Subscription Model

Instead of buying something once, customers sign up and keep paying for as long as they want the service. Streaming services, software, gym memberships, news websites, meal kits and many apps use subscription models.

The main attraction for businesses is predictable, recurring revenue. If a software company has 10,000 customers each paying 30 a month, it can expect about 300,000 of revenue each month, which makes planning easier. Investors often value recurring revenue highly.

Success depends on keeping customers. The proportion of customers who cancel each period, called the churn rate, is closely watched. If 5% of customers cancel each month, the business must constantly win new ones just to stay the same size.

Subscription businesses also track measures such as customer acquisition cost and customer lifetime value to make sure each new customer is worth what it costs to win them.

For customers, subscriptions offer convenience and ongoing access, but the costs can add up, especially for services that are rarely used. Regulators in some countries have introduced rules to make subscriptions easier to cancel.