I read the news from the New York Times over my coffee every morning. I listen to a Spotify playlist on my way to work. I take a pilates class at a local gym twice a week. I watch Netflix on the weekends. I order things off Amazon Prime all the time.
What do these things have in common? They’re all subscriptions I pay for.
Subscription business models are beneficial for many organizations because they encourage customer success and improve buyer retention. Nowadays, subscription models are used in nearly every industry, and many businesses have been using a subscription-based revenue model for years with much success.
The good news? Your company can, too.
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In this post, I’ll discuss what a subscription business model is, how it works, and the benefits of using this model. Then, I'll list a few examples of subscription models that you can use as inspiration for your business.
Table of Contents
- Benefits of a Subscription Business Model
- How to Build a Subscription Model
- What Is a Subscription Business Model?
- How a Subscription Model Works
- Types of Subscription Models
- Examples of Subscription Business Models
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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 subscriptions 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, I think 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.
In the next section, we’ll learn a little bit more about how this business model works.
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.
I like to 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 as long as the customer completes their recurring payments. When the contract is up, the customer has the option to renew or cancel their subscription.
Growing in popularity, the subscription economy is projected to grow to $1.5 trillion by 2025, with 75% of B2C businesses employing this model.
The diagram below illustrates what this looks like:
A great example is my local newspaper. While I can buy newspapers individually, I opt for a subscription (like most who read them). That way, I get a newspaper delivered to my front door for a fixed rate, rather than having to go to the store to purchase one. (I know, I know — most people read the news online nowadays, but I think it’s also great to support your local newspaper.)
Now, I’ll discuss the different types of models a subscription-based business can adopt.
Types of Subscription Models
SaaS Subscription Model
Best for: Software that customers continuously use and that is often updated.
Software-as-a-service (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 instead of a one-time purchase for software that you download to your device. 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, which I find helpful as an end-user.
Subscription Box Business Model
Best for: Companies selling physical products that are replenishable or curatable.
Subscription boxes have become a very popular type of business model. Every month, customers receive a box filled with either various consumable products or specialty items.
For the former, think hygiene and beauty products, cleaning supplies, consumable home goods, and pet food. Customers go through them on a regular basis and always need more at regular intervals, so subscribing to have these goods brought to their homes is super convenient (Amazon Subscribe & Save is an excellent example). These replenishable subscriptions make up about 32% of all subscription boxes.
For the latter, think of items related to a specific category or hobby that can be curated for your customers. For instance, fashion, specialty teas or coffees, craft supplies, self-care boxes, and collectibles. These curated boxes make up 55% of the market, with 15% of the subscription box industry focused on specific hobbies — so you can definitely find a niche to capitalize on.
The combined cost of the items in the box 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.
Cratejoy is a great example of a marketplace for selling subscription boxes, with something for everyone — and I mean, everyone!
Streaming Service Subscription Model
Best for: Media sold over the internet.
Another very common type of subscription, streaming services grant users access to things like movies, television, and music for a monthly price. Gone are the days of having to pay for individual DVDs and having your movie or music choice limited to your physical collection.
The benefit of this model is that consumers can access all of the entertainment content they need whenever and wherever they want for a fixed price. I think streaming services are so popular because they give viewers access to far more content than what they would’ve owned otherwise, and they don’t have to bother with storing physical DVDs and CDs. Netflix alone has around 277 million subscribers in 2024, and Spotify has 236 million premium subscribers.
Food Service Subscription Model
Best for: Meal kits and food deliveries.
Although similar to subscription boxes, I think food boxes deserve their own mention since they are unique and popular — and very profitable, predicted to increase by 33% over the next four years, hitting $19.52 billion by 2028.
If you‘re looking to mix up your dining routine, then you might consider a meal kit 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 directions needed to make a home-cooked meal — even if you don't have any cooking experience.
In addition to meal kits, food boxes offer tons of variety, from pre-packaged snacks and treats to fresh fruits and vegetables, from cuts of meat to cocktail ingredients and baking supplies.
Membership Subscription Model
Best for: Access to physical spaces and exclusive services or to exclusive online communities.
A membership subscription is often associated with a physical space, where people pay annual or monthly membership fees to participate in a gym, a swimming pool, a club, or even a wholesale store. In the online world, membership subscriptions can offer access to exclusive content, communities, or experts, requiring a fee for entry.
