox is a subscription box service that sends raw meat to subscribers. The cuts and recipes offered vary month to month and include items that subscribers may not have tried before. 

ButcherBox promises that all of the meat it supplies is high quality, coming from humanely raised animals. Its offerings include beef, chicken, pork, and fish. 

Prices for ButcherBox start at $159.

4 Metrics to Track When Growing a Successful Subscription Box Business 

Once you’ve launched your subscription box business, there are a few metrics you’ll need to monitor to ensure continued success. 

Here they are, in no particular order.  

1. Churn Rate

Your churn rate is a percentage that details the number of subscribers you’ve lost during a given period. If you’re experiencing a period of abnormally high churn, there’s likely some large underlying issue that needs to be addressed. 

To determine your churn rate, you need to identify the period you’re measuring for. Let’s say you choose the first quarter of 2022. You’d need to subtract the number of customers you had at the end of the quarter from the amount you started with. 

You then divide the number of customers you lost by your starting number and multiply the result by 100. That will give you the percentage of churn you experienced during the quarter. 

2. Monthly Recurring Revenue and Annual Recurring Revenue

Your monthly recurring revenue and annual recurring revenue shows how much dependable revenue you have. This is highly important for understanding the profitability of your subscription business.

To determine your monthly revenue, multiply the number of customers you have by the rate they pay every month. Multiply the result by 12 to figure out your annual recurring revenue.

This provides insight into the financial state of your business in real-time. While monthly recurring revenue is useful for determining where you are now, annual recurring revenue can provide a long-term outlook for your business. 

3. Average Revenue Per User

The average revenue per user (ARPU) removes the skew that comes from differently priced service tiers when trying to analyze your monthly recurring revenue. 

To find your ARPU, divide your monthly recurring revenue by the total number of customers. This figure could vary based on geographic information or demographics, but it’s good to set targets based on your ARPU to better inform your marketing campaigns. 

4. Customer Acquisition Costs

The customer acquisition cost for your company details the amount of money it takes to acquire one new customer. 

You can calculate this metric by adding up all of the costs associated with customer acquisition and dividing it by the number of new customers you’ve acquired during a specific period. 

FAQs on Subscription-Based Business Models

Do people still like subscription boxes.

Yes, subscription boxes are still very popular, with the market expected to see a compound annual growth rate of 18.3% between 2022 and 2027. It reached a total value of $33.7 billion in 2021.

What are the Benefits of Using the Subscription Box Business Model?

There are many benefits to using a subscription box business model. These include the ability to: 

Introduce new products to your audience

Attract more customers with a more affordable price point

Create strong customer relationships

Lower your cost per acquisition

Predict revenue more accurately

Increase customer convenience

How Profitable Is a Subscription Box Business?

The average profit margin enjoyed by subscription box businesses falls between 40% and 60% .

How Do Subscription Box Models Make Money?

Subscription business models can make money through recurring revenue over time. As long as your customer acquisition exceeds customer churn , the business is experiencing growth, and you’re able to make more money. 

If you are already considering moving to a subscription box model, Chargebee is here to help. With Chargebee's subscription box billing software you can eliminate all complexities by automating operations, from checkout to retention, coupons to customer communication, billing to shipping, and taxation to accounting.

Chargebee has the right integrations and platform support to help you increase and streamline your recurring revenue.

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Why a subscription-based business model may be right for your company, june 19, 2023.

examples of business model subscription based

Showing no signs of slowing, the subscription economy is booming. A UBS report revealed that subscription business models could grow from a $650 billion market to a $1.5 trillion market by 2025. While subscription billing is a better fit for some business models and verticals than others, we are seeing an increasing number of industries transition from traditional sales to a recurring revenue business model. 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, let’s look at some common subscription based business model examples.

Subscription Pricing Models: What They Are and How They Work

Many believe that the subscription business model started in the 17th century by newspaper and magazine publishers. In 1638, England’s King Charles I offered British residents a subscription for fire insurance. People didn’t widely understand the concept, so this first attempt at a subscription pricing model was  received poorly and failed miserably.

However, companies recognized the value of offering subscriptions in exchange for goods and services. Within 30 years, many organizations began offering products and services on a subscription basis. This included fire and life insurance companies, trading organizations, financial services, charities and theaters.

Starting in 1881, the theatrophone introduced Europeans and Americans to live streaming of theater performances. From this early subscription based business model example, subscriptions gained traction in both popularity and diversity. Now in the 21st century, the rise in technology and digitization have made this business model popular among traditional pricing organizations.

The subscription business model allows consumers or businesses to pay a set recurring fee in exchange for products or services received on a predetermined basis. This can be weekly, monthly, quarterly, or annually.

Broadly speaking, subscription-based businesses are categorized as business-to-business (B2B) and business-to-consumer (B2C). At a high level, the subscription business model is quite simple. Customers (subscribers) commit to receiving the products or services on a scheduled basis for a fixed price and time.

Let’s explore some of the most popular subscription business models, as well as look at what the future may hold.

Subscription Based Business Model Examples

There’s certainly not a shortage when it comes to examples of subscription-based businesses. Let’s look at a variety of subscription types and the companies that have successfully implemented this pricing model.

Curated subscription boxes

Commonly referred to as ‘subscription’ or curated boxes’, companies in this category use the element of surprise. They deliver boxes to subscribers with an assortment of products they may not purchase on their own. To make sure subscribers receive items they’re interested in, customers typically complete a form that details their preferences.

Over time, this business model enables the company to provide more tailored and personalized boxes. It’s commonly used by beverages (wine, coffee, tea, etc.), clothing retailers, books, toys, beauty and wellness, and home goods verticals – among others. Some companies using this subscription type include HelloFresh, Graze, Decorated, and Shaker and Spoon.

Replenishment

Also known as ‘subscribe and save’, this subscription model offers customers financial benefits for choosing a recurring purchasing plan. These replenishment subscriptions are a natural fit for companies selling to customers purchasing items on an ongoing basis. Think about items such as shaving products (Dollar Shave Club), cleaning products (Blueland), and beauty & personal care (Tamed Wild).

This refers to eCommerce services that only an online platform can provide. Primarily media-based, Amazon Prime Video, Netflix, AppleTV, YouTube Premium, and Hulu are some of the companies using the model.

Software-as-a-Service (SaaS)

One of the most popular subscription-based business models, SaaS companies sell software licenses to subscribers in exchange for access to their cloud-based software. This subscription type spans numerous software offerings – think Salesforce, Slack, Adobe, HubSpot, Microsoft, Zoom, Shopify, and countless others.

A Subscription Evolution is Knocking at the Door

Even amid current economic uncertainties, customers are increasingly shifting from ‘ownership’ to ‘usage’. To meet these changing needs, the following industries are adopting a subscription-based business model:

Accommodations

With properties across the globe and a price that’s easy on the wallet (starting at $330/month), Selina CoLive offers two subscription plans. These are CoLive (30 nights with the ability to switch locations up to 3x a month) and CoLive Flex (30 nights within a 3 month period and the ability to switch destinations up to 5 times).

On the other end of the financial spectrum is Inspirato. They offer a monthly subscription ($1,300 upon sign up) for access to luxury and boutique resorts and hotels, as well as vacation homes. Other lodging establishments that have joined the subscription ranks include Freehand Hotels, citizenM, Banyan Tree Habitat, and Zoku.

Although the subscription model isn’t new to the travel industry, the pandemic provided airlines with a revenue-generating reason to explore (and for some, re-explore) this billing model. Alaska Airlines offers two subscription models – Flight Pass (starting at $49/month) and Flight Pass Pro (starting at $199/month). Frontier Airlines has also joined the subscription economy, offering two plans – Discount Den ($99.00 the first year for new subscribers) and the Go Wild Pass (starting at $299/year, depending on the pass selected).

More recently, Star Flyer , a Japanese airline, launched a subscription plan that provides unlimited travel between two domestic cities for $285/month. What’s next for airlines that are embracing the subscription model? Some airlines may offer subscription flight plans to businesses, expanding this business model to the corporate sector.

Expected to reach nearly $12.10 billion  (CAGR of 23.1%) by 2027 , this traditional business model is actively shifting to a subscription-based approach . Leading the transition are luxury car manufacturers, including Audi, BMW, Cadillac, and Jaguar, as well as rental agencies such as Hertz and Enterprise.

The pandemic, in combination with the increasing cost of education, accelerated the rise of eLearning and this vertical shows no signs of slowing when it comes to offering courses on a subscription basis. In fact, the global market for online learning is expected to exceed $370 billion by 2026 .

Healthcare businesses are exploring how this payment model can be mutually beneficial. For example, instead of consumers relying on a healthcare insurance policy or cash to pay for medical services, the healthcare company charges a flat annual fee that covers preventative care, as well as value-added extras such as concierge services, personal fitness and meal plans, and exclusive access to physicians.

It’s not only traditional billing verticals that are expanding the scope of this business model. Subscription-based businesses are exploring how technology can improve their ability to personalize the customer experience and looking for innovative ways to attract and retain customers. This effort is led by three technologies – artificial intelligence (AI), machine learning (ML), and big data .

These technologies enable subscription-based companies to gain a better understanding of their target market’s needs and interests. In turn, the organization creates focused and hyper-personalized offerings, which ultimately help build long-term customer loyalty.

The Pro’s and Con’s of a Subscription Business Model

Like any business model, the subscription model has advantages and disadvantages.

Subscription Business Model Advantages

  • Delivers a predictable revenue stream:  Its recurring revenue stream provides businesses with a predictable cash flow , making it easier to accurately predict future revenue.
  • Expands target market: Given this business model’s low barrier to entry – payments made weekly, monthly, quarterly or annually – subscription-based businesses have the ability to extend their reach and attract more customers.
  • Lowers customer acquisition costs: Since this business model receives consistent and regular revenue, subscription-based companies spend less on acquiring new customers.
  • Decreases customer retention costs: Not only do subscription-based companies benefit from lower customer acquisition costs but retention costs are also decreased. Customers that pay on an ongoing basis are more committed to a long-term engagement and less likely to churn.
  • Increases sales opportunities: Leveraging up-sell and cross-sell initiatives, subscription businesses have the opportunity to sell new features, upgrade plans, non-core products, etc. to existing customers.
  • Enhances customer loyalty: Since this business model relies on customer retention, subscription-based businesses benefit from building stronger and more loyal customer relationships . Overtime this can increase customer lifetime value (CLV).

