Recently we had a requirement to create a membership based web store where members will have access to listen or download audio files based on membership to offer exclusive discounts, free shippings and other member benefits.

This convinced us to think on the viability of a subscription business model and if it is really beneficial or not for a business; in today’s digital time users are addicted to free content and free everything.

Subscription based business model were earlier reserved for print media, newspaper and magazines but now businesses are lapping up the subscription revenue model and now we are asked to subscribe to just about anything.

I personally remember subscribing to sports magazine as a child. It would come once a month and I’d eagerly await every month to get hold of the magazine.

The biggest attraction was the centrefold poster of both Indian and international sport-stars that one could show-off to friends as priced possession.

Does subscription or membership model business still work or users still prefer ownership? Is subscription a viable business model? Let us explore the advantage and disadvantage of a subscription based business model.

Over the last decade or so, the subscription business model has skyrocketed due to convenience and low upfront cost among other factors.

• As a business, subscription presents a predictable recurring income and shows a greater customer loyalty as long as subscribers pays the subscription.
• As a customer, with a small fee, one can enjoy the benefits of wide gamut of products / services for which they would shell out a bomb if they were to own it otherwise.
• Businesses have opportunities to offer incremental benefits and special privileges for their long-term subscribers, which is missing in the case where customers purchase a product / services with one-shot payment and departs.
• Subscriptions increases the customer lifetime value (CLV) indicating the long-term loyalty towards the company’s products/services.
• Businesses spend less amount (low retention value) in acquiring new customers as with the same marketing budget, they acquire new subscribers and keep their existing subscribers happy.

Here are some of the disadvantages of the subscription model

• As more and more businesses start offering subscription based services, it forces businesses to take a hit on their pricing due to price war.
• Implementing subscription based model requires specific technology-based capabilities and related skills which have cost implications. Thus initial cost of implementation may drive away small businesses from launching their own subscription. Managing subscribers, their purchases, drip offering services based on level of subscriptions are technology driven business processes responsible for success.
• Consistent revenue isn’t guaranteed unless their is incremental benefits offered to subscribers continuously. Only option is to offer freebies hoping when the freebies end subscribers would pay to continue using the services.
• Having a subscription based offering specially in the software, plugins, or extension applications, where customers would rather pay for life time access and support rather than paying for a subscription where the benefits only exists until the subscription ends.
• Not all customers are liberal to disclose their contact and financial information (Credit/Debit Card details) where recurring deductions happen towards subscription payment. Majority of the customers are concerned about the security of their financial information lest there is a data breach or data theft of the vendor’s database.

The positive benefits of having a subscription model outweighs the shortfall and thus the future looks bright where more and more businesses will adopt this model for doing business digitally.