Control Blog  
Helping Grow Your Business

subscription businesses - control payment analytics

Using subscription businesses has become a way of life. My daily routine is often compromised of engaging with no less than five subscription businesses: my cellphone provider; time management tool, Harvest; money management app, Spendee; car-sharing service, Car2Go — for when I have to run errands over the city; and Netflix, for chilling.

I’m confident this number will be easily double within the next twelve months. Why? Because according to Forbes, 80% of companies are analyzing changes in the way that their customers pay for goods and services. This means a potentially higher number of businesses are moving toward the subscription-based model.

What are subscription businesses?

The model for a subscription business is simple: consumers pay a monthly recurring fee for a product or service — as opposed to selling a product or service in one go or allowing for consumers to choose when they make purchases.

With service-based subscription business, the fee that consumers pay often allows them a tiered or unlimited access to the service being provided. An obvious example of this is Netflix, because you pay a monthly fee and have unlimited access to their bank of video content. Another example is the bookkeeping company Bench, who works on a subscription model that allows consumers to choose a package that suits their accounting needs; from micro through to enterprise.

Product-centric subscription models follow a similar pattern as service businesses, however, consumers usually receive a physical product for their monthly fee. This is extremely common in subscription boxes, like Birch Box or Dollar Shave Club.

What have we learned?

1. SaaS is taking over the world

Okay, that might be an over-exaggeration, but the software as a service model is pretty much guaranteed to come into its own throughout the rest of the year. Large companies like Microsoft and Adobe recently switched the way they charge customers for their products to a SaaS model, and others are sure to follow suit.

High-adoption rates for SaaS has been touted to the fact that consumers feel like they’re paying a lower cost and have more choices when it comes to paying only for what they need. The SaaS subscription model also allows businesses to scale more effectively and potentially reach a wider audience.

2. The professionals will catch on…

The next predicted disrupted industry? The professionals.

An example is Thrive Works — a US-based counselling network — who offers appointments with therapists, life coaches, and counsellors based on a subscription model. This allows subscribers access to their high-level roster of staff and the ability to make fast and time-saving appointments.

Doctors, lawyers, and creatives such as web designers are also slowly adapting and making the move toward subscription-based services. How long will it be before we pay an annual premium for 24/7 access to a team of general practitioners?

3. …as well as the retail industry

It’s not just the professionals who are moving toward subscription models; those involved in commerce have seen a viable gap in the market for monthly price plans.

Amazon now gives shoppers the option to subscribe to a monthly offering of products and retailers. Target also allow people to subscribe to a range of items including household goods, groceries, beauty, and health products. A key benefit is that the consumer has an element of peace of mind: worrying about running out of the same important items each month becomes obsolete.

It may sound like we’re stating the obvious, however, it’s surprising how slow retailers have been to catch onto the subscription-based model. Could 2016 be the year they finally come fully up to speed?

4. The end of subscription boxes?

Subscription boxes have proved a successful business model since their first iteration way back in the ‘70s when Wine of the Month first appeared. The concept is simple: choose a product and have it delivered to an address of your choosing. The range of offer is astounding. Consumers can have nearly anything they’d like delivered: cheese toasties, craft beer, dog toys, or everyone’s favorite flowerless plant… moss.

While the diversity of boxes may be enthralling, especially if you have an interest in a niche product, 2016 sees the year that consumers will suffer “subscription boxes fatigue.” Essentially, people are tired of the idea and will start to re-examine their need for subscription boxes.

Popular subscription box models, such as Birch Box, are making an effort to drive consumers toward their online store and engage with purchases differently. It’ll only be time before more subscription boxes follow suit.

5. Relationships will continue to be everything

Remember in 2011 when Netflix changed their price plan in the middle of a recession without telling anyone? They lost 800,000 customers, according to Forbes.

Subscription businesses have an immense amount of pressure to keep the relationship with the customer, perhaps even more so than physical stores or retailers. One false move and the relationship could be broken beyond repair along with a swift cancellation and a subsequent dip in revenue.

Subscription businesses are making huge headway in 2016. Yet they’re not without limitations, the main one being able to create lasting value. For example, when a consumer realizes that they don’t need your product, the novelty has worn off, or their needs are no longer being met: that’s it, it’s over.

Secondly, while subscription businesses are taking off, it’s not quite the forward way of thinking just yet. Traditional buying techniques are still ruling the roost, so think carefully about whether your business is better off biding its time before switching to subscription.

Further reading: The Best SaaS Conferences to Attend in 2017

As the subscription model gains popularity, it’s important for businesses to remember the basic ingredients of success: add long lasting value, don’t ask the consumer to tie into an unbreakable contract or relationship, incentivized to maintain interest and fulfil a genuine need or requirement.

Control offers tools and analytics to help online businesses manage their Stripe and PayPal account. Sign up and try it for 14 days free.