Back to articles

The Subscription Business Model Explained

In recent years we’ve seen the proliferation of subscription business models within the DTC space. They allow brands to realise recurring revenue, while customers get a predictable, continuous supply of the goods / services they enjoy.

This is only set to grow. A report from PipeCandy, predicts 75% of DTC will have a subscription offering by 2022. The subscription economy has grown 5-8x faster than traditional businesses in the last decade. The global subscription e-commerce market is now worth over £2.4 billion ($2.6bn), and it’s projected to reach £9.27 billion ($10bn) by 2025.

Subscription Economy index 2021 vs S&P500

What is a subscription business model?

The key to a successful subscription business model is providing customers with value that they cannot find elsewhere. The subscription business model has become increasingly popular in recent years, as more and more companies have turned to it as a way to generate recurring revenue. The subscription business model is a way of selling products or services whereby the customer pays a regular price (usually on a monthly or annual basis) to receive ongoing access to the product or service. The subscription model has become increasingly popular in recent years, thanks to the rise of streaming services like Netflix and Spotify.

Common types of subscription models

In a subscription model, customers are charged on a recurring basis for a product or service. They choose how long and how often they want to receive each offer, and most subscriptions provide the option to renew or cancel at any time.

There are three common types of subscription models:

  1. The first is a pay-as-you-go model, where customers are only charged for what they use. This type of subscription is often seen with cloud-based services, such as software or storage.
  2. The second type is a flat-rate model, where customers pay a fixed price for access to a service. This type of subscription is common with streaming services, such as Netflix or Spotify.
  3. The third type is a usage-based model, where customers are charged based on their level of use. This type of subscription is common with online tools and resources, such as Adobe Creative Cloud or Microsoft Office 365.

No matter what type of subscription model you choose, it’s important to offer a fair price that meets the needs of both your business and your customers. You should also make sure that your subscription terms are clear and easy to understand and provide a way for customers to cancel and pause payments.

Benefits of a Subscription Business Model

Let’s take a deep look into the benefits of subscription models.

1. Convenience for customers

People are busy. And, if they can get a product (that they like) delivered when they need it, with little to no effort on their part — they will sign up. Subscriptions save people from having to research new products and shop for them in stores, creating a more seamless customer experience.

Plus, customers don’t have to worry about running out of a product they need — or forgetting to buy it altogether. People are increasingly looking for and willing to pay for this type of convenience.

Are convenience and rewards leading to a digital flashpoint

According to a study by McKinsey, nearly 23% percent of respondents said they would be willing to pay for products and services using a subscription model. And, when asked why they would subscribe to a service, the number one answer was “convenience.”

In other words, these convenience seekers are looking for ways to make their lives easier. And, subscription models do just that.

There are a few reasons for this shift toward subscriptions. First, there’s the rise of e-commerce and the associated increase in shipping options and choices. This has made it easier for people to shop online and have products delivered right to their doorsteps.

2. Attract more customers

Charging a subscription (usually weekly, monthly, or yearly) can allow brands to price more affordably. If you purchase a car you will generally pay monthly that is paid off incrementally over time. The same is true for some subscription services. If you charge consumers on a monthly basis, they are more likely to be able to afford your service than if you charged them for the full year upfront. For example (as of Q4 2022), a prepaid Adobe CC account costs £596.33 for one year or £51.98 per month, or £78.98 when paid on a month-by-month basis.

When customers feel like they’re getting good value for their money, they are more likely to continue using your service and referring it to others. A subscription service that’s affordable and provides good value will help you attract and keep customers.

3. Discover new products

There are numerous subscription businesses available on the market today, and new ones are popping up all the time. With so many options, it can be hard to decide which one is right for you. If you’re looking for a way to discover new products and save money at the same time, a subscription provides a great option for this, take recipe box subscriptions, with companies like Mindful Chef who encourage their subscribers to cook recipes and try ingredients which they probably wouldn’t have done so without the subscription.

4. Subscriptions lower customer acquisition costs

Overall, subscriptions can save you money on customer acquisition and create a more stable revenue stream. This is where knowing your customer LTV and CAC (customer lifetime value vs. customer acquisition cost) becomes increasingly important.

For example, if a brand knows that for every £1 spent on media generates £0.80 in sales, then it should also know that is not sustainable and stop. However, if the LTV for the subscription users is £20 then the media well spent.

Cutting down on marketing costs also allows subscription businesses to focus more on customer referrals which are typically more effective and less expensive than paid advertising.

5. Predicted revenue through subscription

Subscription models make it easier for brands to anticipate recurring revenue, you know when they start when they are likely to finish and how much they are going to pay you. This information can be factored into forecasting, giving subscription brands the ability to resources.




Inspiring behaviour change through visual experiences. Our digital design services ensure instant clarity and visuals that cut-through in a cluttered market.


Engineering intelligent solutions is what we do. Shopify experts, we have extended the capabilities of what’s possible through our suite of in-house software.


Accelerate what’s possible with media and strategy. Blending dynamic thinking with plain logic to deliver a digital marketing toolkit, tailored for growth.