Reading time: 5 minutes
In the last 10 years, companies have changed the way they do business. They are now transitioning into new business models where subscriptions and memberships are key.
From Netflix to Amazon, companies are built to maintain constant engagement with customers. Why is that? For companies that offer subscriptions, it is crucial to not only provide a good product at a low price per month; but it is also essential to rethink the way they deliver and capture value from customers.
Many companies are now doing subscriptions and memberships, so what's really the difference between a subscription and a membership model?
In a subscription business model, a customer pays a recurring price to access a product or a service for a certain period of time. A membership model gives customers access so they can obtain discounts on products or services.
Even though it is common to hear these two terms treated as synonyms, they are not.
Many memberships are exclusive to each store and have benefits for customers sometimes without paying for the membership. Members may also have access to other members, making it better for them to feel like they are in a community.
Memberships could also involve paying a store or an organization for being a member of it and having some services or privileges for a particular period like in gyms.
Fit For Free is an example of a membership model, in which customers pay to become members of the gym.
Membership models work on:
- Members plans that can go from standard to gold and price ranges also change depending on the plan.
- It is possible to have monthly, quarterly, and yearly memberships.
- Discounts and special promotions are offered depending on the membership.
In a subscription business, you can charge customers for whatever product they have signed up for, and they have a billing period in which companies charge them depending on their contract and the frequency for the subscription (if it's monthly, quarterly, by usage, or yearly).
Porsche passport is an example of Porsche's subscription model in which you can subscribe to one of its vehicles.
Companies can offer memberships without subscriptions, just by having members registered in your community without paying anything. This way, you can have loyal customers attracted to product discounts and offers from you.
In the same way, companies can also offer product subscriptions without a membership. Subscriptions mean recurring revenue for your company as customers will pay you as long as their contracts state so. Subscriptions are also a great way for customers to access your products with a low barrier as they will initially pay less than the total product price.
What is better to have; a subscription or a membership?
Suppose you are a PaaS, rental, or lease business, and you want to offer your subscriptions plus a membership. In that case, it will be ideal as you'll start having loyal customers, and what you offer can vary depending on your product. A combination of both is ideal and can bring enormous benefits to your subscription business.
People have no problems paying for a subscription if they feel like they are paying a fair price for a product they like.
We are shifting from a product era to an end of ownership area.
In a linear world, it's all about acquiring new customers, shipping products, and billing a one-time transaction, meanwhile in a subscription world, is all about the relationships and to make subscribers feel a different subscription experience that is built around the services that offer customers a way to solve their needs.
A subscription gives customers access to a product or a service for a period of time, while a membership means being a member of a store and organization or a group.
Advantages of the subscription business model:
Robbie Baxter, an expert in the subscriptions and membership model (her clients include Microsoft, The New York Times, and Asics), mentions that most organizations are attracted to a subscription model for at least one of the following reasons:
- Having direct communication and relationships with customers.
- Predictable revenue for the business.
- Improved customer data.
Customers are different and have unique changing needs, so if you are trying to sell one-size-fits-all packages that lock customers into long-term contracts, you will lose, and customers will go somewhere else at some point.
Customers have now the freedom and ability to get what they want when they want it, regardless of where they are.
Subscription companies need to focus on customer relationships as they need them to continue growing to earn money. With subscriptions, you can understand your customers better based on their preferences while creating lasting and meaningful relationships with customers.
When to use a subscription model?
The good news is that it works well regardless of your company size. Some industries like consumer goods, food, furniture, retail, software, and entertainment are actually leading the subscription business. Any type of business that benefits from having a long-lasting relationship with its customers and does not rely on geographical restrictions or that wants to expand can use a subscription model for its products or services.
Moreover, there is an increasing tendency of customers subscribing to products instead of buying them. They want to access experiences and products that are relatively expensive in an affordable way.
Subscription businesses are based on providing digital experiences incorporating software and service to their products. Almost every subscription plan works digitally nowadays.
Subscription businesses are based on:
- Recurring billing and automated payments for providing seamless digital experiences to subscribers.
- Offers various subscription plans depending on the customers' needs and the time they want to have the membership.
- Monthly, quarterly, usage, and yearly options are ideal depending on the business to acquire new customers and retain old ones.
Subscription boxes are another way of offering subscriptions. Subscription boxes deliver the product in a nice box that sometimes includes a surprise for subscribers and shipping systems (like return labels).
Birchbox is a beauty Subscription Box where people can subscribe to receive their favourites beauty products every month.
3 tips for subscription businesses
Part of having a successful business model is having the right strategy and tools in hand to manage your subscriptions. We are sharing 3 tips to manage your subscription business.
1. Start by defining your goals early in the process
First, understanding what you want to accomplish with a subscription? Do you want to expand to international markets? Generate recurring revenue or reach different types of customers? Define your goals when adopting a subscription business model to ensure you build the best pricing strategy and customer experience.
2. Have a billing and subscriber management software in place
Once you start scaling and growing with your subscription business, it is crucial to have a billing and subscriber management software that can help you handle complex processes involved in billing and managing your subscribers.
Offering the best service possible is an essential factor for having a successful subscription business; that way, you make sure your customers won't suffer in the billing process once you start scaling.
3. Plan for growth before it happens
There are certain metrics to track when you have a subscription business. These metrics are the MRR, the churn rate, ARR, and others to make adjustments as your company starts growing. Without this knowledge, you can't properly track what is working, and when you have sustainable growth. If you don't have the proper infrastructure in place, you'll handle a lot of administrative work and run the risk of not providing the best customer experience.
Subscription business work as a way to generate recurring revenue for your company while in a membership, a person pays (or not) to be a member or a club, organization, or store.
Depending on your business and your strategy, you can offer subscriptions without offering memberships or offer both to increase your customer retention and offer some other perks. If you are looking to start your subscription business, start by defining your goals early in the process, have a billing and subscriber management software in place to reduce your administrative load and offer the best customer experience to retain subscribers in the long term.