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Making Money as a Subscription Based Business

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The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedMay 20222 min read

Subscription based models are becoming an increasingly popular way for businesses to operate nowadays. Just take a look at some of the biggest players in the tech world, such as Spotify and Netflix, many of whom charge their customers a regular subscription fee. Many other companies, such as those offering Software as a Service (SaaS), also make use of a subscription model.

You might be wondering how this works. What is a subscription based business model, exactly? Just as with any kind of business, there are many different factors to take into consideration when starting a subscription-based service. Keep reading to find out more about how the process works, and whether it’s a good idea for your company.

What is a subscription based business model?

The basic concept of a subscription based model is simple. Essentially, you offer goods or a service to your customers on a regular basis in exchange for regular payments. Generally, these payments are monthly, but you can also choose to bill quarterly, annually or on any custom schedule.

The core idea of a subscription based business is to focus on customer retention. Customers make multiple payments over a longer period to have access to goods or services, rather than making a large upfront payment.

Subscription based business model examples

There are a huge number of different businesses in different sectors that are offering subscriptions to their customers nowadays. Thanks to increasingly accessible technology, subscription models are more and more common in all industries.

Some of the most common subscription based business model examples include streaming platforms, such as Spotify, Apple Music, Netflix and Amazon Prime. However, many subscription based businesses also offer physical products to their customers, such as cosmetics or food. This works best for perishable items, or those that run out and require replacing regularly.

Benefits of subscription based business models

Subscription-based services offer many benefits to both business owners and customers. First of all, they are convenient for the customer, who only has to make a one-time agreement and provide their payment details in order to regularly receive their favourite products or services. This makes it a great way to improve your customer satisfaction.

What’s more, a subscription model can also be a good way to attract new customers. Since a huge, one-off payment can put off new customers, offering them the same products or services at a lower, monthly cost can encourage them to make a purchase. A monthly payment is often easier to budget than a large, upfront one.

For the business owner, a subscription based model offers a higher level of security. With regular payments coming in each month, you can make better predictions of future revenue and generally ensure a better cash flow, allowing you to make investments in other business areas.

How to create a subscription based business model

The first step towards a subscription based model should actually be to consider whether it’s right for your business. Consider whether you sell products or services that customers need to continually access, such as software, or if you sell physical items that regularly need replacing. In these cases, a subscription model could be right for you.

Think about your goals, such as what revenue you want to generate and the types of customers you want to attract. Based on this, you can build a pricing strategy, perhaps including different levels that allow customers to pay more for premium features.

Make sure that your user experience is efficient and easy to use. Customers are unlikely to sign up for a subscription service on a website that feels dated or confusing. Related to this, it’s a good idea to offer a wide range of payment options so that customers can quickly and easily provide their details.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.