What are the Five Main Subscription Models?

One of the best aspects of using a subscription pricing models involves securing a locked-in customer base that makes regular payments. However, businesses must be careful in choosing the right model because changes later on may alienate their best customers. Among the many possible variations, here are five of the most common subscription models, as well as examples of companies that have implemented them well.

1. Short Cycle

Monthly, or even weekly, payments is the one of the oldest models. This was developed by print media long before the Internet. Short cycle bills much more frequently than long cycle, which means there are many more chances for something to go wrong. On the other hand, monthly and semi-annual prices are much lower than long cycle, making it easier for customers to commit or upgrade. Wine Spectator is one of the rare print periodicals that successfully made the jump to a web-based subscription model by gating access to detailed reference materials for specialists.

2. Long Cycle

Annual or longer billing periods are usually preferred by enterprise software companies with corporate licenses as renewals generally sync up with software development cycles. Two years ago, Adobe switched from selling its software to a bundled annual subscription model. Their Creative Cloud subscriptions, including Photoshop, were so successful that they added another line called Marketing Cloud, which include their popular Media Optimizer.

3. Virtual Goods

This is the preferred option for game services. Users pay real money to buy in-game currency or virtual objects. Companies like Activision produce a range of desktop and inexpensive mobile games. They earn revenue every time players buy virtual items like gems or gold. The virtual goods can be used to speed up in-game rewards or buy accessories and character upgrades.

4. Freemium

This is a preferred model for games and technologies that are unfamiliar to consumers, like cloud-based online storage was before Dropbox. This model allows users to choose a free account with limited services or a premium account with greater capabilities. Dropbox has had great success with this model after a rocky start. After users get accustomed to having online storage for pictures and documents on the free account, they quickly run out of room and upgrade to the premium level for more space.

5. Ad-based

Social networks and media sites specializing in news and entertainment prefer this model, which is based on traditional network television and radio models. The user accesses the content for free while revenue comes from advertisers who want to reach a specific segment. Facebook is the big winner in this category, operating for five years and adding 300 million users before it became profitable.

Subscription as the New Normal

Of course, the vast majority of companies employ hybrid approaches that mix these models together or add them on to traditional sales channels. The research firm Gartner estimated that at least 40 percent of media and online sales businesses would be using a subscription or hybrid subscription model by the end of this year. It’s good business practice to have issues like controlling churn, dunning management and managing sensitive customer data securely addressed by experts in these fields rather than having each individual company reinvent the wheel.

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