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What It Takes To Succeed In The Subscription Market

Mark Evans
December 16, 2021

Subscriptions are red-hot, but they’re far from new.

For decades, newspapers, magazines, cable, and fitness companies have used subscriptions. When you think about it, milk delivery, which started in the late-1700s, was a subscription business. In fact, it was a complex subscription model because consumers would change their orders weekly.

These examples existed long before anyone started talking about “the subscription economy.” Today, advances in technology and logistics have made it easier to offer subscriptions for a near-infinite range of products and services. 

Why subscription services are on the rise 

UBS estimates that the subscription economy will double in the next four years to $1.5 trillion.

The growth can be explained by the benefits subscription services bring to customers and businesses.

Subscribers eliminate the need to constantly shop - whether in-store or online. Instead, consumers can switch to a predictable, convenient, and effortless buying experience.

Think of music streaming subscriptions, which offer an incredible breadth of choice for a monthly fee regardless of how often a subscriber uses it; no more downloading songs or flipping through CDs at a physical retailer. 

Music is an example of a straightforward subscription model, the same price every month. 

There are more complex subscriptions like telecom, software, and meal delivery that change due to consumption, frequency, tiers, time of day, and volume. These subscriptions require a robust and automated billing platform that can support payments easily and automatically, without direct intervention from the customer.

Ultimately, subscriptions allow customers to focus less on the process of acquiring products and services and making a purchase. Instead, they can spend their time enjoying the experience that a product or service offers. 

What subscription services bring to businesses

The subscription economy has been just as compelling for businesses that had usually had to invest a lot of time and resources into getting customers to come back to purchase their products and services. 

Instead of repeatedly selling to the same customer, subscriptions can help foster greater and stronger customer loyalty. A subscription model delivers upfront revenue, supports better forecasting and cash flow management, allows companies to plan cash flow needs, and enables them to leverage data to predict consumer behavior and create customer loyalty.

Subscriptions are also ideal models to seamlessly cross-sell and upsell customers with complementary or premium products and services. Even better, software-as-a-service (SaaS) companies, for example, can offer upgrades and drive higher revenue at no additional costs.

The longer a customer keeps their subscription going, the more opportunities a company can deepen their relationship with them by learning more about their preferences and needs. 

Moreover, companies can increase subscription prices if the customer sees value in the product or service. Netflix, for example, raises its prices every two years by $1 or $2 a month with little pushback.

This market isn’t limited to consumers. Companies can reap the same rewards even if they operate in the business-to-business (B2B) sector, where subscriptions can bring greater efficiency around procurement and ordering supplies. 

A snapshot of how the subscription economy is growing 

Earlier this year, researchers at Mercator Advisory Group described subscriptions as one of the fastest-growing sectors of the services economy. Not surprisingly, being forced to stay at home amid the pandemic only led more people to switch from shoppers to subscribers.

Mercator estimates the 2020 U.S. subscriptions market to be $28.4 billion, a 66.1% increase over 2019 before the COVID-19 outbreak began. This acceleration spanned both the online and offline worlds. 

While digital subscriptions like Amazon Prime are projected to grow the most at more than 11% in 2021, for instance, Mercator said about a quarter of U.S. consumers signed up for some kind of box-of-the-month service last year. 

Where is the subscription economy headed?

The subscription boom has only begun. 

Businesses are starting to consider applying it to products and services available off the shelf or never offered before. 

Beyond digital content like videos and music, for instance, why couldn’t someone save costs and the hassle associated with their commute by signing up for a monthly ride-sharing pass? 

Why not subscribe to a service to eliminate lunch-making chores or subscribe to a service that will protect your home via a digital alarm system? With razor blades, cosmetics, bacon, and even socks and underwear already available via subscription, expect a wave of personal care items to be available soon.

It doesn’t mean traditional shopping is necessarily going away.

Some companies will take more of a hybrid approach. For example, you might still buy a car outright. Still, you could also sign up for maintenance and in-car entertainment subscriptions to enhance and add value and utility to the car ownership experience. 

The rise of subscription payment options

There will also be an increase in the options available to pay for subscriptions, including cryptocurrencies, rather than relying on traditional credit cards or getting money taken out directly from bank accounts. 

You can expect to see companies accept payments through a growing variety of cryptocurrencies beyond stalwarts like Bitcoin and Ethereum. As well, consumers will be able to use crypto-powered credit cards.

Time Magazine, which has been publishing since 1923, started to accept cryptocurrency for digital subscriptions earlier this year through a new partnership with Crypto.com earlier this year.

Where subscription services go awry -- and how to plan for success instead

While subscriptions work best when they offer simplicity for customers, the reality is that businesses have to do a lot behind the scenes to make them happen. 

It can include a complete overhaul of underlying business systems and processes that handle everything from marketing and customer acquisition to onboarding, management, invoicing, and billing.

When companies try to drive subscriptions using a traditional accounting system like QuickBooks or Sage, or ERP systems with accounting modules [SAP and Microsoft Dynamics], they risk running into increased complexity, errors, and, worst of all; frustrated customers cancel their subscriptions. 

eLabs is helping clients deal with the challenges that arise when transitioning from a transaction-based business to a subscription-based one via a 24/7 service. Our scalable and robust billing processing platform already allows companies to accept subscription payments via credit card, ACH, pre-authorized debit, PayPal, and even cryptocurrencies in the not-so-distant future. 

As important, companies need to work with the right partner that offers a billing system to make managing subscriptions seamless and expertise in changing internal processes as you adapt to this new economy. It can involve training your teams and assisting in the launch of new subscription services.

It’s a way of quickly learning how to create the right customer journey from activation to offering discounts, promotions and resolving customer service issues. It means having a better-trained team and the ability to launch new subscription services with confidence. 

If it’s possible to pre-book a product, service, or experience, customers are ready and willing to sign up, but it means trusting the company in question to deliver. So if you want to get in on the subscription economy, make sure you fully understand what you’re signing up for and that you can do it successfully. 

As much as the subscription market has seen tremendous growth, it is still early days. You could argue that subscriptions have just touched the tip of the proverbial iceberg. More companies will jump into subscriptions and offer various products and services to drive recurring revenue, customer satisfaction, and loyalty.

The path to subscriptions can be complicated and complex, making it essential for companies to connect with the right partners to build a solid foundation to power products and revenue growth.



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