How does Subscription Business Model Work?
this model is very upfront. Once the customer has signed up and paid for the product, the customer will receive the predetermined product on regular basis. If the company is providing a service, the customer will get access to use the service.
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This way the subscription-based companies are focused more on customer retention rather than customer acquisition. These companies tend to have the upper hand as they have more opportunities to interact with customers and have access to record customer behaviour towards their products or service. They can use this to check when the customers tend to cancel the subscription and use this information to avoid pitfalls. Hence they get more chances to cross-sell and upsell.
The subscription business model works in different patterns depending upon the product or service provided by the company. Basically, a company starts by establishing a fixed price point for the product provided by them. The company also needs to decide how often and for how long the company wants to provide the service or the product.
If you’re planning to provide in-house product, Business Model is easier to decide the price point, but you also need to think about how much the customers will be willing to pay you on a recurring basis. If you’re starting out as a contractor, you need to guarantee a steady product line and availability. Also make sure your fixed price point doesn’t undercut your profit margin, as a customer once subscribes to your service, you can’t raise prices for that fixed interval.
One could say that a freemium model is an extension of the subscription model but the challenges faced by the companies offering freemium are many. The major problem is user conversion; how to convert the free users into paid users. If you want to read more about the freemium business model, read our blog “Analysis of the Freemium Business Model”