What is the Subscription Monetisation Model?
Before we dive into “what the subscription monetisation model is,” let us first do a recap of what Startup Monetisation means, just like we defined in our previous article. It is the process of generating revenue from a startup business.
It is as simple as that.
There are different monetisation models but we will focus on one of the most common of them, which is the Subscription Monetisation Model.
Back to the initial question, “What is the Subscription Monetisation Model?”
A Subscription Revenue (another word for monetization) model is a business model that is focused on generating revenue by charging customers a recurring fee that is processed at regular intervals.
The subscription model form of monetisation is not new, it has been in existence since the 17th century and has been used across different industries.
However, recently, more and more companies are shifting to a subscription business model.
It’s simple: the subscription monetisation model benefits both customers and companies.
Customers enjoy the convenience of auto-renewals and having access to an offer/service for a low ongoing investment.
Meanwhile, the companies offering subscriptions can scale with confidence, with predictable revenue and deeper business-customer relationship.
This recurring fee is often paid monthly or yearly, and the customer is often given the choice of which frequency to buy at.
What are the benefits of the subscription model for your Startup?
Benefits of the Subscription Model
Subscriptions will surely continue to be an important revenue model for most startups now and in the future.
Here are a few interesting benefits of the subscription model and reasons why startups should be using subscription models to grow their recurring revenue.
1. Lower retention spends
With a subscription-based business model, startups are able to keep a greater number of clients over the long term.
The model allows for possible upgrades and expanded revenue from current clients, generating a continuous flow of revenue from this set of clients as long as their needs are met and issues resolved.
2. Helps foster better relationships with customers
Another benefit of a subscription-based startup revenue model is that it helps companies get closer to their customers.
Customers need to be engaged with, either before or after subscription renewal or across a variety of platforms.
As a result, there’s an excellent chance to develop meaningful conversational ties with customers/users.
3. Better financial forecasting
Another benefit of a subscription model is that it enables the company to precisely forecast its future or expected revenue.
Subscriptions can assist startup firms with estimating their revenues based on the number of current paying and potential customers. With this, a suitable budget for marketing can be set, for example.
Besides that, investors may also find a predictable cash flow attractive.
4. Provides opportunities for upselling/cross-selling customers
Subscription-based plans offer flexibility, meaning they allow the startup to offer different features for different prices.
As a result of the above-stated benefits, now more than ever, many businesses are adopting different subscription models. With the subscription monetisation model in place, there's a guaranteed supply of incoming revenue.
Common Subscription Model Examples
1. Subscription Box Business Model
A subscription box business model is becoming increasingly popular among startups. This works by sending a box containing a variety of products to customers.
The box could be sent out daily, weekly, monthly, quarterly or yearly.
Subscription renewal is the backbone of profitability for this business model. You want to ensure your customers renew their subscriptions and continue to receive your products on a regular basis.
2. Food Service Subscription Model
This is similar to the subscription boxes, but with added value. It provides access to niche products like selections catered toward different types of diets.
This model sees subscribers get delivery of either ready-to-eat food or pre-measured ingredients to make specific meals.
Along with this, they’ll also get printed and/or digital recipe cards containing instructions and cooking tips.
3. Streaming Services
Content and music services are the best examples of subscription-based businesses. Netflix, Boomplay and Spotify are businesses that have successfully leveraged this model for their growth.
4. Software Subscription Model
The software subscription model allows subscribers to have access to the latest and greatest software immediately it is released, rather than waiting for the next major release.
Microsoft and other leading software companies have adopted this model of revenue generation for their business.
5. Magazine Subscriptions
This has to be the oldest type of subscription-based business model, as it has been in existence even before the adoption of digital magazines/platforms.
Now, what companies who adopt this model do is deliver magazines either in print or via digital means. Either way, the concept remains the same.
Customers who want to stay informed about the latest news and discoveries are always willing to pay a recurring fee to get access to the latest info.
6. Health & Wellness Subscriptions
This is mostly used by health and fitness businesses, where they provide health and fitness services for a monthly subscription fee. This can be access to fitness guides or routines and so much more.
This works well because it lowers the initial investment risk for those who may not be sure they'll stick with the fitness plan.
Tips for Growing Your Subscription Business
1. Make your subscription process easy
Everyone likes it when they can easily navigate through a website/application without help. Make sure you avoid your users navigating through a lot of pages and entering their details multiple times before they can purchase a product or subscribe.
No one likes to spend hours on a website trying to figure things out, making your website as easy as possible to use for both new and existing members should be a top priority.
Make sure your customers know how your service works, from end to end, and try to streamline the subscription process. Everyone wants it easy and fast.
2. Develop strong customer relationships
You need to constantly strive to build a strong relationship with your customers because without doing this, you'll be losing customers continuously and replacing them will cost you more.
Customers who aren't happy, or who are not constantly being reminded about the value of your product or services won’t stick around.
Focus on retaining customers for as long as possible by fostering these relationships.
3. Calculate willingness to pay
One mistake most startups that adopt the subscription model make is that they usually focus on charging more and focus less on their customers' willingness to pay.
You need to understand your customers’ paying ability for similar products or services and then use that to optimize your pricing.
4. Use a freemium subscription model to acquire new customers
The Freemium model is a great way to bring in customers to the top of the funnel (.ie. Acquisition) plus it gives you more time to nurture new customer relationships.
Whether your business is about people getting groceries and other retail products in a subscription box, or maybe you provide access to thousands of films and TV shows, or you provide a platform where they can stream millions of songs; the positive impact of the subscription model is clear.
As a new startup, you can adopt the subscription revenue model, as customers need to subscribe if they want to continuously get value from your product and service.