Subscription Monetization: Strategies to Maximize Revenue



The Subscription Payment Model: An Overview

The subscription payment model has become a transformative way for businesses worldwide to generate steady and predictable revenue while establishing deeper connections with their customers. Despite its long-standing history, the subscription model has recently experienced an unprecedented resurgence, offering companies an alternative to the unsustainable reliance on one-time purchases and ad revenue. In this report, we define subscription monetization, provide some context for its recent resurgence, and catalog the benefits that the model offers. Most importantly, we aim to help you understand not just how to implement the model but also the many ways to avoid its pitfalls, using the experiences of both successful and failed companies to guide us along the way.

What Does It Mean to Monetize a Subscription?

What Is Subscription Monetization?

The subscription monetization model has surfaced as a powerful generator of a consistent and recurring revenue stream for types of businesses offering various goods, services, or forms of access. Not too long ago, the subscription format conjured thoughts of magazines and newspapers, with not-so-distant memories of record clubs and Columbia House VHS tapes. Now, well beyond those four walls, we find subscription models increasingly commonplace. According to the 2021 Subscription Economy Index, revenue growth for businesses with subscription models outpaced revenue growth for those without.

From the half-dozen, nearly three-decades-old, tech-centric business models at the top of our list, offering goods and services under a subscription umbrella provides not just a powerful vehicle for generating predictable revenue but also a path toward improving customer relationships and enhancing the user experiences of type.

Core Components of Subscription Monetization

Here are the core components of subscription monetization delivered from a customer-centric perspective:

Successful Strategies for Subscription Monetization

Successful subscription monetization hinges on servicing the customer well. Businesses that succeed in placing subscription monetization at the core of their operation consistently and intuitively follow a three-step process:

1. Serve the Customer. The best services effortlessly give the customer what he or she needs and wants—when and how they want it. Successful subscription services do this by achieving near-perfect customer intimacy.
2. Increase the Serve Time. Subscription services should obviously last longer than one-time sales. The real trick is to achieve sustained (and sustainable) serve time. Doing this requires a business to easily scale its service not only to more customers but also to more types of customers.
3. Generate Profits. “Effortlessly” scaling to more customers and types of customers while making it all last is nice, but it’s not sufficient for a business to continue to exist. A business that runs on subscription must find a way to be reliably profitable over the long run.

Forces Behind the Subscription Economy

Adoption of subscription monetization is closely tied to the big changes in consumer behavior and technology. Three main forces are driving the subscription economy.

Changes in Consumer Desires

Today’s consumers want convenience, personalization, and effortless service. The latest data from Ipsos show exactly how far these three dimensions of service have come to define consumer expectations: For over a decade, customer experience (CX) has been at the forefront of marketing and PR strategies to help brands connect with consumers.

Progress in Technology

Digital platforms, automation tools, and cloud technologies are moving subscription services to the next level—in a cost-effective and customer-friendly way. The new technologies—cloud, SaaS, subscription analytics, and so on—are not only good for the business; they also make the customer journey better and smoother.

Subscription Businesses That Flourish and Prosper

All over the world, businesses are not only adopting subscription models but doing so in an ever-expanding variety of forms. These models are as entertaining as they are innovative. Here are some of the best examples.

Streaming Services, or ‘What That Guy From the Office Watches When He’s Not in the Office’

Platform: Netflix

Netflix scarcely needs an introduction, but it’s still a good place to start for an examination of the subscription economy’s entertainment sector. Netflix offers an array of television shows, documentaries, and feature films.

The Benefits of Earning Money Through Subscriptions

Improved Revenue Stability

One of the most appealing aspects of monetization through subscriptions is the predictability it gives a company’s cash flow. When customers commit to making regular payments, the revenue they generate becomes far more stable and forecastable over time. For many businesses, that makes investment planning and resource allocation smoother and more efficient.

