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Over the past decade, merchants have changed how they operate, with many now focusing on subscriptions and memberships as a key part of their strategy.
From Netflix to Amazon, merchants are focused on building continuous engagement with customers.
Why exactly? Well, for merchants that offer subscriptions, it is crucial to not only provide a great product at a low monthly price but it is also essential to rethink how they deliver and capture value from customers.
Merchants are increasingly offering subscriptions and memberships, but what’s the difference between the two models?
In a subscription model, customers pay a recurring fee to access a product or service for a set period. In contrast, a membership model provides customers with access to discounts or special offers on products or services.
While it's common to hear the terms "subscription" and "membership" used interchangeably, they actually refer to different concepts.
Many memberships are exclusive to each store and offer benefits to customers, sometimes even without a fee. Members often gain access to additional perks, creating a sense of community and belonging.
Memberships can also involve paying a fee to a store or organization to become a member, granting access to specific services or privileges for a set period, like with gym memberships.
For example, McFit, a gym franchise with 246 locations across Europe in Germany, Austria, Italy, Poland, and Spain, has more than 1.4 million members. People with a membership can access any of these locations with their monthly membership
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In a subscription business, customers are charged for the specific product or service they’ve signed up for, based on the terms of their contract. The billing period can vary depending on the subscription frequency, such as monthly, quarterly, annually, or by usage. Merchants charge customers accordingly within the agreed-upon billing cycle.
A great example of a subscription model is Porsche Drive, which offers flexible subscriptions. People can switch between multiple Porsche models for $4,000/month or stick with one model starting at $1,800/month. Both plans include miles, insurance, maintenance, and concierge service, with delivery available within 20 miles of a participating dealership.
Merchants can provide memberships without subscriptions by allowing members to join their community for free. This approach helps attract loyal customers who are drawn to your product discounts and special offers.
Similarly, merchants can offer product subscriptions without requiring a membership. Subscriptions provide recurring revenue for your business, as customers will continue to pay according to the terms of their contracts. Subscriptions also offer customers an affordable way to access your products, with an initial payment lower than the total product price.
If you run a PaaS, rental, or lease business, adding a membership option alongside your subscriptions can be a smart move. This approach helps you build customer loyalty while tailoring your offerings based on your products. Combining both models can bring significant benefits to your business.
People are usually happy to pay for a subscription when they believe the price is fair and they genuinely enjoy the product.
We are shifting from an ownership era to an access era.
In a linear world, it's all about acquiring new customers, shipping products, and processing one-time transactions. In a subscription world, however, it's all about building relationships and creating a unique subscription experience centered around services that help customers meet their needs.
A subscription gives customers access to a product or service for a specific period, while a membership means being part of a store, organization, or group.
Robbie Baxter, an expert in the subscriptions and membership model (her clients include Microsoft, The New York Times, and Asics), mentions that most organizations are attracted to a subscription model for at least one of the following reasons:
Customers have unique and changing needs, so if you offer one-size-fits-all packages with long-term contracts, you risk losing them. Eventually, they'll seek out options that better meet their individual preferences.
Nowadays, customers now have the freedom and flexibility to get what they want, when they want it, no matter where they are.
Subscription businesses need to prioritize customer relationships to drive growth and revenue. By focusing on subscriptions, they can gain deeper insights into customer preferences while building lasting and meaningful connections.
The good news is that the subscription model works well for businesses of all sizes. Industries such as consumer goods, food, furniture, retail, software, and entertainment are leading the way in adopting this model. Any merchant that values long-term customer relationships, isn't limited by geography, or seeks to expand can benefit from using a subscription model for its products or services.
On top of this, there is a growing trend of customers choosing to subscribe to products rather than purchase them outright. They seek affordable access to experiences and products that would otherwise be expensive to own.
Subscription businesses continue to be centered around delivering digital experiences, often integrating software and services into their offerings. Today, nearly every subscription plan operates in a digital format.
Subscription boxes offer another great way to deliver products, often packaged in attractive boxes that sometimes include surprises for subscribers. They typically come with convenient shipping features, such as return labels, enhancing the overall customer experience.
Birchbox is a beauty subscription box service where subscribers receive a selection of their favorite beauty products every month.
Part of having a successful business model is having the right strategy and tools to manage your subscriptions. We are sharing three tips to help you manage your subscription business.
First, understand what you want to accomplish with a subscription. Do you want to expand into international markets, generate recurring revenue, or reach different types of customers? Clearly define your goals when adopting a subscription business model to ensure you develop the best pricing strategy and customer experience.
As you start scaling and growing your subscription business, it's crucial to have billing and subscription management software in place to handle the complex processes involved in billing and managing your subscribers.
Offering the best possible service is essential for a successful subscription business, ensuring that your customers don't experience issues in the billing process as you scale.
When running a subscription business, there are key metrics you need to track, such as MRR, churn rate, ARR, and others, to make necessary adjustments as your business grows. Without this knowledge, it’s difficult to accurately assess what’s working and when you’ve achieved sustainable growth. Without the proper infrastructure in place, you’ll end up managing a lot of administrative tasks and risk compromising the customer experience.
A subscription business generates recurring revenue for merchants, while a membership involves someone paying (or sometimes not) to belong to a club, organization, or store.
Depending on your business and strategy, you can choose to offer subscriptions without memberships or provide both to boost customer retention and offer additional perks. If you're starting a subscription business, begin by defining your goals early in the process. Ensure you have billing and subscription management software in place to reduce administrative work and deliver the best customer experience, which will help retain subscribers in the long term.
At Firmhouse, we’re here to help you launch your subscription business. Contact us to schedule a demo or start your free trial today and begin using our recurring commerce platform.