Subscription Business Model Disadvantages

  • Competitive landscape: As this business model continues its upwards trend, the playing field gets more crowded.
  •  Subscriber churn: Whether from subscription fatigue, contract aversion, going to the competition, etc., customer churn can have a dire effect on revenue and profitability.
  • Value received: Related to customer churn, subscribers will only stay loyal as long as they are receiving value from the products and services received. This is where keeping offerings fresh by introducing new products, features, services, etc. will help keep customers engaged.

With the pro’s far outweighing the con’s, is a subscription business model right for your organization?

The Hallmarks of a Successful Subscription-Based Business

Although traditional billing model companies are adopting subscription-based business models, some products and services are more suitable than others. Take a look at the following subscription characteristics and the essentials of a successful subscription business. First, ask yourself the following questions.

  • Are the products and services you provide purchased on a regular basis?
  • Do your products and services fulfill a basic or wishful need, are they in high demand?
  • Are the products you sell easy to use and convenient to access?
  • Do your products and services provide extra value to the customer?
  • Can you monetize the extra value provided?
  • Can your products and services be bundled or unbundled to provide a variety of offerings?
  • Can your products and services be easily and reliably distributed/accessed?
  • Will entering the subscription market disrupt your competitors?

If you answered yes to at least some of these questions, let’s uncover what it takes to be successful in the subscription economy.

How to Run a Successful Subscription Business

Having the right products/services fit is just the first step in running a successful subscription business. Aside from operational considerations, there are two essential, equally important elements – pricing strategy and customer service.

Pricing Strategy

To capture and retain subscribers, your pricing strategy must reflect the value of your products and services. It also has to aline with what customers are willing pay, and deliver profitability. The four most common subscription pricing strategies are – value-based, cost-plus based, competitive-based, and demand-based.

When it comes to billing models, there are many option, but here are some of the most common.

  • Subscription billing: Includes pricing models such as freemium, flat-rate, tiered, and per user/per unit.
  • Recurring billing: Encompasses billing models such as by skill set, by service, by asset, and any combination of services.
  • Usage-based billing: This uses billing models like pay-as-you-go, tiered pricing, and volume pricing. It provides the ability to bill based on any aspect of your product.
  • Hybrid billing: Give subscribers the pricing options they want, while maximizing revenue potential with billing models like subscription + one-time fees, subscription + pay-as-you-go, subscription + overage, and multi-part pricing.
  • Dynamic billing: Provides exceptional flexibility in developing distinctive pricing models such as formula-based, time-based, demand-based, and event-based.

Customer Service

The other half of the success equation for subscription businesses is providing exceptional customer experiences. To deliver the value customers expect, you need to provide personalization, convenience, and cost-effective products and services. As these relationships develop, you’ll understand customer needs on a deeper level. Then you can adjust your products and services to meet changing requirements.

Are You Ready to Join the Subscription Economy?

Unlike traditional business models, these subscription based billing model examples show how subscription billing offers exceptional growth and revenue opportunities. Despite some of its inherent challenges like creating accurate bills for this diverse business model, subscription businesses continue to make their mark. Experts believe that by the 22nd century, subscribing to products and services will be the norm rather than the exception.

Sending accurate bills, the first time, every time requires a billing solution built for subscription companies . BillingPlatform, a market-leader in the subscription billing industry, provides a cloud-based solution that enables subscription businesses to support any combination of one-time charges – all on a single platform.

Our complete solution delivers the unmatched agility that enables you to run your subscription business with greater efficiency, accuracy, and control. Are you ready to join the subscription economy? Contact our team to learn how we can get you started or begin a free software trial today .

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6 B2B Subscription Business Models That Have Proven Their Market Profitability

Picture of Igor Krasnykh

Business-to-Business (B2B) subscription business models continue to gain in popularity. With the use of the Magento 2 subscription extension the process is easier and more efficient.

This article is for you if :

  • You want to see data that shows B2B subscription business models are lucrative;
  • You want to learn about the different ways you could start generating recurring revenue;
  • You would like to schedule a strategy session with an e-commerce expert to help determine the best path forward.

During the past decade, subscription commerce companies have experienced tremendous growth and  higher returns on investment. According to the  Subscription Trade Association (SUBTA), the global subscription commerce economy had a compound annual growth rate (CAGR) of 17.33% pre-pandemic and continues to trend up.

SUBTA compares that number to the five-year CAGRs of Apple (9.2%), Microsoft (7.7%) and Amazon.com (20.8%). The numbers are included in the organization’s 2019 State of the Subscription Commerce Economy Annual Report.

The global subscription economy makes up 18% of the $41 trillion credit card processing industry, and SUBTA reports that 75% of direct-to-consumer (D2C) organizations will offer a subscription commerce business model by 2023.

How a B2B Subscription Business Model Works

Just like regular customers who have products delivered to their homes, businesses have recurring needs as well (think office supplies). The products, services and softwares businesses subscribe to on an ongoing basis are B2B, or business-to-business, transactions.

B2C stands for business-to-customer, and that’s when individuals purchase items for personal use. Understanding these unique buying dynamics is key to fine-tuning sales strategies.

Here are a few B2B subscription business model examples:

  • A marketing firm subscribes to the Adobe Creative Cloud to complete graphic design and videography projects in a robust software suite. This is a good example of an online B2B subscription business model;
  • An office has an automatic recurring order of 10 reams of white printer paper that is delivered every month from OfficeMax;
  • A doctor’s office subscribes to a daily cleaning service from Merry Maids.

For perspective, let’s take look at a few examples of popular B2C offerings:

  • A busy mother sets up a weekly grocery pickup order from her local supermarket, which saves her time and stress.
  • A dog owner subscribes to the Bark Box to keep their furry friend loaded up on toys and treats.
  • A health enthusiast receives monthly supplements from a company that delivers automatic order replenishment through a subscription-based business model.

It’s important to know who your target audience is. Because businesses and individuals are quite different markets, the strategy for acquiring and retaining customers will vary.

B2B Subscription Business Model Ideas

With the data-backed potential of the subscription commerce model, more brands are brainstorming ways they can create different types of subscription models in B2B. Below are the six subscription business models to consider in modern business. Each section includes data from SUBTA’s report. 

While this article’s focus is B2B subscription business models, please note that B2C and B2B  subscription business models  work on the same principle of monetization. Therefore, the types of subscriptions below can also be applied to the B2C sector.

1. The Subscription Box

These days, there seems to be a product-based subscription box to fill every need. The dollar shave club delivers razor blades and other grooming products to the doorsteps of more than 3 million customers each month. Nearly 3.5 million girls are eager to see which five beauty products will be included in their monthly Glam Bags from Ipsy.

Subscription businesses have even found ways to deliver their services across species. The Bullymake Box and Kit Nip Box offer special toys and treats for furry friends to enjoy.

When it comes to B2B subscription business models, companies have emerged that provide subscription boxes containing office supplies, snacks and indoor plants. 

Subscription box facts :

  • Globally, there are 7,000 subscription box companies. Of those, 70% are based in the United States;
  • The United States is home to 18.5 million subscription box shoppers, and 35% of them have three or more subscriptions;
  • Men take advantage of subscription boxes more than women. In fact, 42% of them have three or more active subscriptions (compared to 28% of women).

2. Memberships

Membership businesses provide access to their services for a recurring fee. Amazon Prime, Costco, clothing rental companies and fitness centers are examples of businesses that leverage memberships to turn big profits.

When it comes to B2B subscription business models, it’s common to see tiered levels of pricing that encompass small to enterprise-level companies. Some companies even offer special member pricing for certain groups. For example, a B2B subscription business might offer special membership discounts for veteran-owned businesses or non-profits.

Membership facts :

  • Amazon Prime is a well-known membership-based subscription service. With more than 100 million members;
  • Amazon is making a pretty penny on its Prime dues (which cost $119 per year when paid in full);
  • For Amazon, customer memberships are a gift that keeps on giving. The incentives offered with Prime cause members to spend four times more on Amazon than non-Prime customers annually;
  • The same goes for Costco. The membership-only warehouse chain had 90 million members in 2017 who paid $55 for an annual membership, earning them nearly $5 billion in membership fees alone. That does not include all the money customers went on to spend in-store once their memberships were active;
  • The outlook for customer retention is good for successful membership brands. Costco sees an 80% member renewal rate, while Amazon sees 90%;
  • Fitness centers are increasingly reaping the benefits of recurring membership fees. Nationwide, they have enjoyed a 4.94% CAGR during the past five years;
  • There are about 36,000 membership-based exercise facilities in the United States with a total membership count of 61 million;
  • Clothing rental is gaining popularity in the membership arena, with American Eagle, Ann Taylor, and the Banana Republic throwing their names in the hat with StitchFix and Trunk Club. Brands that offer clothing memberships see a 50% customer growth and a 100% increase in total customer spending.

3. Subscribe and Save

Like B2C businesses, B2B subscription business models can offer discounts with ongoing subscriptions. A customer who plans to purchase a product one time may be enticed to enter into a subscription if savings are offered. At least, that is the hope of businesses that offer subscribe and save subscriptions.

While one-time purchase options are still offered, customers can enjoy instant savings if they sign up to receive replenishment products at a lower price. For the customer, the allure of this model is the money that can be saved over the long term. While the average order value (AOV) may be lower, subscribe and save businesses enjoy a higher customer lifetime value (CLV).

Flexibility is a key component of a subscribe and save the business. They often give subscribers discounts, the option to skip a month, and the ability to change products.

Subscribe and save business model facts :

  • Fifteen percent of online shoppers have signed up for one or more subscriptions to receive products on a recurring basis;
  • Home, beauty, fashion, and coffee products have an average order value (AOV) of $30 or less;
  • These categories have a churn rate of 10% (referring to customers who gravitate away from the products);
  • Food, pets, and coffee are among the top product categories that attract high-value customers. These businesses often offer one-time purchase add-ons that increase AOV and are believed to reduce churn rates.

4. Media and Streaming Subscriptions

Subscription-based media is delivered through print, broadcast, and online. While publications were the first businesses to offer subscriptions, news media companies have struggled to keep readership in recent years. That is largely because free information is more readily available online.

While 16% of Americans are willing to pay for online news, 80% do not think it is worth it. Even with the odds stacked against them, The Times managed to turn its digital-only subscription base into a $1 billion business. The newspaper estimates that 62% of its revenue now comes directly from readers. SUBTA says a key strategy for media companies is to provide a valuable service at a low fee where the subscription can be terminated and reinstated at any time.

In the world of B2B subscription business models, a company may pay for a Spotify subscription so they can play ad-free music in their retail store. They may also subscribe to industry-specific programming that they can play on television screens inside their business.

Media and streaming subscription facts :

  • Almost half of the survey respondents subscribed to an online streaming-media service such as Netflix;
  • Once media companies land a subscriber, that person will be more likely to use the service more in order to get the full value;
  • Sixty-eight percent of readers view only one article in a 30-day period, while only 9% view more than five.

