How to Build a Successful Subscription Business Model

Author: Hardik Shah

Hardik Shah

Hardik Shah

7 min. read

Updated May 10, 2024

Gartner predicted that “By 2020, all new entrants and 80% of historical vendors will offer subscription-based business models.” And it’s an undeniable fact that most online services come with some sort of subscription package. Everything from software, to digital goods, eCommerce packages, and even newsletter based subscription boxes.

For the information and technology industry, subscription models are now a core business model. They just need to build one great software product that continues to engage the audience with consistently updated functionality. This enables businesses to focus on customer engagement and feedback, rather than juggling multiple product lines.

If you’re launching your own online business or need to pivot your business model, you should consider implementing a subscription service. Read on for a full rundown of how to turn traditional software, eCommerce, or a service-based business into a subscription offering.

Why implement a subscription service?

A subscription business model or service provides access to an online platform for a fixed timeframe and price. Typically this involves a range of pricing options that either provide greater flexibility or a lower price for a longer investment.

And while subscription models are becoming common for software and eCommerce businesses, there are actually different ways to approach service and pricing. You see some businesses embrace the model fully and develop their services around the concept. Others take a lighter approach by offering incremental discounts in exchange for regular reordering.

In some cases, the subscription offering is based on curation. Popular brands such as Barkbox and Stitch Fix embrace surprising their customers. Making their knowledge and expertise what people subscribe to. 

Subscriptions can help you better predict growth

No matter your business model, you should be forecasting sales, expenses, and cash flow. Opting for a subscription service for your business model can help make this process easier. You have strict tiers of service, obvious introductory offerings to track, and can project growth based on sign-ups, churn rate, and the length of the subscription.

If you offer physical products your list of subscribers combined with anticipated growth can help predict your stock requirements in advance. That way you can avoid holding excess inventory, having to dump product for a lower price, and even not ordering enough to fulfill demand.

How to develop a subscription service

Developing a subscription service should look fairly similar to the business planning process. It involves upfront research, analysis, defining your customer needs, and finally testing and execution. To help you get started, here are the five steps you should consider following.

1. Conduct market research

What can you do to turn your SaaS product into a sustainable subscription plan?

First off, you need to identify who your target audience will be. Even if you already have customers, you need to define who will purchase a subscription over a traditional product. This means going back to basics and understanding what your users are actively struggling with.

Once you understand what they’re struggling with, look to adapt those needs into a prolonged service. You’re not just solving an issue for them one time, you’re actively delivering over weeks, months, and years. You need to be sure that you can deliver a solid solution upfront and have enough runway to keep improving over time. 

You’re looking to identify a current problem. Understand how your product/service or a new iteration of it can solve it for them. Then you need to actively anticipate how your customers’ issues will evolve over time in order to layout an updated pipeline for your business.

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2. Conduct a competitive analysis 

Part of your market analysis should involve a deep dive into potential competitors. You may already have some in mind or need to conduct a completely new analysis to better understand who you’ll be competing against in the subscription service space.

Software development can be especially competitive. CTOs select their preferred software companies and vendors by referring to websites and online consultations. And since there are hundreds, even thousands of websites available out there, the competition for SaaS businesses is constant.

What you need to be looking for to help define your subscription model, is the opportunity available to you to undercut the competition. Maybe it’s the product itself and the features that are available. Or maybe it’s selling excellent and immediate customer service or a more attractive pricing model.

Look to your competition to see what works and what is a requirement to sell subscriptions in your industry. Then, find ways to differentiate yourself.

3. Define your buyer persona

Buyer personas are a research-based strategy to segmentize the target audience. It provides an accurate idea of how customers see the pricing and value proposition of products. With subscriptions, you may actually be serving multiple personas.

For example, let’s say you’re launching a software product based-on customer relationship management. This product could have multiple subscription tiers or membership plans. Maybe one tier is inexpensive but only provides access to the core features of your product. But your high-end tier, for a slightly higher price, offers a robust suite of solutions.

Just like that example, it’s likely that you’ll need to define and sell to multiple personas. It’s up to you to understand who these individuals are, what they’re looking for, and how your product can be refined to better serve them.

To get you started, keep in mind that you may be dealing with several of the following individuals:

  • Direct buyer — The owner of the company 
  • Manager / Team lead — Head of a department or team
  • Chief technical officer — Individual in charge of technology investment and far more experienced in SaaS products

4. Connect with your target audience

According to invespcro, it is five times more expensive to acquire a new customer than to keep an existing one. This means you need to be able to bring in and keep your audience. This is often the most difficult part of acquiring customers. Since it usually takes getting the product in their hands to get them on board.

The best thing you can do is treat sales and onboarding initiatives as the start of a long-term relationship. You want to showcase that you are thinking ahead and wanting to care for a customer past their initial sign-up. This can be anything from direct engagement or training to handing them a rough roadmap of future updates, features, and events that they’ll have access to. 

You want to leverage any introductory tiers (such as a free trial) to convert to a monthly or more ideally an annual account, as quickly as possible. Give them access, show their potential using your product, and keep that early engagement up to get them on board.

5. Finalize pricing and product offerings

Product pricing and offerings are the most crucial component of developing a subscription model. Every SaaS product has certain features and benefits based on different tiers and use cases. But it can be difficult to immediately know what price, as well as what features, you should go with when selling a free, monthly, quarterly or annual membership. 

You can start with the freemium model or subscriptions at discounted prices to attract your target market at first. It entices customers to sign themselves up to access the service. It increases the bandwidth of customer engagement and introduces the product features and benefits crucial for long-term commitments. 

Actually landing on the best price and feature mix probably won’t be a one-time decision. You’ll need to test different price points and features to see what resonates and convert customers. And even when you’ve found a winner, you’ll likely need to update it over time as you add new updates, expand your services or build out more subscription tiers.

Closing thoughts

Subscription models are the gateway to consistent recurring income, as well as long-term customer relationships. Work through the same business planning process you used to start your business, but focus on how to promote the continuous benefits of your business. If you can, try to hit these three components:

  • Reliability
  • Security
  • Performance

Get your technical resources on board and start to build a secure and performant product that offers non-stop reliability. And don’t be afraid to test and iterate. This is a subscription after all, and you’ll need to keep making adjustments to stay competitive. 

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Content Author: Hardik Shah

Hardik Shah works as a Tech Consultant at Simform — a dedicated team of mobile app developers in Denver. He leads large scale mobility programs that cover platforms, solutions, governance, standardization, and best practices.