What are Subscription Business Models? The Future of Business in 2025

To keep revenue coming in month over month, you may be interested in setting up a subscription-based business model. With this model, you sell products or services on a subscription basis, either weekly, monthly, quarterly, or annually, for example, to encourage customers to sign up perpetually.

Many businesses use subscription-based business models to help create a predictable, recurring stream of income. It can also be beneficial because it allows businesses to gauge supply and demand, allowing them to reduce waste and costs associated with overstocking.

What are subscription-based business models?

Subscription-based business models focus on selling products and services on repeat. You can set up a subscription model in a few ways, but many businesses use monthly, quarterly, or annual subscriptions. Some use weekly or bi-weekly subscription models, such as those that offer subscription food or grocery boxes.

Why are subscription business models so popular right now?

Subscription-based business models are becoming popular for several reasons, but the primary one for businesses is that they can create a recurring, steady stream of income. For consumers, the benefit of subscription models is that they get access to a product for the long term and don’t have to worry about running out. They’ll always receive access or deliveries on time within the subscription’s arrangements.

This kind of business model helps you improve the lifetime value (LTV) of your customers. Subscriptions tend to keep customers loyal to a brand for longer as they get used to the services and features offered and use it regularly.

How do subscription business models work?

Subscription business models work very simply. There is a contract for recurring product delivery or services signed between the company and the client. The customer agrees that they will pay for a specific product or service over a predetermined (in most cases) period of time. Then, at the end of the contract, the subscription may end or renew into another subscription period. The customer typically has the option to renew or cancel the contract at any time, but on longer contracts, such as annual contracts, canceling may only prevent renewal and still give them access to the service for the remainder of the term.

6 Key Benefits of The Subscription Business Model

Brands who have adopted a subscription business model often see perks come from it. Some of the reasons businesses stick with this model include that:

Subscription models are convenient for customers.

It’s simple for customers to get what they need with a subscription service. Whether it’s new clothing, food delivery services, or music apps, having a subscription means they always have what they want or need on demand.

Customers can discover new products.

Subscription business models typically have low entry fees for consumers. For example, a customer might sign up for a $10-per-month application for a three-month trial period, allowing them to test the service before committing for the long term. For businesses, these short trials can be a great way to introduce new products and get customers hooked for longer subscription periods.

Businesses can accurately predict revenue.

Having a subscription-based business model helps your business predict your annual revenue. Rather than being unsure of any purchases that might happen from one month to the next, you’ll know how many people are locked into subscriptions with your brand. In a non-subscription-based business model, you may only know your revenue after a month or quarter has ended. Then, you could use predictive analytics to determine potential revenue in the following months or quarters. With subscription-based business models, you can get an accurate look at the revenue to expect (though there may be variances if some payments aren’t made or you bring on new customers).

Subscriptions can attract more customers.

Subscription-based models could attract more customers to your business. Many people enjoy testing out subscription boxes that highlight different brands or products every month, for example. Having a subscription-based model can also make it easier for the average person to buy from you, particularly if the cost of a product is split up over time. A good example of this is Adobe Photoshop. Purchased as a lifetime license, this product used to cost several hundred dollars. Today, customers can get it as a subscription, accessing it for $22.98 per month.

Subscriptions decrease customer acquisition costs.

Subscriptions can help your business decrease customer acquisition costs. They do this by allowing you to continue to do business with those who have already made purchases from you in the past. Rather than having to source new customers every month, you can rely on your subscription-based business model to keep customers with you for longer, which saves you money on marketing.

Businesses build stronger relationships with their customers.

With a subscription-based business model, you get the opportunity to build a stronger relationship with your customers while bringing in recurring revenue. With this model, you have customers who will stay with your brand, get used to your products and services, and use those products or services within their daily lives or throughout the term of the contract. When you serve them well during that time, your business can build trust, loyalty, and longevity.

How To Create a Subscription Business Model For Your Own Business

Today, you might be running a normal business with no subscription options, but you can convert it into a subscription-based business with the right approach. Here is what you need to consider as you get started:

1. Identify Your Niche and Value Proposition

The first thing you need to do is research your market and find a niche where you can thrive as a subscription service. For example, you might notice that there are no food subscriptions offered in your area, so you could offer a subscription to your restaurant’s top desserts or a model where customers pay a specific amount for unlimited drinks or lunchtime visits.

The next thing you need to consider is your value proposition. What unique value will you offer to your customers, and how will you save them time, money, or effort? If you will offer exclusive products or content, ensure that the value is clear.

2. Choose a Subscription Model Type

After you determine your company’s value and niche, you need to establish the model you will use. There are three main forms:

• Replenishment Model: Replenishing foods, makeup, or other items that tend to run out is what this model is for. A replenishment model makes sure your customers always have the products they need.
• Curation Model: Delivering customized products or services to customers is what a curation model is for. Curation models are most often seen as subscription boxes, such as subscription makeup or perfume boxes, that have trials of different branded products.
• Access Model: Providing access to exclusive content or services is done through an access model. Netflix has an access model, as an example.