5. Digital Subscriptions

Technology has paved the way for digital-only companies to emerge. It has also given traditional businesses an opportunity to expand their offerings with digital products. With 3 billion people using smartphones, businesses have found a profitable opportunity with apps. The on-demand taxi service Uber, for example, is used by more than 8 million people in 400 cities across 70 countries.

In the world of B2B subscription business models, a company may pay for digital training platforms — like LinkedIn Learning — to help advance employee development.

Digital subscription facts :

  • The average person uses 9 mobile apps on a daily basis, spending an average of 2.25 hours a day on them;
  • LinkedIn, which offers its premium services for a monthly fee, grew from 500,000 users to 530 million during a 13-year time span;
  • Digital services are becoming more flexible, with 77% offering multiple plan types;
  • Just 17% of digital services offer monthly subscriptions only;
  • Annual-only plans make up 6% of digital services.

Software as a Service (SaaS)

SaaS describes the subscription-based licensing of software. It’s one of the most common examples of B2B subscription-based business models. With this service-based model, users access programs via a cloud network (rather than installing them on their computers).

As mentioned previously, one example of a SaaS product is the  Adobe Creative Cloud . For a monthly fee, users can access more than 20 creative apps (such as PhotoShop, InDesign, and Premiere Pro). This is of value to customers because purchasing each app individually can cost thousands of dollars. Additionally, subscribers can benefit from real-time updates and feature upgrades.

There are five SaaS business structures used today:

  • Flat-rate pricing:   A single product with a set of features is offered at a set price;
  • Usage-based pricing:   The more a person uses the service, the more they pay;
  • Tiered pricing:   This is used when businesses offer multiple packages with different combinations of features at different price points;
  • Per-user pricing:   The fee structure is based on how many people are using the software;
  • Per feature pricing:   Users pay more according to the number of features they use.

SaaS facts :

  • The median company in the Information Technology sector has a 5-year CAGR of 7.3%;
  • Thirty-four percent of SaaS businesses offer free trial periods;
  • The SaaS segment has seen the lowest churn rate of all the segments with the voluntary churn being 4.04%.

The Key Takeaway

While a one-time payment can bring businesses more money at once, a subscription commerce business model focuses on longevity. Recurring revenue can add up to more customer spending over time. Additionally, B2C and B2B subscription business models help  drive customer loyalty  as users come to depend on the value they provide.

Business is booming in the subscription world as brands get creative with rethinking their processes. Can your business incorporate a subscription commerce model to cast a wider customer net? If so, it’s time to start thinking logistics and infrastructure.

Whether you’re selling in the B2C or B2B subscription space, you’ll need to determine if your revenue will be collected on a weekly, monthly or annual basis. Also, will you provide the flexibility for your customers to conveniently manage their own subscriptions?

Of course, in order to successfully implement automatic order replenishment to your customers, you’ll ned to invest in upgrades to your tech stack. That’s where PowerSync comes in. If you’re a   Magento merchant , or if you use the   Salesforce CRM , PowerSync’s tools can empower your business to manage even the most complex order scenarios.

We invite you to click the button below to set up a risk-free consultation with one of our e-commerce experts today.

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Maximize your profits with recurring revenue business model.

PowerSync can help you maximize your ROI from Salesforce platform business investment:

  • 20+ years of platform experience based on industry and platform best practices;
  • Focused on growing YOUR profits through automation and overhead reduction;
  • Prompt communication and short SLAs.

igor-krasnykh-3-1

Are B2B subscription boxes profitable?

Yes. The B2B subscription business model provides a way for businesses to cater to their customers’ ongoing needs. That equates to a reliable stream of recurring revenue.

How does a subscription business model function?

B2B subscription business models rely heavily on innovative tech solutions (like PowerSync’s Magento 2 subscription extension ) to ensure a seamless customer experience from order to delivery.

What subscription business models mean for sales teams?

Ample opportunities lie within B2B subscription monetization models. That said, sales teams must focus on customer retention more than ever. Nurturing customer relationships, providing exclusive perks and ensuring top-notch support are ways to increase CLV.

What are the best B2B subscription business models?

Accordion When it comes to the best subscription business models for B2B, the answer will vary depending on the type of industry a business falls into. Therefore, you’ll have to do plenty of research surrounding B2B subscription business model facts and statistics. While a subscription box may work well for one company, tiered memberships may be a more lucrative B2B subscription-based business model for another business.

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How to Build a Successful Subscription Business Model

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Hardik Shah

7 min. read

Updated October 29, 2023

Gartner predicted that “By 2020, all new entrants and  80%  of historical vendors will offer subscription-based business models.” And it’s an undeniable fact that most online services come with some sort of subscription package. Everything from software, to digital goods, eCommerce packages, and even newsletter based subscription boxes.

For the information and technology industry, subscription models are now a core business model. They just need to build one great software product that continues to engage the audience with consistently updated functionality. This enables businesses to focus on customer engagement and feedback, rather than juggling multiple product lines.

If you’re  launching your own online business  or need to pivot your  business model , you should consider implementing a subscription service. Read on for a full rundown of how to turn traditional software, eCommerce, or a service-based business into a subscription offering.

  • Why implement a subscription service?

A subscription business model or service provides access to an online platform for a fixed timeframe and price. Typically this involves a range of pricing options that either provide greater flexibility or a  lower price  for a longer investment.

And while subscription models are becoming common for software and eCommerce businesses, there are actually different ways to approach  service and pricing . You see some businesses embrace the model fully and develop their services around the concept. Others take a lighter approach by offering incremental discounts in exchange for regular reordering.

In some cases, the subscription offering is based on curation. Popular brands such as Barkbox and Stitch Fix embrace surprising their customers. Making their knowledge and expertise what people subscribe to. 

Subscriptions can help you better predict growth

No matter your business model, you  should be forecasting  sales, expenses, and cash flow. Opting for a subscription service for your business model can help make this process easier. You have strict tiers of service, obvious introductory offerings to track, and can project growth based on sign-ups, churn rate, and the length of the subscription.

If you offer physical products your list of subscribers combined with anticipated growth can help predict your stock requirements in advance. That way you can avoid holding excess inventory, having to dump product for a lower price, and even not ordering enough to fulfill demand.

  • How to develop a subscription service

Developing a subscription service should look fairly similar to the  business planning process . It involves upfront research, analysis, defining your customer needs, and finally testing and execution. To help you get started, here are the five steps you should consider following.

1. Conduct market research

What can you do to turn your SaaS product into a sustainable subscription plan?

First off, you need to identify  who your target audience  will be. Even if you already have customers, you need to define who will purchase a subscription over a traditional product. This means going back to basics and understanding what your users are actively struggling with.

Once you understand what they’re struggling with, look to adapt those needs into a prolonged service. You’re not just solving an issue for them one time, you’re actively delivering over weeks, months, and years. You need to be sure that you can deliver a solid solution upfront and have enough runway to keep improving over time. 

You’re looking to identify a current problem. Understand how your product/service or a new iteration of it can solve it for them. Then you need to actively anticipate how your customers’ issues will evolve over time in order to layout an updated pipeline for your business.

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2. Conduct a competitive analysis 

Part of your  market analysis  should involve a deep dive into potential competitors. You may already have some in mind or need to conduct a completely new analysis to better understand who you’ll be competing against in the subscription service space.

Software development can be especially competitive. CTOs select their preferred software companies and vendors by referring to websites and online consultations. And since there are hundreds, even thousands of websites available out there, the competition for SaaS businesses is constant.

What you need to be looking for to help define your subscription model, is the opportunity available to you to undercut the competition. Maybe it’s the product itself and the features that are available. Or maybe it’s selling excellent and immediate customer service or a more attractive pricing model.

Look to your competition to see what works and what is a requirement to sell subscriptions in your industry. Then, find ways to differentiate yourself.

3. Define your buyer persona

Buyer personas  are a research-based strategy to segmentize the target audience. It provides an accurate idea of how customers see the pricing and value proposition of products. With subscriptions, you may actually be serving multiple personas.

For example, let’s say you’re launching a software product based-on customer relationship management. This product could have multiple subscription tiers or membership plans. Maybe one tier is inexpensive but only provides access to the core features of your product. But your high-end tier, for a slightly higher price, offers a robust suite of solutions.

Just like that example, it’s likely that you’ll need to define and sell to multiple personas. It’s up to you to understand who these individuals are, what they’re looking for, and how your product can be refined to better serve them.

To get you started, keep in mind that you may be dealing with several of the following individuals:

  • Direct buyer — The owner of the company 
  • Manager / Team lead — Head of a department or team
  • Chief technical officer — Individual in charge of technology investment and far more experienced in SaaS products

4. Connect with your target audience

According to  invespcro , it is five times more expensive to acquire a new customer than to keep an existing one. This means you need to be able to bring in and keep your audience. This is often the most difficult part of acquiring customers. Since it usually takes getting the product in their hands to get them on board.

The best thing you can do is treat sales and onboarding initiatives as the start of a long-term relationship. You want to showcase that you are thinking ahead and wanting to  care for a customer  past their initial sign-up. This can be anything from direct engagement or training to handing them a rough roadmap of future updates, features, and events that they’ll have access to. 

You want to leverage any introductory tiers (such as a free trial) to convert to a monthly or more ideally an annual account, as quickly as possible. Give them access, show their potential using your product, and keep that early engagement up to get them on board.

5. Finalize pricing and product offerings

Product pricing and offerings  are the most crucial component of developing a subscription model. Every SaaS product has certain features and benefits based on different tiers and use cases. But it can be difficult to immediately know what price, as well as what features, you should go with when selling a free, monthly, quarterly or annual membership. 

You can start with the freemium model or subscriptions at discounted prices to attract your target market at first. It entices customers to sign themselves up to access the service. It increases the bandwidth of customer engagement and introduces the product features and benefits crucial for long-term commitments. 

Actually landing on the best price and feature mix probably won’t be a one-time decision. You’ll need to test different price points and features to see what resonates and convert customers. And even when you’ve found a winner, you’ll likely need to update it over time as you add new updates, expand your services or build out more subscription tiers.

  • Closing thoughts

Subscription models are the gateway to consistent recurring income, as well as long-term customer relationships. Work through the same business planning process you used to start your business, but focus on how to promote the continuous benefits of your business. If you can, try to hit these three components:

  • Reliability
  • Performance

Get your technical resources on board and start to build a secure and performant product that offers non-stop reliability. And don’t be afraid to test and iterate. This is a subscription after all, and you’ll need to keep making adjustments to stay competitive. 

