Definition: What is a subscription model?
A subscription model is a revenue model where customers pay regularly (monthly, annually) for ongoing access to a product or service. Instead of a one-time purchase, it creates a long-term customer relationship with recurring revenue streams.
The model originated in newspaper subscriptions and club memberships, but through digitalization, it has become the dominant model in the software industry (SaaS) and is increasingly expanding to physical products and services.
Key success factors: continuous value delivery (the customer must feel the benefit every month), low barriers to entry (often combined with freemium), and high switching costs due to data, habits, and integrations.
Types of subscription models
- SaaS (Software as a Service): Cloud software via subscription – the most dominant digital subscription model. Examples: Salesforce, HubSpot, Slack, Microsoft 365
- Content/Media: Access to content for a subscription fee. Examples: Netflix, Spotify, The Economist, Masterclass
- Box/Curation: Regular delivery of curated physical products. Examples: HelloFresh, Dollar Shave Club, Glossybox
- Membership: Exclusive benefits and community access. Examples: Amazon Prime, Costco, business networks
- Replenishment: Automatic re-delivery of consumer goods. Examples: Amazon Subscribe & Save, Nespresso subscription
- Access/Leasing: Access instead of ownership – right of use for products. Examples: Car-sharing subscriptions, clothing leasing
- Service Retainer: Ongoing consulting or services via subscription. Particularly relevant for B2B and consulting
Key performance indicators (KPIs)
- MRR/ARR (Monthly/Annual Recurring Revenue): Predictable recurring revenue – the central metric
- Churn Rate: Percentage of customers who cancel their subscription – keeping this low is vital
- CLV (Customer Lifetime Value): Total value of a customer over their lifetime – must significantly exceed CAC
- CAC (Customer Acquisition Cost): Costs for acquiring a new subscriber
- CLV:CAC Ratio: Ideal >3:1 – for every euro invested in customer acquisition, at least 3 euros are returned
- Net Revenue Retention: Revenue growth from the existing customer base (incl. upgrades, minus churn)
Benefits for companies and customers
For companies
- Predictable revenue: Recurring revenue enables better financial planning and more stable cash flow
- Higher customer loyalty: Ongoing relationship instead of a one-time transaction – more upselling opportunities
- Better valuation: Subscription companies are valued 5-8x higher on the stock market than comparable one-time sale models
- Continuous feedback: Usage data enables constant product improvement
For customers
- Low entry costs: Monthly payment instead of a high one-time investment
- Always up to date: Automatic updates and improvements included
- Flexibility: Cancellation possible, no long-term commitment required
Subscription models for SMEs
Even SMEs can successfully implement subscription models:
- Service Retainers: Ongoing consulting, maintenance, or support packages instead of individual projects
- Knowledge subscriptions: Industry expertise as a membership platform with premium content, webinars, and community
- Software + Service: Own digital tools with ongoing support in a SaaS model
- Maintenance subscriptions: Servitization – supplementing physical products with an ongoing service subscription
- Hybrid model: One-time project work combined with an ongoing retainer for support and optimization
Building a subscription model
- Define continuous value: Why should the customer pay every month? The value proposition must be continuously tangible
- Design pricing: Plans, terms, discounts for annual payment. Keep it simple: 2-3 plans maximum
- Optimize onboarding: Get to the first “aha” moment quickly – customers who experience value early stay longer
- Reduce churn: Analyze reasons for cancellation, increase engagement, proactive communication
- Upselling/Cross-selling: Develop existing customers toward higher plans or additional services
- Track metrics: Monitor and optimize MRR, churn, CLV, and CAC monthly
Developing a subscription model?
We help you design a viable subscription business model – from the initial idea to the launch.
Frequently Asked Questions
What is a subscription model?
A subscription model is a business model where customers pay regularly (monthly or annually) for ongoing access to a product or service. Instead of a one-time purchase, it creates a long-term customer relationship with recurring revenue – the dominant revenue model of the digital economy.
Which industries are suitable for subscription models?
Basically all industries where there is an ongoing need. Particularly successful: software (SaaS), media and content, consulting and services, consumer goods, education, and fitness. Traditional industries such as mechanical engineering (maintenance subscriptions) or retail (curated boxes) are also increasingly relying on subscriptions.
What is the difference between subscription and freemium?
Subscription is the revenue model (recurring payments). Freemium is an acquisition strategy (free entry with an upgrade option). Both are often combined: freemium as the entry point, subscription as the revenue model for the paid version. Example: Spotify Free (freemium) → Spotify Premium (subscription).