What is the subscription economy?

The subscription economy talks about how people move away from owning and renting things. Fourth Industrial Revolution and the general use of digital services mainly cause it. It has its roots in the fact that cloud technologies are everywhere and digital infrastructure can be expanded.

The subscription economy has two main types of business models: those based on spending and those based on subscriptions.

When buyers use consumption-based pricing, they only pay for the goods or services they use when they use them. This works best for companies that provide on-demand services with different needs, like cloud computing and cell phone data.

• Consumption-based pricing: With consumption-based pricing, customers pay only for the services or products they use when they use them. This works best for businesses that offer on-demand services with wildly varied usage needs, like cell phone data and cloud computing.
• Subscription-based pricing: In a straightforward subscription model, customers pay a flat rate for a bundle of services or products they can access anytime. Businesses that offer products or services with consistent usage needs, like software-as-a-service (SaaS), video streaming platforms, and meal delivery services, benefit most.

Before that, there wasn’t a good reason to sign up for anything. Many people and companies had the goods and services they needed because everything had a clear purpose.

On the other hand, it is much easier, cheaper, and more efficient to receive information or services without actually owning them. When software became scalable, it eliminated all the problems with ownership, like buying, maintaining, and switching between goods.

In this way, digital subscriptions are software-based. Without progress in cloud computing, giving people instant access to online services for a set monthly fee would not be possible.

Synonyms

• Subscription business growth
• Subscription trends

Statistics on the Subscription Economy

In the early 2000s, there was only one company. By 2025, it’s expected to have grown to $1.5 trillion. Take a look at how far the subscription business has come.

• About 45% of the $1.5-trillion subscription market comprises cloud services.
• The market for online subscriptions is growing faster than 65% per year and will be worth more than $900 billion by 2026.
• Subscription income has grown 437% in the last ten years, 4.6 times faster than the S&P 500.
• The market value of all digital membership services is $15 trillion.
• US consumers paid $430 more on subscription services yearly in 2021 than in 2018. This is a 15% rise from 2018.
• A whopping 98% of people have at least one streaming service.
• Millennials usually have 17 subscriptions to different types of information.
• By 2030, the SaaS market will be worth $908.21 billion worldwide.
• Almost all businesses use at least one SaaS provider.

A report from 2022 on subscription business says that subscription companies have gained 31% more customers since the previous year. Since monthly recurring revenue (MRR) has also increased across the board, this shows that people are becoming increasingly interested in the membership model and the chance to make a steady income stream.

How the subscription business model has changed the way people buy things

The start of the subscription economy is a massive change for both companies and customers. Businesses can offer their goods and services to customers in whole new ways with the help of new technology.

But this also means that customers have changed.

The customers now have higher standards.

Brands gain a lot from the information they get from subscription services. They use them to keep customers (or people who might buy) interested and loyal by sending them relevant content and deals.

It’s been going on for a while, though. B2B and B2C customers have come to expect personalized, smooth experiences from the time they sign up until they are billed and delivered.

There are times when those standards can’t be met.

Businesses have become more customer-focused thanks to technological improvements (like automation) and the ability to make things more personal through contracts.

Still, 90% of customers expect a smooth experience, no matter where they interact with your business. And 86% would stop trusting a company after two or three bad experiences.

Customers’ demands seem endless, but businesses can only do so much. It’s almost impossible for companies to keep clients and give them exactly what they want 100% of the time, no matter how much information they get from them.

Buyers want value right away.

A good value for the price was given by 62% of people who answered a McKinsey subscription poll as the main reason they would sign up for a subscription service.

Many different things affect how a business defines value (or how its users define it), but the main idea stays the same.

A pricing plan probably won’t be enough to get people to buy, mainly as people get used to deals. Quality and range of items and experiences across all touchpoints, as well as helpful and friendly customer service, are now the main things people look for in a subscription service.

Companies usually give their customers value by giving them a freebie product or a free trial period. So they can try the product without any risk before buying it.

There is a paradox of choice that works against them.

Customers can usually pick from dozens of services that are very much the same. They have a hard time choosing because there are so many possibilities.

This thought is called the “Paradox of Choice,” which means that “having too many options can be overwhelming and, ironically, make a person less satisfied or happy.”

There are a lot of options, so the playing field is level. No one company has too much of the market. But it also puts a lot of pressure on businesses to be different and give customers something extraordinary without making their lives harder.

That means businesses must be flexible and quick to respond to customer needs if they want to stay in business. This would be hard enough without all the payment options.