Clarify your ideas and understand how to start your business with LivePlan

Content Author: Hardik Shah

Hardik Shah works as a Tech Consultant at Simform — a dedicated team of mobile app developers in Denver. He leads large scale mobility programs that cover platforms, solutions, governance, standardization, and best practices.

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Top 10 Examples of Subscription Business Models

SUBSCRIPTION BUSINESS MODELS

The subscription business model has become famous with the rise of streaming services and weekly produce boxes, but almost anything can be turned into a subscription if you choose a model that’s appropriate for your industry.

When done right, running a subscription business can reduce your customer acquisition costs and make life more convenient for subscribers. Not sure how to generate a monthly recurring revenue with your current products and services? These 10 subscription model examples demonstrate how this business concept can be applied to almost anything.

Access-Based Subscription Model Examples

Subscription businesses that offer access to products, content or software for an annual or monthly fee are a bit like country clubs—if you’re a paying member, you are welcomed in and can enjoy all the exclusive services inside. If you’re not a paying member, you’ll be stopped at the door.

The benefit of access subscriptions for companies is that they can keep monetising old content and tailor new content to the needs of subscribers. Customers can enjoy unlimited content without any maintenance or clutter. Subscriptions can be paid through a payment gateway with a debit or credit card or with a standing order through the customer’s bank.

Streaming Service

The digitisation of media has given rise to streaming services that give subscribers unlimited access to an almost infinite range of media. Gone are the days of the local video store. Now, for a low monthly fee, subscribers have instant access to thousands of movies, music files, videos and audiobooks.

Typically, subscribers need to be connected to the internet all the time to access an online streaming service. However, some subscription services such as Apple Music allow the subscriber to download a wide range of songs to their device for offline listening. These files are then automatically removed from the app once the subscription ends.

Example: Bodyselfie TV

Software as a service (saas).

Software companies started out selling their products on compact discs but many have now shifted to a subscription-based business model. Rather than paying hundreds of Euros upfront for a word-processing program or antivirus, customers are charged an annual or monthly fee in exchange for access to the latest edition of the software with real-time updates, bug fixes and customer support. Subscription software business models are commonly referred to as Software-as-a-Service (SaaS).

To take out a SaaS subscription, the customer will be asked to create an account where they will pay the fee and be given the option to automate billing. Then, after the payment is completed, the download icon will display in a “purchased items” tab next to the subscription order or the customer will be sent an access key. Once the subscription period is up, the customer’s card will be billed again or—if they don’t pay or issue a credit card chargeback —the program will revert to the non-paying version with limited features.

Example: Adobe

Content subscriptions.

Content subscriptions are a little different from streaming services because they’re consumed in more of an “active” rather than “passive” manner. This business model can be used for:

  • Digital publications (magazines, newspapers, emails and academic journals)
  • Sheet music

Once the customer pays, he or she has full access to all previously uploaded books, courses, articles, statistics and games and is sent notifications of new content as it is made. Content subscription business models typically offer a limited version for free, such as sample chapters of books, a limited number of free articles or the abstract (but not full text) of academic papers.

Example: Scribd

Health and wellness subscription.

Health subscriptions started with gym memberships and dental plans and now represent a wide range of services. Some of the most recent health and wellness subscription models combine access to several services to create a package deal, such as 24/7 gym access plus 24/7 doctor access and a monthly or annual session with a personal trainer (“recurring” services combined with “access” services).

Example: Falck

“perks” subscription business models.

Some businesses make money from subscriptions that give members exclusive access to insider discounts and faster service. The kinds of benefits to which members are given access might include:

  • Free shipping
  • Member-only discounts
  • Member-only wholesale pricing
  • Priority service

Example: Amazon Prime

Vehicle subscription.

Luxury car brands have even jumped on the bandwagon with recurring monthly vehicle subscriptions. In contrast to rental cars, which stay with the customer for the duration of the rental, a vehicle subscription gives the customer access to a specified selection of cars—any of which can be used while the subscription is active.

For high-flying business professionals, paying vehicle subscription companies every month means more choice in vehicles and no required maintenance. For a working or middle-class customer, it could mean the chance to enjoy the luxury car experience without having to pay the full purchase price up-front.

Example: Porsche Drive

Porsche Drive “puts the Porsche fleet at your fingertips” with subscription and rental options. The rental price for one day with a classic model is €519 in Germany, up to €5,872 for 14 days with a 911 GT3. In contrast, a monthly multi-vehicle subscription with Porsche USA costs €3,600/Month plus tax and a €595 activation fee plus tax and includes 2,000 miles, seven models, insurance, roadside assistance, vehicle maintenance and free delivery within 20 miles of the dealership.

Repeat Product or Service Business Model Examples

This is the other main kind of subscription business, also known as “auto-ship”. In this business model, the supplier delivers the same product or service to the customer every week, month or at a specified frequency for a regular, automatically deducted fee. Some of these subscriptions feature a varied selection of products and others provide the same selection every time. Many subscription business models now offer the ability to customise, downgrade and upgrade a recurring order from one month to the next.

Curated Subscription Boxes

Subscription box businesses that operate on the model of curation deliver a box of varied products each month to introduce the customer to different brands. These are often health and beauty products but can also include things like clothing items that are sent back and replaced with more. The idea is to delight the customer with variety while saving them time going out and looking for new products themselves.

Example: Birchbox

Replenishment subscription boxes.

Whereas curated box companies promise not to send the same product twice, replenishment box companies intentionally send the same products every single time. Rather than the customer having to go to the store and purchase their favourite products when they run out, replenishment boxes restock the customer’s supplies automatically on a schedule set by the customer.

Example: Dollar Shave Club

Food service subscription.

The food service subscription model is a cross between a curated box and a replenishment box. Each week, each fortnight or twice a week, the company sends the customer a varied box of food based on the customer’s chosen dietary plan. The actual contents of the box (depending on the service) could consist of fresh ingredients together with suggested recipes, pre-prepared frozen meals or a variety of healthy, long-life snacks.

Example: HelloFresh

Repeat service subscription.

Finally, a repeat service subscription model covers businesses like content marketing companies, advertising companies and even cleaning companies that perform ongoing services for clients and bill these services monthly. As long as the client continues to pay, the subscription service continues to be performed.

Because there is a direct business-client relationship and the provider needs to be able to plan their workload, repeat service subscriptions are often more formal—with a minimum contract and early termination fee—compared to something like streaming services or subscription cars.

Example: Cleaners in Europe

How to ensure a successful subscription business model.

If these subscription model examples have given you an idea of how you might develop this model in your own business, make the transition as successful as possible with these tried-and-true tips:

  • Conduct market research. Some businesses work best with subscriptions and others with transactions. Find out which model is most likely to work for you.
  • Know your customer. Subscriptions are founded on customer relationships, so it’s essential to determine your customers’ pain points and needs and continue to meet their needs as these change.
  • Prepare for the bulge in the “fish”. The initial transition to a subscription model brings in more revenue than costs, but this is followed by a period in which costs outgrow revenue as your subscription model expands. Prepare financially for the increase in costs before your revenue once again surpasses your costs.
  • Use an automatic billing system. Subscription-based business models rely on reliable monthly recurring revenue (MRR) processed through a secure international payment gateway. For your subscription business, it’s essential to choose a payment provider that offers a no-fuss recurring billing system and merchant services that help your business grow.

The Right Subscription Model for You

The subscription economy offers abundant rewards to businesses and customers alike when it’s leveraged to its best advantage.

If you have a product or service that customers can benefit from on a regular basis, do your research, build a high-value pricing model and trial the subscription with a small group or specific product or service. Soon, you could find yourself with a growing loyal customer base, a growing MRR and the opportunity to turn your focus to evolution and growth.

5 Subscription Pricing Models, and How to Choose the Right One

Megan O’Brien

  • Once a company decides to pursue a subscription offering, it must make another complex decision: which subscription pricing model to use.
  • Subscription pricing models range from simple fixed-rate to more complex ones that charge by usage and establish tiers.
  • Companies will have to examine their product, market, competition, revenue drivers and more when choosing the best pricing model to optimally monetize their offering.

After thinking it over and analyzing the benefits, your company has decided to create a subscription offering . Congratulations! Now, a follow-up: How exactly will you price your new subscription?

As tempting as it might be to “go with your gut,” that approach will likely prove a less-than-optimal strategy for monetization, as well as for customer acquisition and retention.

Instead, the pricing question becomes three-pronged:

  • Which pricing model should we use?
  • Which pricing strategies can we implement to attract and retain customers?
  • Which pricing method should we use to calculate the price of our product or service?

In the first of our three-part series on pricing subscriptions, we will address the first question of choosing the subscription pricing model that best serves both the company’s and customers’ needs. With models ranging from simple and fixed (e.g., flat rate) to complex and variable (e.g., usage-based), the options allow you to optimize your subscription offering for your target market.

What Is Subscription Pricing?

Subscription pricing is a revenue model where customers pay a recurring fee, typically monthly or annually, for access to a product or service, such as cloud-based software and storage. Subscription pricing provides businesses with a predictable revenue stream.

Subscription Pricing Models

1. flat-rate.

Definition: Flat-rate, also known as fixed pricing, offers users a single price for all features of the offering. Customers are charged the same amount each billing cycle. Simply put: Flat-rate is a single product and a fixed set of features at a fixed price per month.

Best for: companies with a product that has limited features and a single buyer persona. Flat-rate does not work well for companies in which resource costs might vary significantly from user to user, which is why flat-rate pricing does not generally work well for B2B (software-as-a-service) SaaS companies, for example.

Example: A project management tool charges $150/month for the use of its platform. This cost includes unlimited projects and users and every feature the tool offers. This is an instance of flat-rate pricing because there are no other options or levels at which to purchase the tool, nor are there any additional fees.

Advantages of the flat-rate pricing model:

  • Simple to understand, communicate and sell
  • Easier and more predictable billing process, simplifying accounts receivable and other accounting functions.
  • Frees up time for companies to focus on monetization, acquisition and retention instead of tailoring pricing strategy (due to one-size-fits-all approach)

Requirements:

  • An offering that tends to be used in similar fashions and levels across the customer base.

Definition: Packages with various features and product combinations are available at various price points. This allows sellers to segment the prices of their products and services based on specified target markets. Tiers are generally designated as basic, standard and premium.

Best for: Companies that may have many product features and a diverse customer base with varying needs, budgets and usage norms. Tiered pricing is very popular amongst SaaS companies, in particular.

Example: A graphic design software prices its offerings on a tiered plan, in which upgrading your plan means more storage, graphic options and capabilities.