If your business offers an exclusive physical or virtual space, implementing a membership subscription is an ideal way to have clients pay for access. Discounts for annual payments or offering a free trial is a great way to get people interested and committed.
Content Subscription Model
Best for: Selling access to continuously produced content.
Are you selling content? A subscription model is a great way to keep getting paid for the content you produce — and for customers to keep benefiting from that content — whether it’s a news site, a blog, an audiobook subscription, a podcast, or a learning platform.
It’s harder to convince people to pay for a single piece of content, so selling access to the source from which they can keep benefitting is appealing. Content subscriptions often offer a freemium tier or free trial so people discover the value that’s being offered and then convert to paying customers.
Usage-based Subscription Model
Best for: Quantifiable services that allow users to pay for what they actually use.
Usage-based subscriptions charge customers based on how much of a product or service they use within the billing period. While utilities like water and electricity are classic examples of usage-based subscriptions, Cloud services, email/messaging services, and some software products are examples of how online companies can take this approach.
The benefit of this model is that there is a low barrier to entry and high customer satisfaction, knowing that they pay for what they get.
Let's explore the 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.
I am busy. People are busy. And, if we can get a product (that we like) delivered when we need it, with little to no effort on our part — sign us 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 time and money by 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 I can purchase boxes of snacks from around the world. With this subscription, I have discovered new favorite snacks that I never even knew existed.
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, I think 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. This is especially relevant in 2024, when consumers are still trying to survive a tough economy and are tightening their budgets.
Think about buying a car. When I purchased my first car out of college, I couldn’t pay for it outright, so I got a loan that put me on a payment plan where I paid incrementally over time. This allowed me to afford the cost of the car, even though I couldn’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. Businesses that use a subscription model have fairly high retention rates, with home goods, personal care, and beauty holding the top places.
Now that you know the benefits of a subscription business model, I’ll walk you through the steps you can take to build one for your company.
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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, I suggest you first 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.
Word of warning: Just because many businesses are successfully employing the subscription-based model, it doesn’t mean every business should use it. Seriously consider whether this model is best for your business and your customers or if another revenue model would be more beneficial.
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 decrease customer churn.
Depending on your goals, you’ll choose a pricing structure that can help you attract the clients you want to retain. I think 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.
In 2023, 52% of businesses that sell subscriptions charged a flat fee for their service, making it the most popular model, while the good-better-best pricing strategy took second place.
Pro Tip: Check out these subscription billing software tools to make collecting payments simple.
4. Improve the user experience to get more sign-ups.
Signing up for a subscription package should be easy, straightforward, and simple. Trust me, 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 homepage and above the fold, like HubSpot does below:
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, I recommend you provide 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:
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 I recommend 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.
Get started accepting payments with HubSpot's payments tool.
I recommend having 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 subscriptions.
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 that’ve launched profitable subscriptions.
Examples of Subscription Business Models
Subscription Box Example: Little Passports
Little Passports is a subscription box service that sends kids activity boxes each month filled with the supplies and directions to complete a project. You can select your subscription based on theme and age, but you don’t know what exactly will show up in the box each month.
Themes include science, baking, crafts, exploration, and animals. A subscription makes a great gift for the children in your life to help them tap into their creativity, sense of wonder, and desire to learn.
Streaming Service Subscription Example: Hulu
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 Example: HelloFresh
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.
When I subscribed to HelloFresh, I loved how it saved me time doing the prep work since all of my ingredients were measured and prepacked when I received the box. Plus, I got to change up my go-to recipes with new, exciting meals.
Health and Wellness Subscription Example: Yoga International
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.
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 Example: HubSpot
All of HubSpot‘s products are offered on a subscription basis. And, this makes sense 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 and customers benefiting from a subscription-based business model. When I stop and reflect on it, it amazes me how seamlessly I have transitioned to the subscription-based model in so many aspects of my daily life. And the stats show how popular it is for both businesses and consumers.
However, not every business, product, or service works well with a subscription model. Sometimes, I really just want to buy what I need when I need it and not feel locked into a commitment I made months ago (along with 63% of people).
This doesn’t mean you shouldn’t use this revenue model. It just means you need to be sure you’re providing value that your customers find worth subscribing to. Plus, I suggest you give subscribers the option to pause or cancel at any time without penalty to make them feel more comfortable signing up.
So I encourage you to consider carefully whether this is the best model for your product or service. 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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