How can businesses harness the popularity of the subscription economy?

The subscription-based business model is far from a new concept. Consumers have been able to take out subscriptions for books and newspapers since the 1600s, while doorstep milk deliveries have been around since the 1800s. While it’s much easier for modern consumers to visit local stores or order items online, this hasn’t led to the death of subscription-based services. In fact, they’re more popular than ever.

In the last nine years, the subscription economy has grown by more than 435%. Two areas that dominate subscription services are beauty and personal care, and food and beverages. Together, they accounted for 54% of the subscriber pool in 2021, showing huge demand for a subscription-based business model in these sectors.

There’s no sign of things slowing down, with the global ecommerce subscription economy expected to reach $904.28 billion in 2026. If you haven’t already, now’s the time to explore how a subscription-based business model can benefit your business.

In this article, we’ll be exploring why subscription services are popular with consumers, how to set up subscription payments for your business, and how to measure their success.

What is the subscription economy? 

The subscription economy refers to businesses selling a product or service on a recurring basis. Payments may be taken annually, monthly, or on a bespoke schedule to cater to the customer’s needs.

A subscription-based business model can be used for anything from tangible goods to digital media. Some examples of common subscriptions include meal kit delivery services like HelloFresh or Blue Apron, online media streaming platforms like Spotify or Netflix, and brands offering software as a service, such as Microsoft or Adobe.

Product-based subscription services allow for automatic repurchasing on a set schedule. They’re often used for consumables such as food or toiletries so a new one arrives before the previous one runs out . For software-based applications, a subscription offers an easy recurring payment solution to retain access to the service without making a manual payment at the end of each subscription term. As well as convenience, subscription models tend to offer discounts in exchange for customer loyalty.

Changes in consumer behaviour and expectations have contributed to the growth of the subscription business model in recent years. One such change is the way in which the general public consumes media. Subscription services for TV, movies, music and games have become mainstream. Normalising this type of transaction has paved the way for companies offering other products to adopt a subscription-based model, and to expand into more markets.

In a similar vein, the popularity of social media and influencer marketing has certainly played a part in subscription economy growth. Creators of all sizes rely on monetisation opportunities to make a living from their content, and offering exclusive members-only content is a great way to achieve this. As well as unlocking financial gain, subscription services allow influencers to connect with their audience, create a community, and offer more value for their fans.

While these factors were already at play, another key driving force behind the growth of the subscription economy is the lasting effects of the COVID-19 pandemic. During periods of national lockdown, many brands had to pivot their business models to survive in a no-contact world, or to cater to changing consumer demand. Offering subscription services allowed businesses to benefit from a steady income stream and remain relevant in their customers’ minds.

Why customers love subscriptions

It’s understandable why the subscription model is popular with businesses. As well as making it easier to ensure a consistent revenue stream and project their earnings, subscriptions are a great tool for growing brand loyalty. But what are the benefits of subscription services for customers?

Convenience

Convenience is one of the biggest selling points. After subscribing, a customer doesn’t need to remember to make a purchase; it’s automatically processed. This is particularly useful when forgetting to make a purchase could have unwanted consequences, such as flea and worming treatments for pets. Most subscription services also offer the flexibility to change the frequency of deliveries without penalty, so customers aren’t tied down to a schedule that doesn’t work for them.

Familiarity

Shoppers love novelty but they also appreciate familiarity. Knowing that a product will arrive on a certain day of each month can give them something to look forward to. This is why loot crates and snack subscriptions have become so popular. 

Better budgeting and value for money

The rising cost of living means that consumers are always looking for ways to make their household budgets go further, and subscription services also offer better value for money than one-off purchases.

For example, a month’s Spotify subscription offers access to far more music than spending the same amount of money each month on CDs or individual track downloads. Many brands also offer special discounted prices for products or services purchased on a subscription basis.

Regular payments help customers to manage their budgets better as they know exactly what date money will be taken from their account.

What do customers dislike about subrscription services?

One thing that consumers certainly don’t love about subscription services is that they can cause them to over-buy, resulting in unnecessary spending and waste. Some companies also make it difficult to cancel subscription plans, and customers who are wary of being locked in to an expensive commitment may avoid signing up in the first place.

What types of subscriptions are popular with consumers? 

Millennials, men, higher-income households and owners of smart speakers are the most likely consumers to use a subscription service. If the target audience of your product or service falls into one of these categories, you’ve got a better chance of success when moving to a subscription-based business model. But what are they purchasing?

A global survey conducted in 2022 shows that 41% of consumers use a subscription for groceries, food or drinks, making this the world’s most popular subscription service category. The next most popular categories are personal care products at 38%, household products at 34%, and clothes at 32%. Pet products, and toys, games and books are also among the most popular subscription-based services.