  • Flexible and scalable.
  • Caters to multiple buyer personas by offering multiple price points.
  • Maximizes the lifetime value of the customer, as they have the option to upgrade/downgrade as needs change.
  • Tiers must have enough differentiation to make the value gap between them extremely clear.

Analysis Paralysis in Subscription Pricing

When pricing your subscription offering, it can be tempting to offer customers as many options as possible. However, recall the psychological phenomenon of “analysis paralysis,” which occurs when we’re offered too many options. If a customer starts overanalyzing your offerings, they may choose none at all because the complexity is overwhelming or they fear making the wrong decision.

For that reason, companies often limit their subscription pricing to only two to four options so the customer can choose which works best for them without feeling overwhelmed.

3. Usage-Based

Definition: The usage-based model, also referred to as a consumption model and pay-as-you-go, deviates from our previously-discussed models, as its pricing becomes much more variable. It directly relates the cost of a product to its level of consumption, typically involving a base rate with an additional usage rate.

Think of your cell phone plan and what happens if you blow past your monthly data allowance. Your bill will quickly make clear that you aren’t being charged a fixed, base rate — there’s a usage component. The usage-based subscription pricing model is considered the most flexible for customers, and it tends to be the most complicated for businesses.

Best for: products or services of which customers’ usage is likely to vary widely. Imagine a company with a website that’s mostly for marketing purposes versus one that makes its money on its site.

Example: An SEO tool uses a pricing plan that upgrades to different levels based on usage.

Advantages of the usage-based pricing model:

  • Offers customers the most flexibility.
  • Attracts new customers with the low upfront costs associated with low usage.
  • Heavy users that may require more resources from the business are charged more than less-frequent ones.
  • Companies need to have the capability and resources to monitor usage.

4. Per-Added-Module

Definition: In this model, you’ll price the product based on the functionality offered to your customers. There is a “base product” and the option to add modules for more functionality — at a higher cost.

Best for: Companies with modular functionality that is easily added to their core product — and a customer base that values the ability to choose the functionality it needs.

Example: An architecture, engineering and construction software company offers building information modeling (BIM) and computer-aided design (CAD) products. In addition to the base CAD product, customers have the option to add software offerings to their subscription based on their role (architect, structural engineer, mechanical engineer, etc.) and needs.

Advantages of the per-module model:

  • Product scales with the customer
  • Compensates for features that require more resources from the business to offer
  • Strong upgrade incentive
  • Companies must have multiple modules and higher levels of functionality to offer customers as add-ons or upgrades.

5. Per-User

Definition: A per-user or per-seat pricing model charges customer companies for every user of your product. Pricing scales evenly along with the number of users — the more users, the more you’ll charge. The per-user model is quite similar to the per-license model popularized prior to the era of software subscriptions. Like the per-added-module model, it’s almost always combined with another pricing model. A common variant of this model is per-active-user, in which you’ll only charge for the number of folks at the customer company who are actually using the tool. This can ease the concerns of a customer who’s evaluating your product for a large number of employees.

Best for: frequently-used or heavily-relied-upon products, particularly those that facilitate teamwork or collaboration. For example, if team members at a customer company rely on accessing your product independently, as with a virtual collaboration platform, then they each need their own account and cannot share login information. Per-user pricing inhibits your growth if only a few folks within each customer company use your product — or if it’s easy for individuals to share logins and avoid buying access for more users.

Example: A code hosting platform charges per-user and increases price based on features and functionality.

Advantages of the per-user pricing model:

  • Revenue scales directly with user adoption
  • More predictable revenue generation than something like a usage-based model.
  • A frequently- or heavily-used product that involves multiple users

7 Factors to Consider When Choosing a Subscription Pricing Model

1. your value metric(s).

A value metric, also referred to as a pricing dimension or pricing axis, is the metric upon which your prices are based (i.e., what and how you’re charging). We’ve touched on some value metrics already: Users and features, for example, are common metrics upon which to base pricing. However, some companies may also charge according to metrics like:

  • Subscription length chosen
  • Terabytes of bandwidth available
  • Ticket count received
  • Number of documents created
  • Number of queries received
  • Support representatives assigned
  • Number of support sessions offered
  • Data capacity needed
  • Compute power required
  • Percentage of revenue generated by the product or service
  • Amount of storage used
  • API requests made
  • Number of campaigns run

Consider creating a list of all the axes your company could charge along and evaluating each with the following questions:

Subscription Pricing Terms to Know

  • Pricing Model: The subscription pricing model is the foundational payment structure that a company adopts. Models include flat-rate, consumption-based and tiered.
  • Pricing Strategy: These are strategic actions around pricing that businesses take to support their growth goals. These strategies can help companies gain market share, attract new customers, cultivate brand recognition, etc.
  • Pricing Method: Pricing methods refer to the process a company uses to ascertain the price of its product or service . They include cost-plus pricing, value-based pricing and competitor-based pricing.

Is it predictable?

A value metric needs to be reasonably predictable for both the customer and your company. The customer needs to predict its costs, and you need to predict your revenue. If a marketing system charged by the number of landing-page visitors or submissions, for example, then it could be difficult for a customer or the company to predict charge amounts. However, charging upfront for a certain number of marketing contacts in each tier makes it easy for both parties to track the metric and predict charge amounts.

Is it acceptable to customers?

The value metric should be easy for salespeople to sell and customers to understand; folks won’t pay for a product if they don’t understand exactly how they will be charged. And a small, family business won’t want to pay the same rate as a 10,000-person company using significantly more resources, features and seats.

Is it trackable?

For example, if you charge based on a customer’s revenue, they have to be willing to hand over their financial records — likely a hard sell.

Is it scalable?

Can the model and its respective value metrics apply to both big and small companies – and can it grow comfortably with each? Remember, a subscription model ideally extends the lifetime value of a customer and, in turn, monthly recurring revenue (MRR).

Is it aligned with value?

What do your customers value about your product? Does it justify the price being charged? Which metrics correlate the most with revenue or savings?

Some businesses might find themselves with multiple pricing axes. For instance, in our previous example, the code hosting platform charges per user. However, its pricing tiers are based on the number of actions available, storage volume, and collaboration and security features. The customer will move up the pricing ladder when they need more coding capacity or functionality. Determining these value metrics can help the customer pinpoint which tier will serve them best.

15 Key Financial Metrics & KPIs for Small Businesses : Use these financial metrics and KPIs to shed light on your company’s financial state and its short- and long-term outlook.

2. Time and resources required

You may find that a more complex subscription pricing model requires more time and resources than you’re willing and/or able to spend. The usage-based model is an obvious creator of complexity, as it requires you to track and bill variable components. The less-intensive flat-rate model may make more sense for companies whose subscription offering is a smaller portion of their overall business.

3. Your offering

Many companies will be able to narrow down their subscription pricing model options by considering their offering’s features, add-ons and upgrades. If you have opportunities to upsell or cross-sell your product, the flat-rate model will not be a good option. Other companies may have a product whose use can’t be tracked, rendering a usage-based model irrelevant.

4. Your customer base

Understand what your customers want in a subscription pricing model and which model best reflects that. Study any customer data available, and consider sending a survey or conducting interviews to answer questions like: Are your customers using your software for business or personal tasks? Are your customer companies small or large — or a mix? Do you sell to one or many buyer personas? What do customers value in your product — and how much are they willing/able to pay for it? Do they prefer paying upfront or spreading payments over time? Do they value simplicity or choice when making product decisions? Does usage vary significantly across users?

5. Your competitors

If your competitors have subscription offerings, how are they modelling them? Is there a gap that your subscription model can help fill? For instance, if another B2B company in your industry is gearing itself toward large businesses with its plan, consider implementing a tiered pricing option with the lower tiers geared toward smaller companies that may not need as many features or have as much budget.

6. Your financials

Ultimately, the pricing model you select will need to cover both the fixed and variable costs associated with your offering (plus a little extra if you want to make, you know, a profit). For example, you may find that a flat-rate model doesn’t cover your costs effectively when some users use more resources (support, storage, compute cycles) than others. In that case, a usage-based model may be a better pick to generate healthy margins.

7. The hybrid

As noted before, it is possible to use more than one subscription pricing model — you can combine them to create an effective payment structure. Common hybrids include a fixed-rate fee every month with the addition of a usage-based, pay-as-you go plan or overage additions.

NetSuite Financial Management

Recurring revenue is music to any business’s ears, so it’s little wonder why subscription pricing has become a popular revenue model. That said, subscription pricing can easily overwhelm a finance team because it involves hundreds or thousands of transactions, all of which must be tracked, billed for, recorded, reconciled and much more. That’s where NetSuite Financial Management can help — and not just in the area of revenue management. The cloud-based platform offers real-time visibility into a business’s financial performance and automates complex financial and accounting processes. For example, it streamlines billing activity for different types of pricing models, including subscription pricing, via NetSuite SuiteBilling . SuiteBilling also manages subscription changes, renews subscriptions automatically (with price increases, if applicable) and ensures compliance with accounting standards. In addition, it includes an SaaS Metric Dashboard so that stakeholders can stay on top of key performance indicators, like monthly recurring revenue and customer churn rate, and know that their decisions are based on the most accurate, up-to-date data possible.

The Bottom Line

This first step in the subscription pricing process can be intimidating, but don’t fall victim to analysis paralysis. While it does require much initial research and analysis, pricing is a continuous process subject to revisions as the business grows and markets change. There will be opportunities to tweak your approach down the line. In fact, companies that regularly revisit and update their pricing every six months see nearly double the average revenue per user (ARPU) gain (opens in a new tab) over those who update their pricing only once per year or longer.

Stay tuned for Brainyard’s next piece on maximizing revenue through pricing strategies.

Mark Bianco

For more helpful information from the Brainyard and our friends at Grow Wire (opens in a new tab) and the NetSuite Blog (opens in a new tab) , visit the Business Now Resource Guide .

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Google’s Gemini is now in everything. Here’s how you can try it out.

Gmail, Docs, and more will now come with Gemini baked in. But Europeans will have to wait before they can download the app.

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In the biggest mass-market AI launch yet, Google is rolling out Gemini , its family of large language models, across almost all its products, from Android to the iOS Google app to Gmail to Docs and more. You can also now get your hands on Gemini Ultra, the most powerful version of the model, for the first time.  

With this launch, Google is sunsetting Bard , the company's answer to ChatGPT. Bard, which has been powered by a version of Gemini since December, will now be known as Gemini too.  

ChatGPT , released by Microsoft-backed OpenAI just 14 months ago, changed people’s expectations of what computers could do. Google, which has been racing to catch up ever since, unveiled its Gemini family of models in December. They are multimodal large language models that can interact with you via voice, image, and text. Google claimed that its own benchmarking showed that Gemini could outperform OpenAI's multimodal model, GPT-4, on a range of standard tests. But the margins were slim. 

