How a subscription model can make your business boom

Sam Wood, founder of 28 by Sam Wood.

Consumer expectations are changing, valuing access and outcomes over ownership.

Today, consumers are less willing to pay large amounts for products or services upfront — look at the rise of buy now, pay later platforms like Zip and Afterpay. It’s not necessarily about spreading the cost out either, but only paying for something as you use it. That’s why many people would rather pay to use a bike for a day, than commit to the full cost of owning one forever, or at least for as long as its useful.

Subscription models aren’t new. Remember Blockbuster Video? That was, in some ways, an early iteration of a subscription business. But what is changing is that consumers are increasingly subscribing to completely new sets of products and services.

Consumers are now accessing goods from luxury items like dresses to commodities like razors to meal delivery kits — all for monthly fees. They demand choice in how they pay, flexibility to pause and resume services, and the ability to tailor them to meet their specific needs. These new consumer habits are developing a boon for businesses with subscription-based offerings.

An independent study by Nielsen, commissioned by Stripe, found that more than half of Australians have used a subscription service in the past year, with video streaming (37%) and music streaming (18%) among the top services. But it’s not just customers who are benefiting from this — businesses are also seeing immense growth by responding to changing customer demands with newer and more flexible subscription business models.

Aussies are ahead of the curve when it comes to the adoption of subscription services. At 53%, research indicates that we’re second only to counterparts in the US (60%) and on par with Hong Kong (54%) when it comes to the uptake of subscription services across the nine markets surveyed.

And this is only set to rise: 75% of Australian millennials have used a subscription service in the past year and 44% say they prefer subscription services over one time purchases.

This tells us one thing: the subscription model is king.

So why subscribe?

There appears to be an element of greater convenience here. The research showed us that consumers really value not having to think about monthly billing (84%).

In addition, the study found that discovery and convenience are key to driving changing consumer preferences. A majority (80%) of Australians said that discovering new content, products and services they never knew before is an important feature of subscription services, and 71% said that getting recommendations based on past activity is also important.

With a subscription model, businesses gain an ongoing interaction with customers — creating opportunities to add value by offering new services, new products, new apps at every (often) monthly payment and to build brand loyalty.

These changes will likely have huge implications for the future of the subscription economy.

Businesses implementing a recurring-revenue model need to take three critical factors into account:

Treat your payments as a product

Payments are at the center of the consumer experience online, particularly when it comes to recurring payments. Just like you would A/B test different product features or different versions of a sign-up form, you should test your pricing models. This includes testing different trial periods, metered or usage-based billing, and one-off invoices to see which model or models work best for you.

Support flexibility

The survey also showed a big variation in how much consumers are spending on subscription services. In Australia, for example, 28% of households using subscriptions services spend between AUD $100-249 a year on such services, while 15% spends between AUD $250-499 and another 10% spend between AUD $500-999. Clearly, one size does not fit all. This makes support for various billing models simultaneously – from one-time to recurring, tiered, metered, usage-based with or without different promotions and trials – a critical consideration for any business looking to launch a subscription business.

Scale through automation

Running a recurring-revenue business at scale can also be surprisingly time-consuming and manual, requiring entire accounting and billing teams to handle things like generating and sending invoices, sending reminders, following up on unpaid invoices, and so on. Automating these tasks can not only save countless hours and dollars but can, in fact, increase revenue. For example, Stripe data shows that businesses that used Stripe’s revenue recovery tools, including tools that automatically help these businesses send reminders and retry payments, see a 10% revenue increase on average.

The growing popularity of subscription-based services in Australia is a key factor that is driving the success of businesses like online fitness and nutrition program, 28 by Sam Wood. Using Stripe, the business uses technology and analytics to stay on top of what its customers need, allowing them to cultivate long-term relationships and provide an exceptional user experience from sign-up to consumption. For 28 by Sam Wood, the subscription model aligns perfectly with their goal of delivering health and fitness services in a convenient and recurring manner.

Opportunity on the horizon

Not only are subscriptions a popular way of accessing services today, but with adoption rates even higher among millennials, it’s also a clear and crucial growing opportunity for businesses. Expected to earn two out of every three dollars of income generated in Australia by 2030, millennials are also driving an upswing in online shopping according to Macquarie.

With both businesses and consumers demanding to purchase products and services this way, the only question now is how quickly every industry adapts. There is an opportunity for many businesses to take advantage of a subscription model to give themselves more recurring revenue.