Food boxes and recipe subscription services are particularly popular. In 2021, they accounted for almost 60% of total subscription box revenue in the Netherlands. Meal subscriptions appeal to a wide range of markets, including busy families, health and fitness enthusiasts, people with limited mobility, and young adults learning to cook. A product or service with wide appeal works great as part of a subscription business model. 

It’s interesting to note some of the sectors that have experienced huge amounts of growth over recent years thanks to the subscription economy. For example, fitness brand Peloton was able to leverage the stay-at-home orders during the COVID-19 lockdowns to expand their customer base. They saw membership to online services increase by more than 1,000% from 2019 to 2022, reaching almost 3 million subscribers. Offering an easy way for consumers to access workout routines, guided mediation and more from the comfort of their own home allowed Peloton to break into new markets and build brand loyalty.

Is your business set up for subscription success? 

While a subscription-based business model can be extremely beneficial for many products and services, not all of them are suitable candidates. It’s important to assess whether a subscription service is appropriate for your business and for your target audience, and to abandon the idea if it’s not a good fit. Here are the most important things to consider when deciding whether your brand could benefit from a subscription-based business model.

Understand which products and services are perfect for subscriptions

There are several reasons why consumers choose a subscription service for a product over a one-time purchase, including:

• Necessity, e.g. pet treatments
• Convenience, e.g. grocery deliveries
• Novelty, e.g. loot boxes
• Entertainment, e.g. video on demand services
• Community, e.g. members-only chat servers
• Accountability, e.g. fitness subscriptions

There needs to be a benefit for the customer that encourages them to opt for an ongoing service rather than a single transaction. If you’re not able to provide this, your brand might not be suited to the subscription business model.

Offer products that are needed frequently and regularly

Products and services that people need often or use on a schedule work well when offered on subscription. Consumables are naturally a good choice, as they are used up over time and need to be replaced. Those that people use on a regular basis can be easily scheduled for regular delivery. In particular, goods without a limited shelf life like personal hygiene products such as razor blades and shampoo are an ideal choice for an ongoing subscription as they are less likely to go to waste.

Provide payment flexibility for purchases 

The ability to handle regular payments is essential if you’re looking to offer subscription-based services. Working with a trusted payment provider like Mollie enables you to implement a secure yet flexible recurring payment solution. With a user-friendly interface, all the most popular payment options and streamlined webshop integration, Mollie makes signing up and amending subscriptions as easy and convenient as possible for your customers.

Consider how to delight your customers each time

Subscription services are designed to make life that little bit easier and more enjoyable. Another way to make your subscribers feel special is to surprise them with a free gift, discount code, first-look offer or exclusive content. Examine ways that your brand can add value to strengthen the customer bond with your brand and encourage them to retain their subscription for as long as possible.

Measuring success of your subscription business 

Like any sales or marketing strategy, it’s important to continually monitor the success of your subscription-based business model to see where you can make improvements. A particularly important metric is known as the churn rate. This is the percentage of customers who stop using or paying for their subscription over a certain period. Understanding when and why customers cancel their subscriptions is an essential part of measuring the success of your subscription service. You can find out more in our quick guide to churn rate for subscription businesses.

There are lots of pieces of data that you may find useful to track, but these are the three key metrics that will help you to better understand how well your subscription business model is working.

Average Order Value (AOV) 

Customers with an active subscription are likely to offer higher levels of brand loyalty. This makes them prime targets for upselling, which can help you to increase your AOV and boost profits.

Customer Lifetime Value (LTV) 

The LTV of a subscription customer has great potential, as they have already agreed to purchase more than once, and possibly for a minimum term. A successful subscription-based business model focuses on incentivising customers to keep their subscriptions active. Subscribe and save deals are a great example of this; if the customer cancels their subscription, they will revert to paying the higher product price. LTV helps businesses to forecast effectively, track customer loyalty, and understand what really resonates with their audience.

Monthly Recurring Revenue (MRR) 

How many customers sign up is less important than how many stay. While more customers equals more income, this is only on a short-term basis. High MMR growth indicates that customers are reliant on your product or service. The more customers continue their subscriptions from one month to the next, the more stable your revenue will be. This allows you to opt for a more strategic approach to acquiring new subscribers that will offer a higher LTV. This will offer better long-term success for your subscription service than an approach designed to bring in as many new customers as possible.

How Mollie can help you grow your subscription-based business

By harnessing the potential of subscription services, you can grow your business with a solution that’s not only more convenient for your customers, but also gives you the benefit of a consistent revenue stream.

Mollie makes it easy for you to offer flexible payment options for your customers, including effortless recurring subscription payments. Offering simple integration with ecommerce platforms and fast, secure processing, we can help you to handle recurring payments for memberships, software, regular product purchases and more.

Want to adopt a subscription-based business model the easy way? Find out more about Mollie’s recurring payment solution.