By baking Gemini into its ubiquitous products, Google is hoping to make up lost ground. “Every launch is big, but this one is the biggest yet,” Sissie Hsiao, Google vice president and general manager of Google Assistant and Bard (now Gemini), said in a press conference yesterday. “We think this is one of the most profound ways that we’re going to advance our company’s mission.”

But some will have to wait longer than others to play with Google’s new toys. The company has announced rollouts in the US and East Asia but said nothing about when the Android and iOS apps will come to the UK or the rest of Europe. This may be because the company is waiting for the EU’s new AI Act to be set in stone, says Dragoș Tudorache, a Romanian politician and member of the European Parliament, who was a key negotiator on the law.

“We’re working with local regulators to make sure that we’re abiding by local regime requirements before we can expand,” Hsiao said. “Rest assured, we are absolutely working on it and I hope we’ll be able to announce expansion very, very soon.”

How can you get it? Gemini Pro, Google’s middle-tier model that has been available via Bard since December, will continue to be available for free on the web at gemini.google.com (rather than bard.google.com). But now there is a mobile app as well.

If you have an Android device, you can either download the Gemini app or opt in to an upgrade in Google Assistant. This will let you call up Gemini in the same way that you use Google Assistant: by pressing the power button, swiping from the corner of the screen, or saying “Hey, Google!” iOS users can download the Google app, which will now include Gemini.

Gemini will pop up as an overlay on your screen, where you can ask it questions or give it instructions about whatever’s on your phone at the time, such as summarizing an article or generating a caption for a photo.  

Finally, Google is launching a paid-for service called Gemini Advanced. This comes bundled in a subscription costing $19.99 a month that the company is calling the Google One Premium AI Plan. It combines the perks of the existing Google One Premium Plan, such as 2TB of extra storage, with access to Google's most powerful model, Gemini Ultra, for the first time. This will compete with OpenAI’s paid-for service, ChatGPT Plus, which buys you access to the more powerful GPT-4 (rather than the default GPT-3.5) for $20 a month.

At some point soon (Google didn't say exactly when) this subscription will also unlock Gemini across Google’s Workspace apps like Docs, Sheets, and Slides, where it works as a smart assistant similar to the GPT-4-powered Copilot that Microsoft is trialing in Office 365.

When can you get it? The free Gemini app (powered by Gemini Pro) is available from today in English in the US. Starting next week, you’ll be able to access it across the Asia Pacific region in English and in Japanese and Korean. But there is no word on when the app will come to the UK, countries in the EU, or Switzerland.

Gemini Advanced (the paid-for service that gives access to Gemini Ultra) is available in English in more than 150 countries, including the UK and EU (but not France). Google says it is analyzing local requirements and fine-tuning Gemini for cultural nuance in different countries. But the company promises that more languages and regions are coming.

What can you do with it? Google says it has developed its Gemini products with the help of more than 100 testers and power users. At the press conference yesterday, Google execs outlined a handful of use cases, such as getting Gemini to help write a cover letter for a job application. “This can help you come across as more professional and increase your relevance to recruiters,” said Google’s vice president for product management, Kristina Behr.

Or you could take a picture of your flat tire and ask Gemini how to fix it. A more elaborate example involved Gemini managing a snack rota for the parents of kids on a soccer team. Gemini would come up with a schedule for who should bring snacks and when, help you email other parents, and then field their replies. In future versions, Gemini will be able to draw on data in your Google Drive that could help manage carpooling around game schedules, Behr said.   

But we should expect people to come up with a lot more uses themselves. “I’m really excited to see how people around the world are going to push the envelope on this AI,” Hsaio said.

Is it safe? Google has been working hard to make sure its products are safe to use. But no amount of testing can anticipate all the ways that tech will get used and misused once it is released. In the last few months, Meta saw people use its image-making app to produce pictures of Mickey Mouse with guns and SpongeBob SquarePants flying a jet into two towers. Others used Microsoft’s image-making software to create fake pornographic images of Taylor Swift .

The AI Act aims to mitigate some—but not all—of these problems. For example, it requires the makers of powerful AI like Gemini to build in safeguards, such as watermarking for generated images and steps to avoid reproducing copyrighted material. Google says that all images generated by its products will include its SynthID watermarks. 

Like most companies, Google was knocked onto the back foot when ChatGPT arrived. Microsoft’s partnership with OpenAI has given it a boost over its old rival. But with Gemini, Google has come back strong: this is the slickest packaging of this generation’s tech yet. 

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How enterprises are using open source LLMs: 16 examples

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VentureBeat and other experts have argued that open-source large language models (LLMs) may have a more powerful impact on generative AI in the enterprise .

More powerful, that is, than closed models, like the ones behind OpenAI’s popular ChatGPT, or competitor Anthropic.

But that’s been hard to prove when you consider examples of actual deployments. While there’s a ton of experimentation, or proofs of concept, going on with open-source models, relatively few established companies have announced publicly that they have deployed open-source models in real business applications. 

So we decided to contact the major open source LLM providers, to find examples of actual deployments by enterprise companies. We reached out to Meta and Mistral AI, two of the major providers of open-source providers, and to IBM, Hugging Face, Dell, Databricks, AWS and Microsoft, all of which have agreements to distribute open-source models. 

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From interviews with these companies, it turns out that several initial public examples exist (we found 16 namable cases, see list below), but it’s still very early. Industry observers say the number of cases will pick up strongly later this year.

Delays to the open-source LLM feedback loop 

One reason is that open source was slow off the starting block. Meta released the first major open-source model, Llama, in Feb 2023, three months after OpenAI released its ChatGPT model publicly in November 2022. Mistral AI released Mixtral, the top performing open source LLM according to many benchmarks , in December 2023, so just one month ago.

So it follows that examples of deployment are only now emerging. Open-source advocates agree there are many more examples of closed-model deployments, but it’s only a matter of time before open-source catches up with the closed-source models. 

There are some limitations to the open-source models in circulation today. Amjad Masad, CEO of a software tool startup Replit, kicked off a popular Twitter thread about how the feedback loop isn’t working properly because you can’t contribute easily to model development. 

But it’s also true that people may have underestimated how much experimentation would happen with open-source models. Open-source developers have created thousands of derivatives of models like Llama, including increasingly, mixing models – and they are steadily achieving parity with, or even superiority over closed models on certain metrics (see examples like FinGPT , BioBert , Defog SQLCoder , and Phind ).

Large public models by themselves have “little to no value” for enterprise

Matt Baker, SVP of AI Strategy at Dell, which has partnered with Meta to help bring Llama 2 open-source AI to enterprise users , is blunt about the close-model limitations: “Large public models on their own have little to no value to offer private companies,” Baker said. He said they’ve become bloated by trying to offer a very generally competent model, but they don’t allow enterprise users to access their own data easily. About 95 percent of the AI work performed by organizations, Baker estimates, is on the workflow needed to infuse the models with that data through techniques like retrieval augmented generation (RAG). And even then, RAG isn’t always reliable. “A lot of customer are asking themselves: Wait a second, why am I paying for super large model that knows very little about my business? Couldn’t I just use one of these open-source models, and by the way, maybe use a much smaller, open-source model for that (information retrieval) workflow?”

Many enterprise companies are building, and experimenting with, open source-based customer support and code generation applications to interact with their own custom code, which sometimes is not understandable to the general closed-model LLMs built by OpenAI or Anthropic, Baker said. Those companies have prioritized Python and other popular cloud languages at the expense of supporting legacy enterprise code.

Other reasons why open-source LLMs deployments are slow off the start line

Hugging Face is arguably the biggest provider of open-source LLM infrastructure, and hundreds of thousands of developers have been downloading LLMs and other open-source tools, including libraries and frameworks like LangChain and LlamaIndex, to cook up their own applications. Andrew Jardine, an exec at Hugging Face responsible for advising companies looking to use open-source LLMs, said that enterprise companies take a while to move forward with LLM applications because they know they first need to consider implications for data privacy, customer experience, and ethics. Companies typically start with use cases they can use internally with their own employees, and deploy those only after doing a proof-of-concept. And only then do most companies start looking at external use cases, where again they go through a proof-of-concept stage. Only at the end of 2023, he says, were OpenAI’s closed-model deployments emerging in bigger numbers, and so he expects open-source deployments to emerge this year.

Still, others say that enterprise companies should stay away from open source because it can be too much work. Calling an API from OpenAI, which also provides on-demand cloud services and indemnification, is so much easier than having to work the headache of support licensing and other governance challenges of using open source, they say. Also, GPT models do reasonably well across languages, while open-source LLMs are hit-and-miss.

The dichotomy between open versus closed models is increasingly a false one, Hugging Face’s Jardine said: “The reality is, most people are going to be using both open and closed.” He mentioned a big pharma company he talked with recently that was using a closed LLM for its internal chatbot, but using Llama for the same use case but do things like flagging messages that had personally identifiable information. It did this because open source gave the company more control over the data. The company was concerned that if closed-model LLMs interacted with sensitive data, that data could be sent back to the closed-model provider, Jardine said. 

Reasons open source will catch up

Other model changes, including around cost, and specialization, are happening so quickly that most companies will want to be able to switch between different open and closed models as they see fit, and realize that relying on only one model leaves them open to risk. For example, a company’s customers could be impacted negatively, Jardine said, if a model provider suddenly updated a model unexpectedly, or worse, failed to update a model to stay up with the times. Companies often choose the open source route, he said, when they’re concerned about controlling access to their data, but also when they want more control over the fine-tuning of a model for specialized purposes. “You can do fine-tuning of the model using your own data to make it a better fit for you,” Jardine said.

We found several companies, like Intuit and Perplexity, which like the pharma company mentioned above, want to use multiple models in a single application so that they can pick and choose LLMs that are advantageous for specific sub-tasks. These companies have built generative AI “orchestration layers” to do this autonomously, by calling the best model for the task that is being accomplished , be it open or closed.

Also, while it can be more cumbersome initially to deploy an open-source model if you are running a model at scale, you can save money with open-source models, especially if you have access to your own infrastructure. “In the long term, I think it’s likely that open source will be more cost-effective, simply because you’re not paying for this additional cost of IP and development,” Jardine said.

He said he’s aware of several global pharma and other tech companies deploying open-source models in applications, but they are doing so quietly. Closed-model companies Anthropic and OpenAI have marketing teams that write up and publicly trumpet case studies, whereas open source has no one vendor tracking deployments like that.

