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July 28, 2015 | Authored by: Vindicia Team

Is the subscription model right for you?

More companies have been moving toward subscription payment models in recent years. This sea change is frequently referred to as "the Subscription Economy." Obviously, subscriptions aren't a new business model; they've been around for years. Aside from the obvious benefits of the model, such as predictable revenue and greater lifetime value of customers, why the big change?

Part of it is related to changing consumer preferences. Millennials, in particular, are less inclined to own property and often prefer to share. This makes subscriptions, for everything from car services to music streaming services, a viable option for customers these days.

Another reason for the growing prominence of subscriptions, according to VentureBeat, is that software has transformed many industries. This means more industries are conforming to the typical payment methods employed by software companies. As these enterprises evolved from selling downloads to offering subscription-based software as a service, so did many other industries.

However, subscriptions still aren't right for everyone. How can you know whether the subscription model will work for you?

You have a service

There are a number of different business types that can adopt subscriptions easily. Commonly, subscriptions are used to access an online resource, whether it's streaming music or video, a research database or software application. Providing on ongoing service also lends itself well to the subscription model. Another approach that has taken off lately is the concept of delivering a curated box of goods on a weekly or monthly basis, like Birch Box, which sends a selection of women's beauty products, or PetBox, which sends out treats and toys for pets each month.

"It makes sense for a software-as-a-service company to offer its product as a subscription, but that doesn't mean companies that use this model need to fit a certain profile."

You have a strong financial team

Transitioning to subscriptions can be tricky in the short term and can cause some cash flow issues. According to MailGuard, maintaining a subscription model requires early planning and strong forecasting. The subscription space is a dynamic environment, and it helps if your team is able to plan ahead and see new opportunities to grow your business.

You want to keep growing

One reason consumers like subscriptions is because they give companies great incentive to keep evolving and updating their products. If the product gets stagnant, customers simply won't renew. If you have an innovative mindset and intend to continue working to make your products better, subscriptions could be one way to help you do that.

Creativity counts

It makes sense for a software-as-a-service company to offer its product on a subscription basis, but that doesn't mean companies that use this model need to fit a certain profile. A decade ago, it probably would have seemed crazy for anyone to pay a subscription fee to share cars, which is how Zip Car monetizes its service. It is possible to bring subscriptions offline and into the real world. Fortune recently profiled a company called Jukely that will offer unlimited access to live music for a set fee.

Subscription payment models could be the wave of the future, and jumping on board is worth thinking about for many businesses.

About Author

Vindicia Team

Vindicia Team

We value our subject matter experts and the insights each of them brings to the table. We want to encourage more thought leaders to come together and share their industry knowledge through our blog. Think you have something interesting to contribute as a guest blogger? Contact us at info@vindicia.com