Choosing The Right Subscription Model For Your BusinessNatalia Persin
Subscription-based selling has proven highly effective for perishables, clothing, media, SaaS, and more. The key to replicating this success lies in choosing a subscription business model that suits the goals of the company and the needs of the users.
Some companies offer a full host of features for a flat rate while others have tiered subscriptions that grant new features as you increase the payment amount. Free accounts or pay-per-use accounts make sense in some applications but not in others.
Read on to find out everything you need to know about how subscription models work and which ones work best in different scenarios so you can make a more informed decision about how your company renders services to its customers.
Basics of Subscription Commerce
Innovations in consumer tech, user design, information architecture, and last-mile transportation all enable subscription commerce. As smartphones, laptops, and wearable tech became more sophisticated and widely available simultaneously, a greater number of people started using them to shop. UX and IA technology grew to support the vast catalogues at the big eCommerce sites like Amazon.
As all of these developments converged into a robust internet shopping industry. Eventually, it wasn’t just one-off items like books and electronics that people were buying online. Daily and weekly goods like dry goods and cosmetics were being bought regularly and suddenly people were making orders at eCommerce sites multiple times a month.
Enter the subscription model. Used for decades by newspaper and magazine companies, subscription-based business offers access to goods and services for a fixed rate paid weekly, monthly, or yearly. At first, the subscription business model stayed within the media, brought to the fore by entertainment companies like Netflix.
Technology then enabled Netflix to start streaming movies and TV shows on demand. Soon, their flagship DVD-by-mail service was out of the spotlight and users were paying for access to the entire library.
While a key part of the mechanism that powers subscription commerce, access without ownership isn’t always part of the business model. Clothing services like Stitch Fix and personal items like those delivered by Dollar Shave Club are meant to be kept by the recipient. Digital products, especially streaming media and SaaS, focus more on access.
It makes sense to assume that subscription-based business works better with necessities that draw comparatively less selectivity than more sophisticated items. But in the past few years, we’ve seen many companies demonstrate that even premium goods thrive on the subscription model. Wines and cigars attract customers just like dog food and groceries do.
Some companies like Hello Fresh have managed to introduce premium ingredients to a new customer base. Produce and other ingredients that many first-time users wouldn’t look for at the grocery store are included in the meal plans they deliver to subscribers. Other companies include surprise items in their deliveries to expand the taste and scope of their users.
Coffee brewing companies send rare roasts, cosmetic companies use exotic ingredients, clothing made with high-quality fibers and unique styles get mailed out – the list goes on. Pick a subscription-based business operating on the market today and you’re bound to see them making a push toward premium and exclusive ingredients. But you won’t see the same types of subscription models.
Types of Subscription Models
The original way of structuring subscriptions is straightforward enough: pay the fee and you get the product. It started with newspapers and continues to be useful for magazines and boutique publishing outlets today. But even these companies have seen that one magazine or journal isn’t enticing enough to get people paying subscriptions.
They’re offering back issues and access to their entire database of articles and publications. Print editions cost extra, but the digitized versions are often included with a subscription. This is one of the most important features of subscription-based business – users want to be able to decide how they use a product and they only want to pay for what they actually use.
Here are some of the most common types of subscription models companies are using to give users the ability to engage with their brands and products in whatever way makes the most sense for their lifestyles:
- Flat-Rate Pricing
This is the original subscription model. For a defined price, users get all the features of a service and unlimited use of that service. It’s perfectly suited to newspaper and magazine publishing where every subscriber wants and receives the same features. They want to receive the publication and access to back issues and there isn’t a higher feature level to offer.
However, many businesses are getting away from this flat-rate pricing so they can give users more options. Streaming services have limited the number of simultaneous screens or the maximum number of user profiles as well as stream quality to enable more people to have access and make premium services more lucrative.
- Tiered Pricing
Offering different subscription levels is called a tiered system. Common delineations are between basic, intermediate, and pro packages, although some companies expand them to more premium levels.
Choosing tiered pricing is best for businesses whose users have varying needs. For example, many SaaS companies have selected the tiered model because customers don’t always need the full package. A sole proprietorship doesn’t need as many users as a 100-person company but both can get access to the same digital tools with a tiered subscription.
The trick to tiered pricing is to make the more premium tiers worth paying for. If the features aren’t meaningfully different, people are going to stick with the most basic package. It’s effective for most SaaS companies but might not be for a streaming platform whose main purpose is to grant access to its music library.
Delivery companies and SaaS have both found success with a per-use subscription model. People don’t always access a service on a fixed schedule and a standard per-month subscription price might be too expensive for the amount that they would need the product.
We know what you’re thinking – isn’t pay-per-use exactly what people avoid with a subscription? In one sense, that’s true. But that’s not quite how this subscription model works.
Users are generally allotted a certain number of uses for their subscription and are also given the opportunity to top up if they exceed that number. It works very well for cloud-based software and B2B platforms where companies particularly don’t want to overpay.
Pay-per-use is often tiered according to the number of uses included. Some companies don’t require a regular payment but allow users to become members just by engaging their services when they need it. Watch out here, though. If your company can’t monitor how many times users access the service, this structure is not for you.