We learned of several enterprise companies experimenting extensively with open-source LLMs, and it’s only a matter of time before they have deployed LLMs. For example, the automotive company Edmunds and European airline EasyJet are leveraging Databricks’ lakehouse platform (which now includes Dolly, a way to support of open-source LLMs ), to experiment and build open-source LLM-driven applications (see here and here ).

Other challenges with defining open-source deployment examples

Even defining bonafide enterprise source examples here is tricky. An explosion of developers and start-ups are building any number of applications based on open-source LLMs, but we wanted to find examples of established companies using them for clearly useful projects. For our purposes, we defined an enterprise company as having at least 100 employees.

Also, the examples we looked for are enterprise companies that are primarily “end users” of the LLM technology, not suppliers of it. Even this can get murky. Another challenge is how to define open source. Meta’s Llama, one of the more popular open-source LLMs, had a restricted open-source license: Only its model weights were leaked online, for example. It did not release other aspects, such as data sources, training code, or fine-tuning methods. Purists argue that for this and other reasons, Llama should not be considered proper open source. (Meta released Llama 2 in July, which opened it up for commercial license, instead of just research, but it still has some restrictions ).

And then there are examples like Writer, which has developed its own family of LLMs, called Palmyra, to power an application that people to generate content quickly and creatively. It has enterprise customers like Accenture, Vanguard, Hubspot and Pinterest. While Writer has open-sourced two of those models, its main Large Palmyra model remains closed and is the default used by those enterprise customers — so these aren’t examples of open-source usage.

With all those caveats, below we provide the list of examples we were able to find through our reporting. We’re certain there’s more out there. Many companies just don’t want to talk publicly about what they’re doing with open-source LLMs or otherwise. An explosion of new open-source LLMs geared for the enterprise has emerged from startups in recent months, including those from Deci and Together’s Redpajama. Even Microsoft, Amazon’s AWS, and Google have gotten into the supply game (see here , here , and here ), and consultants like McKinsey (see here ) leverage open LLMs in part to build apps for customers — so it’s nearly impossible to track the universe of enterprise usage. Many enterprises force providers to sign non-disclosure agreements. That said, we’ll add to this list if we hear of more as a result of this story.

VMWare deployed the HuggingFace StarCoder model, which helps make developers more efficient by helping them generate code. VMWare wanted to self-host the model, instead of use an external system like Microsoft-owned Github’s Copilot, likely because VMWare was sensitive about its code base and didn’t want to provide Microsoft access to it.

The security-focused web browser startup seeks to differentiate itself around privacy and has deployed a conversational assistant called Leo . Leo previously leveraged Llama 2, but yesterday Brave announced Leo now defaults to the open-source model Mixtral 8x7B from Mistral AI. (Again, we’re including this as a bonafide example because Brave has more than 100 employees.)

3. Gab Wireless

The children-friendly mobile phone company, which emphasizes safety and security, uses a suite of open-source models from Hugging Face to add a security layer to screen messages that children send and receive. This ensures no inappropriate content is being used in interactions with people they don’t know. 

4. Wells Fargo

Wells Fargo has deployed open-source LLM-driven, including Meta’s Llama 2 model, for some internal uses, Wells Fargo CIO Chintan Mehta mentioned in an interview with me at VentureBeat’s AI Impact Tour event in SF , where we focus examples of generative AI being put to at work. 

IBM is a provider of generative AI applications that use its own LLMs named Granite, but which also leverage open-source LLMs from Hugging Face and Meta. However, it wouldn’t be fair to exclude IBM from this list of bonafide users that have deployed applications. Its 285,000 employees rely on the company’s AskHR app, which answers questions employees have on all sorts of HR matters, and is built on IBM’s Watson Orchestration application, which leverages open-source LLMs. 

And just last week, IBM announced its new internal consulting product, Consulting Advantage, which leverages open-source LLMs driven by Llama 2. This includes “ Library of Assistants,” powered by IBM’s wasonx platform , and assists IBM’s 160,000 consultants in designing complex services for clients.

Finally, IBM’s thousands of marketing employees also use IBM’s open-source LLM-driven marketing application to generate content, Matt Candy, IBM Consulting’s global managing partner for generative AI, said in an interview with VentureBeat. While the application was in proof-of-concept last year, it has been rolling into deployment for specific units across marketing, he said. The application uses Adobe Firefly for image generation but augments that “with LLMs that we are training and tuning to become a brand brain,” Candy said. The app understands IBM’s persona guidelines, the brand’s tone of voice and campaign guidelines, and then creates derivatives of the content for sub-brands and the different countries IBM operates in, he said.

6. The Grammy Awards

IBM also yesterday announced a deal to provide the Recording Academy, owner of the Grammy Awards, with a service called AI stories, which leverages Llama 2 running on IBM’s Wastonx.ai studio, to help the organization generate custom AI-generated insights and content. The service has vectorized data from relevant datasets around artists and their work so that the LLM can retrieve it through a RAG database. Fans will then be able to interact with the content.

7-9 Masters Tournament , Wimbledon , and US Open :

IBM helps all of these organizations generate spoken voic e commentary, as well as find video highlights, of relevant sports events using open-source LLMs, IBM’s Candy said. The IBM technology helps these sports event companies call out key things like plate facial gestures, and crowd noise to create an excitement index throughout a competition. 

10. Perplexity

This hot startup, which is taking on Google search by using LLMs to reinvent the search experience , has only 50 employees but just raised $74 million and feels almost inevitably on its way to getting to 100. While it does not meet our definition of enterprise, it’s interesting enough to merit a mention. When a user poses a question to Perplexity, its engine uses about six steps to formulate a response, and multiple LLMs models are used in the process. Perplexity uses its own custom-built open-source LLMs as a default for the second-to-last step, said employee Dmitry Shevelenko. That step is the one that summarizes the material of the article or source that Perplexity has found as responsive to the user’s question. Perplexity built its models on top of Mistral and Llama models , and used AWS Bedrock for fine-tuning.

Using Llama was critical, Shevelenko said, because it helps Perplexity own its own destiny. Investing in fine-tuning models on OpenAI models isn’t worth it because you don’t own the result, he said. Notably, Perplexity has also agreed to power Rabbit’s new pocket-sized AI gadget R1, and so Rabbit will also be effectively using open-source LLMs via Perplexity’s API.

11. CyberAgent

This Japanese digital advertising company uses open-source LLMs provided by Dell software, to power OpenCALM (Open CyberAgent Language Models), a general-purpose Japanese language model that can be fine-tuned to suit users’ needs.

Intuit, provider of software like TurboTax, Quickbooks, and Mailchimp, was early to build its own LLMs models, and leverages open-source models in the mix of LLMs driving its Intuit Assist feature , which helps users with things like customer support, analysis and task completion jobs. In interviews with VB about the company’s GenOS platform , Intuit exec Ashok Srivastava said its internal LLMs were built on open source and trained on Intuit’s own data.

13. Walmart

The retail giant has built dozens of conversational AI applications, including a chatbot that a million Walmart associates interact with for customer care. Desirée Gosby, vice president of emerging technology at Walmart Global Tech, told VentureBeat the company uses GPT-4 and other LLMs, so as to “not unnecessarily lock ourselves in.” Walmart’s efforts began, Gosby said, by using Google’s BERT open-source models, which were released in 2018.

14. Shopify

Shopify Sidekick is an AI-powered tool that utilizes Llama 2 to help small business owners automate various tasks for managing their commerce sites, such as generating product descriptions, responding to customer inquiries, and creating marketing content.

This U.S.-based talent-matching start-up uses a chatbot built on Llama that interacts like a human recruiter, helping businesses find and hire top AI and data talent from a pool of high-quality profiles in Africa across various industries.

16. Niantic

The creator of Pokemon Go launched a new feature called Peridot which uses Llama 2 to generate environment-specific reactions and animations for the pet characters in the game.

[ Update: 12:04pm 1/29/24. Clarified that IBM Granite LLMs are not open source ]

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License Calculator for VMware Cloud Foundation, VMware vSphere Foundation and VMware vSAN. (96426)

VMware by Broadcom has created a license calculator to familiarize users with  the new simplified subscription portfolio with VMware Cloud Foundation (VCF), VMware vSphere Foundation (VVF) and VMware vSAN. This calculator can be used to simulate different licensing scenarios. Before using the calculator, refer to KB Article 95727  to learn about the licensing details for VCF, VVF and vSAN.

The License Calculator for VCF, VVF and vSAN allows users to enter in sample configuration data to run different simulations to determine the subscription licenses required for VCF, VVF and vSAN.

How to use the License calculator  Prerequisites:

  • Download the attachment and extract the CSV template file and script.

The script accepts a CSV file, which a CSV template file has been included to enter data for different configurations for simulations.  When using the template CSV file, please note the following rules:

1.    Do not rename the column ID as that is referenced by the script. 2.    Each row represents either a vSphere and/or vSAN cluster.

Enter in data for each of the column ID in order under each row. See column ID descriptions and data examples in the table below.

Instructions for using the VCF/VVF Calculator # Dot source the function . ./vcf-vvf-calculator.ps1 # Example calculator for VCF Get-VCFandVVFCalculator -InputFile sample-input.csv -DeploymentType VCF # Example calculator for VVF Get-VCFandVVFCalculator -InputFile sample-input.csv -DeploymentType VCF # Example calculator for VCF and export results to CSV Get-VCFandVVFCalculator -InputFile sample-input.csv -DeploymentType VCF - Csv # Example calculator for VVF and export results to CSV Get-VCFandVVFCalculator -InputFile sample-input.csv -DeploymentType VVF - Csv

Output Example Here is an example output after running the License Calculator for VVF and vSAN and the table below describes each of the columns in the VVF Compute and vSAN sections. Note the bottom of the output shows the total quantity of VVF core and vSAN TiB licenses required. VCF with vSAN Capacity Licensing Example:

image.png

  • VMware vSphere ESXi
  • VMware vSAN
  • VMware Cloud Foundation
  • VMware vSphere ESXi 8.0
  • VMware vSphere ESXi 7.0
  • VMware vSphere ESXi 6.0
  • VMware vSAN 7.0.x
  • VMware vSAN 6.0.x
  • VMware Cloud Foundation 5.1.x
  • VMware Cloud Foundation 4.5.x
  • sample-input
  • vcf-vvf-calculator.ps1

People are totally going to be fooled by OpenAI's new video tool 'Sora'

  • OpenAI has launched a new tool, Sora, that generates AI videos based on user text.
  • It's currently in beta with safety experts and a limited group of creators.
  • But the first — admittedly hand-picked — results look eerily realistic.

Insider Today

AI-created images are about to get a lot more real-looking.