Pros of running a business based on subscriptions

There are some problems with the subscription business plan, but companies that use it are better able to meet customer needs and provide value.

Let’slet’s at some of the best things about the subscription plan.

Revenue You Can Expect

Subscriptions that last a month or a year are much better for businesses than one-time sales because they get paid by each customer regularly.

It’s It’ser for businesses to predict growth and cash flow when they have recurring income. They can make intelligent plans for future investments like marketing efforts, product development, or a go-to-market strategy if they have more information about how much money they make.

How to Scale

Businesses that offer subscriptions don’tdon’t to keep looking for new ways to make money because they already have one. Since they have a steady monthly cash flow, they can put their money into growth projects instead (as long as they can keep their customers).

Investors are very interested in recurring revenue plans because of this very trait. A membership business can expect eight times as much money as a one-time sale business.

More money over the lifetime of a customer

Regarding CLV, subscription businesses are ahead because they can keep track of how many times a new customer comes back. Then, they can use this information to improve their goods, give customers a better experience, and send more relevant ads.

Also, selling doesn’te goods for most software platforms doesn’t make sense.

One-time purchases used to be possible for Adobe Photoshop, for example. The company now gives it as part of their Creative Cloud subscription. This means that customers pay the same amount each year for the subscription services as they would have for owning the product outright.

On the other hand, it runs on cloud technology and is automatically updated.

How to Keep Customers

It costs five to seven times more to get a new customer than to keep an old one. The machinery for sales and marketing is very pricey and hard to expand.

Companies that focus on keeping customers have an edge because their customers are committed for a certain amount of time, so they don’t have to spend all of don’t time and money on getting new ones.

Plus, businesses can access helpful information about users that can help them choose what products to make and how to sell them in the future. They also give their customers better goods, services, and experiences while focusing on keeping them as customers.

Not too hard to get in

Getting into somIt’selds and using some business models is more complex than others. However, the technology that powers the subscription economy has made it easier than ever for businesses in any field to make money from subscriptions.

Ten years ago, building a SaaS MVP for less than $100,000 would have been impossible because the costs and difficulties of development, testing, validation, and release were too high.

With no-code platforms, cloud infrastructure services like AWS or GCP, and Environment-as-a-Service (EaaS), you can build and test a simple app for less than $1,000 in just a few days, even if you don’t know how to code.

As don’tubscription market has grown, it has also given content marketers new ways to make money, like email updates and weekly or monthly podcasts. These aren’t precisely subscriptionaren’tces, but they’re still good examplesthey’re the subscription economy has made it easier for business owners to make money without spending a lot of time and money.

Opportunities to cross-sell

People are still willing to buy one-time items. They’d be happy to pay a suThey’dtion provider to help them set up their service, do some consulting work for them, or buy an add-on plugin for their existing service.

Companies should monitor this trend and develop plans to exploit cross-selling opportunities.

On the other hand, they should also look for ways to upsell since customers are often willing to pay more for better service or extra features.

Simple to Spend Money On

People can easily plan their budgets around recurring payments because they know exactly how much they’ll have to pay each mothey’lld users can better keep track of their spending when they make payments instead of making one-time repeat purchases.

Plus, customers who use the service often can easily explain paying the monthly fee rather than hundreds of dollars at once.

How businesses can make more money in a subscription economy

The subscription economy makes it easier for new businesses to start up because it is very scalable and has a high customer retention value. Because of technology, running costs are lower (very low for startups), and businesses don’t have to go after new don’te as much. Instead, they can focus on keeping the customers they already have.

This doesn’t mean it’s “easier” doesn’tsense it’s “t soun”s. Focusing on retention, automation, and operating efficiency allows more businesses to make more money, but it’s much harder to do.

Finit’st what the people want.

A lot of data is available, making it easier than ever to find out what customers want in the subscription economy.

However, these needs are more complicated because buyers want more than just the goods. They want to be a part of an experience. Some of their needs won’t have anything to do wwon’tow it works.

Even though there is a gold rush in SaaS and other similar industries, most new subscription businesses fail because:

• I don’t think their product fdon’the market
• Don’t help their clients foDon’tbits or workflows.
• I can’t figure out the right can’t
• They can’t make their methods becan’tor more automated.
• Get stressed about how hard it is to keep their customers and get new ones simultaneously.

The best thing for a subscription service is customer data. You can use it to track how people use it, find usage trends, and improve your messages.

Make things easy and convenient.