As opposed to pay-per-use, larger operations might prefer to pay for users. This is a good way for the provider to keep costs down while still giving the customer what they need.
Particularly useful in B2B applications, pay-per-user lets client companies save money when they’re small and scale easily as they grow. As more employees need access to a platform, the company can easily bring them in and plan costs easily based on the provider’s subscription system.
- Module Subscription
If a company wants to offer additional features of the product rather than adding uses, they can break up their product or service into modules. This looks kind of similar to a tiered system except it’s for features that are entirely separated and notably different from each other.
One good example is a B2B legal software platform. The initial module might include case management and time tracking. The next level might add completely new services like research tools or CRM capabilities. Modules that a law firm doesn’t need can simply be left off.
Some companies do blend tiered and module subscriptions. They add on features that could be contained in a module with each new tier. A true module subscription model will present new services as their own add-ons without asking the user to advance to a higher tier.
- Freemium Subscription
A freemium product allows subscribers to use some features for free and pay if they want to upgrade to more. Streaming companies that allow you to listen with ads and pay for an ad-free subscription are operating on a freemium model. Software that has a wide use-value and name recognition may also leave some basic functions available for free online.
The freemium model isn’t without its difficulties, though. For one thing, you have to be sure that people use the product enough to eventually start paying for it. Occasional music listeners or video viewers aren’t going to move out of that freemium stage we mentioned earlier.
Advancing to a paid subscription should also involve a noticeable difference from the freemium stage. Getting rid of ads is a plus for users, but if your ads are making the free level unbearable, users could abandon the platform altogether.
Make sure the free or basic stage showcases your product and hints at how much better it is at that first subscription stage. Consider unlocking some functions for a limited period so users can see them in use and hopefully be enticed toward a paid subscription.
Choosing Between Types of Subscription Models
A subscription-based model can be extremely beneficial for companies and users alike. Users can often pay less and get just the features they need while businesses can support all their services without having to spread costs around to every single user.
But you can lose out on these benefits with the wrong subscription offerings. Decision-makers have to know the company and its users inside and out to make sure the subscription model matches the way people use (and want to use) the product.
That’s why user research is so important. Digital platforms frequently use user flow analysis to see how people move through the site or app and where they see hangups. Not only can you put user flow analysis to see what pages are most effective at getting people to the subscription button, but you can also get information about the way subscribers are using the service.
Say user flow analysis demonstrates that people are spending more time on the price plan section than on browsing the catalog of service offerings. That would seem to indicate that your product or service is already well-known enough for people to want to subscribe and the main inhibitor is either the subscription offerings, the pricing, or the amount that people will be able to access services compared to what they pay.
User flow analysis also shows what people do right after they log in and right before they log out. Behavior can be separated into categories by user location and the device they use to access the app or website. This behavior is one of the best clues about how and why people become subscribers.
In addition to user flow analysis, you can also ask for feedback directly from customers to see what they want. Understand the basics of user research and hire a UX designer if you need to. Don’t forget to consider what support is needed from the company for the various types of subscription models, either.
Types of Subscription Models From the Company Side
Some of these subscription models require more oversight than your company can reasonably give. Even if you have the workforce, setting them to monitor how many times users access resources might not be the best way to spend time on the clock.
Although technology has advanced to the point where artificial intelligence and software can probably detect the number of uses without constant human oversight, that sort of tech might not be in the budget for now. You don’t want to jump the gun – it’s always better to have room to grow and actually get there than to exceed your resources and hinder growth.
Consider the kinds of services you’re offering as well. Is it something with modular products or is it a vast library of content that people want to access? If you’re working on delivering products to people’s doorsteps, how often will they need them? Perhaps more importantly, will you be able to change your product so that they stay subscribed, or is it a low-interest product that they’re going to need regardless?
A full understanding of the product or service the way users see it is imperative for keeping subscribers. After all, the lasting revenue stream that subscription-based business can create will only exist if subscribers stay subscribed.
Long-Term Relationships & the Subscription Business Model
Pivoting toward the subscription business model changed the way many designers approach UX. It’s no longer the case that sales, marketing, and the user journey can be tailored to a one-off exchange. People are looking for a solution to a recurring problem more frequently.
That’s why branding and the user experience have become even more important. The experience lasts indefinitely and companies must be able to provide it long-term.
Luckily, having committed users via the subscription business model makes contacting them for feedback much easier. You can also see what users are accessing over time and study such behavior to make their experiences better and better. As people stay subscribed for longer, their connection to the brand will increase.
Of course, that relies on a continued positive experience. Changing the subscription model to suit changes in your users or increased possibilities on the company side could keep the experience fresh and maintain your subscriber base.
Another possibility that many companies are still falling behind on is a social element. Many sites allow people to discuss their experiences on various platforms with other people on the internet but most subscription platforms are sorely lacking in such socialization tools. A forum or activity list would be a good tool to start with.
Subscription models allow people to use products in the way they want to and just as much as they want to. Repeated purchases like groceries aren’t the only times when a sustained subscription makes things easier, either.
Everything from streaming sites to premium products like wine or social media like dating apps works better for both the user and the provider with the right subscription model. Use the information in this guide to help choose the right subscription model and make the user experience at your company more flexible and personalized.