3. Develop Your Product or Service Offering

Now, it’s time to select your product and package tiers. Choose the products or services you’ll include in your recurring subscriptions. Be sure they align well with what your target audience is looking for.

Then, set up packages. While you could have a single subscription, it’s better to consider varying the levels and having multiple package tiers. Doing this will ensure you cater to multiple customer segments and can get as many customers as possible to sign up for your offerings.

4. Determine Pricing Strategy

After you set your product or service offerings, you’ll need to decide on how to charge for those services. If you charge too much, customers may scoff at the price and avoid signing up for a subscription. If you charge too little, you could end up reducing your overall revenue or hindering your ability to grow.

To establish the right pricing strategy, start by researching your competitors. See how they price out subscriptions for products and services similar to yours. Then, calculate your own costs to ensure you aren’t going to lose money on a subscription. You have to consider the cost of production, shipping, fulfillment, marketing, customer acquisition, and more.

Once you know your costs and what others are charging locally or in your industry, you can set the pricing. You’ll want to choose a price that covers all your costs and brings in profits on top. At the same time, you need to ensure the price resonates with consumers, so you won’t want to make it too high.

One good option is to set a short-term subscription at a higher rate than longer-term subscriptions. Doing this allows customers to balance how much they want to pay, and when, before selecting a subscription. For example, a single month of your service might cost $30, but you could offer 12 months for $25 per month. This arrangement would lower your monthly revenue but would increase the overall lifetime value of that customer.

5. Build a Subscription Platform

Now, you have the product and your pricing strategy. You need to find a way to sell it.

You’ll want to build a subscription platform to do so. You could opt to select one that is already in place, such as Shopify or WooCommerce. These sites integrate into your brand’s website and handle everything from renewals to billing and customer management.

Or, you could develop your own subscription platform. If you have developers on your team, this might be a great way to manage subscriptions without relying on external apps or programs. Just remember that you will need to integrate payment systems into your site when you do this.

Finally, develop your site around your subscription. You need to have a user-friendly website that goes over what you’re offering, the pricing you have set, the benefits of subscribing, and other details.

6. Focus on Customer Acquisition

Next, it’s time to focus on acquiring new customers. Customer acquisition happens in a few ways:

• Marketing Strategy: Develop a marketing strategy for how you’re going to attract subscribers. Common kinds of marketing include content marketing, social media, email campaigns, and partnerships with other brands or influencers.
• Free trials and discounts: Offer introductory discounts and free trials to get customers to try your subscription.
• Referral programs: Encourage your current customer base to refer new people to your brand. Doing so can lower the cost of new customer acquisitions.

7. Optimize for Customer Retention

Once you have customers onboarded, you need to keep them interested in your products and services. To do this, you’ll want to focus on your onboarding process, regularly engage with your customers, and monitor the overall churn rate.

During onboarding, keep things streamlined and seamless. You’ll want to be sure new subscribers know exactly what they’re getting and how to contact you for help if they need it.

Once someone subscribes, keep up with them. You should regularly update customers with special offers or exclusive content.

Then, monitor churn rates. If you’re seeing many people canceling their subscriptions, you should investigate why they’re leaving. If you have people staying subscribed for the long term, you may consider starting referral campaigns or other supportive marketing techniques to grow. To get feedback from customers that can help with churn rate analysis, send out surveys.

8. Scale and Improve

Once you have your service set up, plan to scale and improve by:

• Collecting feedback. You should gather customer feedback to improve your subscription service and address problems.
• Analyzing data. Use analytics to track key performance indicators (KPIs) such as subscriber growth, customer lifetime value (CLV), and average revenue per user (ARPU). Doing this will keep you apprised of any areas of the business that could be improved.
• Expanding your offerings. Once you have your base subscription service set up, consider expanding to other areas. For example, if you typically offer two tiers, you might add a third tier with a more luxurious, white-glove offering.

9. Legal and Compliance Considerations

Finally, keep things legal. Draft clear terms and conditions for your site, including billing cycles and cancellation policies. You should put together a privacy policy to stay in line with data protection regulations, too.

Additionally, take steps to protect your intellectual property, such as branded material, with all necessary patents, copyrights, and trademarks.

Manage Your Leads and Customers With Podium

Building your business is possible through subscription services, and you may reap the rewards by putting time into creating recurring subscription services now. But, like anything that you do in business, having the right approach does matter. By working with Podium, you get access to Podium Payments, a simple way to help you get paid and streamline recurring payment processes. Paired with Podium’s AI Employee that can answer customers’ questions and even help them sign up for your subscription service, you have a powerful suite of tools prepped to take your business to the next level. See more with this demo.