On Thursday, OpenAI showed off a new tool called Sora that can generate strikingly realistic videos based on users' prompts.

The videos created by Sora can be up to a minute long, and can consist of "complex scenes with multiple characters, specific types of motion, and accurate details," the company announced .

In addition to text, Sora can also generate videos from still images and "extend" existing videos — including the ability to "fill in missing frames," according to OpenAI.

The product is initially rolling out to red teamers (experts in fields like misinformation, hate, and bias,  who work with OpenAI to improve product safety) as well as "a number of visual artists, designers, and filmmakers to gain feedback," according to the company.

(Star YouTuber MrBeast seemingly joked about being concerned by the tech , and asked whether he was going to lose his job)

OpenAI shared several impressive examples of Sora's capabilities, including a video of a woman walking in the neon glow of Tokyo streetlights, wooly mammoths galloping through the snow, an aerial view of a church on the Amalfi Coast, and a cartoon monster curiously kneeling before a melting candle.

That said, the company also acknowledged the nascent tool's weaknesses, including faultiness when "simulating the physics of a complex scene" and not understanding "cause and effect" — like, for instance, a cookie that appears whole after someone's taken a bite.

The model also mixes up left and right and struggles with descriptions of events that take place over time, OpenAI said.

Before rolling out widely, OpenAI also said it's drilling down on safety by building tools to detect videos that Sora generated, and rejecting prompts that request violence, sex, hateful imagery, celebrity likeness, and third-party-owned IP.

"We'll be engaging policymakers, educators, and artists around the world to understand their concerns and to identify positive use cases for this new technology," the company said.

examples of business model subscription based

Watch: Face-swapping videos could lead to more 'fake news'

examples of business model subscription based

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  1. Subscription Business Model: 10 Amazing Industry Examples (2022)

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  2. Subscription Business Model: 10 Amazing Industry Examples (2022)

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  3. Subscription Model For Online Business: All You Need To Know

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  4. The Subscription Business Model Complete Guide

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  5. Types of Subscription Business Models & How They Work

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  6. 4 Subscription Pricing Models and Which is Best For Your Business

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VIDEO

  1. Types Of Business Model Discussion in this Video // Business Model Discussion

  2. Types Of Business Model Discussion in this Video // Business Model Discussion

  3. Types Of Business Model Discussion in this Video // Business Model Discussion

  4. Business Model 101: Outlining Your Company's Economic Viability

  5. Types Of Business Model Discussion in this Video // Business Model Discussion

  6. Types Of Business Model Discussion in this Video // Business Model Information

COMMENTS

  1. Subscription Business Model Defined, How It Works, Examples

    Subscription business models can include a variety of companies and industries. Those industries include cable television, satellite radio, websites, gyms, lawn care, storage units, and many more ...

  2. The Complete Guide to Subscription Business Models in 2022

    The subscription business model is based on selling products and services for an agreed fee on a regular and ongoing basis. Customers are typically charged weekly, monthly, or annually. ... Today's most popular subscription-based business model examples include Amazon Prime, Netflix, and Spotify. However, the membership economy is not limited ...

  3. What's a Subscription Business Model & How Does It Work?

    A Subscription Business Model Will Help Your Business Grow. This is just a small taste of the industries benefiting from a subscription-based business model. With a little creativity and the right plan, you may find that this approach leads to happier customers and greater retention rates for your business as well, allowing you to grow ...

  4. Subscription Business Model: 10 Amazing Industry Examples

    2. Fitbit. Fitbit subscription ...

  5. 6 Examples of Subscription-Based Business Models

    To illustrate this, and to better help business owners and entrepreneurs understand the potential of this structure, we have highlighted six key subscription-based business model examples below: 1. Adobe. Previously, consumers were invited to purchase Adobe's Creative Suite (including Photoshop, InDesign and Illustrator) for a one-time fee of ...

  6. The Best Examples Of Subscription Business Models

    The Best Examples of Subscription Businesses. ClassPass - members get access to over 30,000 fitness studios around the world, so they can try different classes at a wide range of gyms. Apple One - A bundle of Apple's six most popular services (TV+, Music, Arcade, iCloud+, News+, and Fitness+) for one monthly price.

  7. Subscription business models in 2023: Definition, benefits, tips

    A subscription business model is one in which customers are charged a recurring fee for access to a product instead of a one-time expense. This recurring fee is often paid monthly or yearly, and the customer is often given the choice of which frequency to purchase at. The subscription revenue model helps you capitalize on the compounding value ...

  8. 7 Surprising Industries Turning To Subscription Business Models

    Get the full report. Over the last few decades, industries everywhere have begun to adopt subscription business models. Netflix subscriptions have replaced DVD collections, and Spotify has taken the place of CD shelves. Meanwhile, companies like Blue Apron, Dollar Shave Club, and Stitch Fix deliver everything from dinner to dresses straight to ...

  9. Business model by subscription: 11 examples analyzed

    Subscription-based software: the dawn of a new era. The introduction of the subscription model has turned the software world upside down. While perpetual licenses were still the rule 10 years ago, all software vendors have turned to subscriptions to increase revenue and better control usage.This has been made possible by the advent of the Cloud and SaaS.

  10. Subscription business model

    A membership-based business can be considered to be an example of a subscription business model. Memberships have all the advantages of subscription business models , but place a greater focus on customer retention using strategies such as giving access to membership privileges, premium positioning, product development, and leveraging an online ...

  11. The Subscription Based Business Model

    This article covers the ins and outs of subscription based business models, ranging from pros and cons to various examples and how to measure success through different metrics. Definition. In the subscription business model, customers have to pay recurring fee at a continuous interval to receive access to a product and/or service. ...

  12. The Subscription Business Model Complete Guide

    Simplified anatomy of subscription-based business models. With the subscription-based business model, customers or members pay a set amount each week, month, or year, and in return, they get a product or service in exchange.. Today the subscription-based business model has become the standard for many tech companies.. From Netflix to Spotify and Amazon Prime, the subscription-based business ...

  13. The Ultimate Guide to Subscription Box Business Models

    The project management SaaS product Trello is a great example of a subscription-based business that uses a freemium model effectively. Trello allows users to use its service for free for as long as they'd like. But if you want to integrate the service with the other tools that you're using, you'll have to upgrade to a paid subscription.

  14. Subscription Business Model- What Is It, Examples, Pros, Cons

    The subscription-based business model offers customers access to products or services regularly in exchange for a regular payment, typically billed monthly or annually. Moreover, It helps to create word-of-mouth publicity, monthly or yearly recurring revenue , and loyal customers to a business.

  15. Top Subscription-Based Business Model Examples

    Examples: Subscription box services and content subscriptions. 2. Replenishment Subscription Model: Meeting Essential Needs. Constituting about 32% of the market, the replenishment model is designed for products in frequent use. It is ideal for products with a high consumption frequency, ensuring customers receive essentials on a consistent ...

  16. Subscription Based Business Model Examples

    The subscription business model allows consumers or businesses to pay a set recurring fee in exchange for products or services received on a predetermined basis. This can be weekly, monthly, quarterly, or annually. Broadly speaking, subscription-based businesses are categorized as business-to-business (B2B) and business-to-consumer (B2C).

  17. 6 B2B Subscription Business Models That Have Proven Their Market

    SaaS describes the subscription-based licensing of software. It's one of the most common examples of B2B subscription-based business models. With this service-based model, users access programs via a cloud network (rather than installing them on their computers). As mentioned previously, one example of a SaaS product is the Adobe Creative ...

  18. Subscription Business Model Canvas

    The subscription business model is a powerful tool for a company's growth strategy. This is because it is a business model that benefits from recurring and predictable revenue. ... They are some of the most famous companies that apply the model, including Netflix, for example. These businesses are based on offering content and the experience ...

  19. How to Build a Successful Subscription Business Model

    Then, find ways to differentiate yourself. 3. Define your buyer persona. Buyer personas are a research-based strategy to segmentize the target audience. It provides an accurate idea of how customers see the pricing and value proposition of products. With subscriptions, you may actually be serving multiple personas.

  20. Top Subscription Model Examples for Business Inspiration

    These 10 subscription model examples demonstrate how this business concept can be applied to almost anything. Access-Based Subscription Model Examples Subscription businesses that offer access to products, content or software for an annual or monthly fee are a bit like country clubs—if you're a paying member, you are welcomed in and can ...

  21. What Is a Subscription Business Model? An In-Depth Guide

    This model isn't just about providing; it's about nurturing - ensuring that customers consistently receive value through regular updates, additional content, or the latest features. A subscription business model shifts the focus from a singular sale to sustained customer relationships, prioritizing retention over acquisition.

  22. 5 Subscription Pricing Models, and How to Choose the Right One

    Subscription Pricing Terms to Know. Pricing Model: The subscription pricing model is the foundational payment structure that a company adopts. Models include flat-rate, consumption-based and tiered. Pricing Strategy: These are strategic actions around pricing that businesses take to support their growth goals. These strategies can help companies gain market share, attract new customers ...

  23. What Is a Subscription-Based Business Model?

    What is a Subscription-Based Business Model? Built upon the concept of receiving a product or service for a set monthly (or annual) fee, the subscription-based model is nothing new; magazines and newspapers have relied upon it for decades, after all. A flexible model, it has been adopted in numerous sectors, including: Retail - Companies such ...

  24. How to Create an Expert Business Model: A Detailed Guide

    This model has long been popular for service-based businesses, but many product-based businesses selling monthly subscription boxes are getting into this business model as well. Some examples of businesses using this model include BarkBox, Netflix, Massage Envy, Stitch Fix, QuickBooks, Spotify and Dollar Shave Club.

  25. Google's Gemini is now in everything. Here's how you can try it out

    Finally, Google is launching a paid-for service called Gemini Advanced. This comes bundled in a subscription costing $19.99 a month that the company is calling the Google One Premium AI Plan.

  26. How enterprises are using open source LLMs: 16 examples

    For example, a company's customers could be impacted negatively, Jardine said, if a model provider suddenly updated a model unexpectedly, or worse, failed to update a model to stay up with the ...

  27. License Calculator for VMware Cloud Foundation, VMware vSphere

    # Example calculator for VVF and export results to CSV Get-VCFandVVFCalculator -InputFile sample-input.csv -DeploymentType VVF - Csv. Output Example Here is an example output after running the License Calculator for VVF and vSAN and the table below describes each of the columns in the VVF Compute and vSAN sections.

  28. People Are Going to Be Fooled by OpenAI's New Video ...

    The model also mixes up left and right and struggles with descriptions of events that take place over time, OpenAI said. Before rolling out widely, OpenAI also said it's drilling down on safety by ...