2 min read — Published 7 months ago

What Is a Subscription Revenue Model and How Does it Work?

Explore the benefits of subscription payment models for steady revenue and enhanced customer loyalty in our guide. Learn how subscription models work, customer motivations for choosing them, and how MoneyHash provides an all-in-one solution for effective subscription management.

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Subscription payment models offer businesses a way to generate steady revenue, simplifying financial planning and resource allocation. This article will detail how subscription-based payments function and how tools like MoneyHash can help you customize your subscription offerings for your customers.

What Is Subscription Revenue?

Subscription revenue comes from customers paying a regular fee to access additional services or products under a specific plan. Essentially, if customers want to unlock new features or services, they subscribe and pay a fee to gain access to these extra benefits. This is known as a recurring payment model, with common examples including services like Spotify, SurveyMonkey, and MailChimp.

How Does the Subscription Payment Model Work?

The subscription payment model involves customers paying a set amount at regular intervals. This approach provides businesses with deeper insights into their customer base, proving beneficial across various industries such as e-commerce, media, and software.

A McKinsey Stud highlights the significant growth of this model in e-commerce: over the past five years, the subscription market has expanded by more than 100% annually. The largest subscription retailers soared from $57.0 million in sales in 2011 to over $2.6 billion in 2016, illustrating the model's effectiveness and popularity.

How Can a Subscription Payment Model Impact Your Business?

The subscription payment model can profoundly influence your business in several ways, all of which contribute to sustainable growth and customer satisfaction.

  1. Better Customer Experience

    Implementing subscriptions can significantly improve customer experience. By tracking customer behavior changes over time, businesses can enhance overall customer satisfaction. Tailored experiences foster higher customer retention and open more opportunities for upselling and cross-selling.

  2. Longer Purchasing Lifespan

    The subscription model tends to extend the purchasing lifespan of customers. It encourages ongoing customer engagement, thereby strengthening brand loyalty and ensuring steady revenue. Automatic subscription renewals further prolong customer interaction with your brand.

  3. Lower Churn Rates

    Adopting a subscription model can lead to reduced churn rates, as it incentivizes businesses to focus on customer satisfaction and retention. Satisfying customers involves offering high-quality service, easy payment options, and attractive offers, all of which contribute to a premium and balanced customer experience.

How Customers Shift To Subscription Payment?

\ Customers are increasingly choosing subscription payments for three main reasons:

  • Access

  • Curation

  • Renewal/Replenishment

Reasons customers subscribe to a subscription based product Reasons customers subscribe to a subscription based product According to McKinsey Analysis, 13% of customers subscribe for access to more features, 55% of the customers subscribe for curation of service, while 35% choose subscriptions for the convenience of renewal or replenishment, which essentially means saving time and consistently meets their needs.

Three Approaches To Urge Customers To Subscribe

There are three approaches to urge customers to subscribe to your payment plans. 

  • Specific Offers: One approach to urge your customers to shift to subscription payments is collecting membership fees in return for special offers. Examples of this strategy can be Walmart, Emirates Airlines, Noon, Talabat Plus, and more.

  • Time-Limited Access: Another approach is providing time-limited access to services like software-as-a-service (SaaS) companies, media, and entertainment platforms. Examples of this approach are GoDaddy, Zoom, Slack, and more.

  • The Subscription Box: the last approach is a ’subscription box’ service. The subscription box service is another way to curate services and deliver products to customers repeatedly, such as ready meal services. For instance, Blue Apron and Factor are vivid examples of this approach.

Your Technical Partner After Receiving Subscriptions

Choosing a dependable technical partner is key once you start receiving subscription payments, as they'll help you manage the technicalities of the subscription model effectively.

Look for a subscription partner who can provide:

  • Customizable subscription plans tailored to various needs
  • Configurable pricing tiers
  • Efficient management of billing cycles
  • A range of payment methods to suit different customer preferences
  • Automated recurring billing for hassle-free transactions
  • Secure payment processing to ensure data safety

MoneyHash Subscription Module Covers All Your Needs

The MoneyHash subscription module is your all-in-one solution for managing subscription payments. It allows you to create unlimited customized subscription plans, including varied pricing, billing frequencies, end dates, and free trial periods.

You can select from pre-designed plans when launching new subscriptions. Then, you can apply any discount for more compelling offers for your customers. Easily enough, each plan can be tailored to meet individual customer needs.

MoneyHash also supports a variety of payment methods, catering to diverse customer preferences.

Additionally, MoneyHash can tokenize your customers' cards for automated billing. You'll be able to keep track of your customers' subscription statuses and make necessary adjustments as required.

Conclusion

The subscription payment model is a great strategy for maintaining customer loyalty, increasing revenue, and extending customer engagement. However, managing it can be complex. Partnering with MoneyHash simplifies subscription management, ensuring a smooth and secure experience for both you and your customers. Get started with MoneyHash today for a tailored subscription management experience and let our team assist you with any queries.


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