Every customer wants things to be easy and convenient throughout their journey. Among these are:

• How to buy or sell something. Getting or canceling a contract shouldn’t be hard. Any subsshouldn’tbusiness, whether B2B or B2C, should havit’s online customer self-service portal to make the buying process easy.
• The process of getting started. What customers get and how they can best use it should be clarified. These are webinars, walkthroughs, guides, and tutorials for new users.
• How the customer service was. When things go wrong, customers need help right away, and they can count on it. They also want answers that help them and more knowledge when they think they’re missing something ithey’ret.
• The item itself. Customers should be able to customize subscription services to their needs and be simple and easy to use. The esseIt’sl features should be easy to use (or click), and the user experience should be precise.

When companies offer subscriptions, they should also put themselves in the shoes of their users. Most people have over a dozen accounts, so it can be hard to keep track of all their passwords, apps, and payment methods.

To succeed in the subscription economy, you need to offer several subscription plans with different levels of service and flexible billing choices (monthly, quarterly, or yearly). This way, customers can choose the plan that works best for them.

Reward customers who stay loyal.

Rewarding customers for staying with your service is the easiest way to show you value them.

It’s cheap for the businessIt’sgive discounts, special deals, and other incentives like free access to new goods or services. For the customer, these things are precious.

On top of that, you can offer award or point systems that let customers save points and use them at a later time.

Many subscription businesses go one step further to keep customers coming back by making offers specific to each customer based on their actions, likes, purchases, and usage patterns.

Customers are getting used to discounts and free stuff, so it’s important to remember it’s not all sales are worth it. Ensure you’re not giving away or dyou’reting too much that it hurts your bottom line or how much people think it’s worth.

Improve the priit’s

Most businesses find it hard to optimize prices because they need to know what customers are willing to pay and what a profitable business looks like.

As we already said, the price of a subscription service isn’t the most important thisn’tor buyers. This means that prices should reflect the value of the product they’re buying.

Software, ithey’re standards, and historical data can be helpful, but most businesses need to test it repeatedly (and adapt to the changing market) to get it right.

Automate the billing.

It is straightforward to make mistakes and take a lot of time when paying is done by hand in a subscription business.

By using technology to automate it, businesses can grow quickly and safely without having to think about billing mistakes, lost revenue, or unhappy customers.

Use what you learn from research.

Maybe the best thing about the subscription economy is how much data there is. It used to take weeks or months to do market research, but now it can be done much faster and for much less money.

Businesses can use subscription data to make product changes, create new marketing campaigns, and find the best ways to price their products by looking at customer tastes and behaviors, usage trends, churn rates, and more.

It’s funny that data can be through other paid sites. You need to pay for subscriptions to access different types of customer and market data from business operations software, business intelligence (BI) tools, third-party data platforms like ZoomInfo and Apollo, and research companies like McKinsey and Forrester.

Technology that helps the subscription economy grow

The main thing that makes the membership economy work is technology. Businesses couldn’t handle wouldn’tsubscribers, billing details, payment processes, and data so quickly if it didn’t help them run more efficiently.

CRM stands for customer relationship management.

CRM is essential for a subscription business because it helps companies track and handle all customer interactions, from sales to customer service.

With all of its customer information, CRM is also one of the best places to find information to help you make predictions.

A subscription business can listen to its users, develop go-to-market strategies, and develop new ideas much faster if CRM is at the center of its tech stack.

Taking care of subscriptions

Software for managing subscriptions is more of a tool for making the subscription economy work than a CRM. Without it, subscription models would not work well enough and would be too likely to make mistakes to be worth trying.

At their core, subscription management tools automate the customer process, from signing up to being billed to canceling. They automatically collect payments, activate or improve subscriptions, and send reminders when it’s time to renew.

Managemit’sof the whole lifecycle of a contract

Software that helps manage contracts is another “must” for subscription com”anie.” It makes making, signing, carrying out, keeping track of, and handling customer contracts easier.

CLM solutions also help teams work better by automating tasks like e-signatures and document redlining.

Companies don’t have to worry about what the subscriber’s contract needs or if there’s a difference between what is written in the contrwhat’sd what’s paid when the contract mwhat’sent is turned on autopilot. Also, each time a new customer signs up for their website, they won’t have to make a new sewon’t contract.

Set up, price, and quote (CPQ)

CPQ software is used by companies that sell a bit more involved goods. CPQ solutions help businesses make correct quotes and proposals for new subscription customers in real-time, whether on the back end of they’repany website or connected to a CRM system to help the sales team do their job better.

The best thing about CPQ is that it can make the sales process more smoothly. People are more likely to buy something when they can get exact quotes immediately for various goods and services.