Building Closer Customer Relationships

Subscription models allow companies to experience closer relationships with their customers. By monitoring subscription usage and oscillation, the company can have a deeper understanding of customer preferences. This understanding has the potential to create a more precise offering, one that might confer an even greater set of values to the customer. The subscription model, then, seems to foster a sort of precision-targeting loyalty with the customer receiving an offering they might actually value more.

Personalization Opportunities

Companies can use the subscription data they collect to deliver experiences that are so personalized, you kind of have to feel a little special to get them. This is next-level stuff: Recommendations and promotions are increasingly not just kinds of things you might be interested in but kinds of things that are directly relevant and valuable to you, serving as a kind of soft nudge to get you to roll back into a business.

Better Customer Retention

Proactive engagement and excellent ongoing service can cause customer churn to drop sharply. And when you consider that retaining a customer under a subscription model typically costs much less than acquiring a new one, the savings can really add up.

The Difficulties in Putting Subscription Money Making into Effect

Retaining Customers and Managing Churn

While subscriptions are a good and mostly stable source of revenue, having a high retention rate for customers can be a challenge. If one fails to consistently provide value or to adapt to the customer’s changing needs, one stands a good chance of having the customer cancel the subscription. Investing in retention strategies such as upselling done tactfully, providing excellent customer support, and having a rewards program for loyal customers can help keep your subscription customers from churning.

Pricing Strategies

Establishing the proper pricing structure is essential. If prices are set too high, potential customers may shy away from subscribing. Conversely, if prices are set too low, the company’s profits may not suffice to keep it afloat and doing business. Paying heed to pricing structures, making regular assessments of them, and doing competitive benchmarking are necessary activities to maintain the health of a company’s profit and loss statement.

Scaling Subscription Businesses

Scaling subscription businesses to satisfy higher customer expectations can introduce operational and logistical bottlenecks. When the number of customers rises rapidly, even the best management teams face the prospect of automating customer service in a hurry, thus risking the backlog of customer questions that almost every subscription service has experienced—Netflix and its “pending” queue, anyone?—and that too many subscriptions still haven’t addressed.

Billing and Payment Processing

Another really important consideration is implementing a seamless billing system. Businesses have to handle payments smoothly. They must avoid problems that could cause revenue loss, like transactions that fail for any reason.

How to Create a Thriving Subscription Business

Establish Your Value Proposition

The foundation of a prosperous subscription business is a well-defined value proposition. When we say “value proposition,” we really mean “what your business does that is unique and valuable enough to keep people paying for it consistently.” A subscription business could be compared to a revolving door; you need to keep new customers coming in while also keeping the existing ones from exiting.

Use Advanced Technology for Efficient Operations

In building, managing, and optimizing subscription programs, advanced tools can be of great assistance. Take, for example, the role of automation in simplifying subsystems like onboarding, billing, and customer support. Without the aid of automation, these functions could easily absorb an entire team and still fall short in achieving the desired subscriber satisfaction. And if subscriber satisfaction is less than desirable and if it doesn’t improve over time, that’s a pretty clear sign that a subscription business either isn’t sustainable or isn’t operating at an optimal level.

Carry Out Experiments and Iterate

Make it a routine to experiment with not only pricing but also the bundling of products and value-added features to gauge customer response. Iteration, of course, is the lifeblood of subscription programs in the attempt to resonate over the long haul.

Cultivate a Community

Subscriptions typically perform best when the customers feel they are part of something larger. That’s a group of dependable users, for the most part. Part of the allure with subscriptions—and why certain companies do better than others at them—is because the user feels like they are part of a group and not just a singular entity.

Conclusion: The Subscription Transformation

The subscription model is changing how companies operate, and putting customer experience front and center in how they generate revenue. It’s really a transformation. You’re creating recurring revenue. You’re not relying on that one-time sale. That customer has to keep paying you to keep getting access to something, whether it’s a service, a good, or even content. And that relationship is built on ongoing value, and the importance of that has never been more true than in today’s economy.