Subscription Model for Online Business

by Peg Corwin

The subscription model can lead to re-occuring revenues and exponential growth.

Selling online products by subscription is “all the rage,” according to Darren Dahl in the New York Times.

The subscription model for online business has long been attractive.  If the product or service is valued, the entrepreneur can expect re-occuring revenues that grow at a compound rate.   But if online users except products and services for free, subscriptions are an uphill sell.  It’s related to the membership model.

When the Subscription Model Works

Many online businesses that try the subscription model fail. Why?  It usually works only in certain circumstances.  “I think subscription models work best in two instances,” Dahl said. “Where the product is a necessity or when it’s an absolute passion. It stops making sense when you try to do something like a tree-of-the-month club, which doesn’t fit either of those categories.”

Subscription Model In Use

Traditionally, the subscription modelhas been used to sell content, like magazines, books and records;  for networking services, like Linkedin’s premium service; internets services, like access to online software applications; and services that sell credentials or trust with a subscription, like the Better Business Bureau.

Using the subscription model to sell products like pet food or shoes is a 21st century twist.

Subscription Model Advantages

Dahl quotes entrepreneurs who describe these advantages to the subscription model:

  • Sales and inventories are easier to forecast, allowing entrepreneurs to reduce inventory and negotiate discounts on purchases.
  • Funds invested to acquire customers can be amortized over the months or years they stay a customer.
  • The subscription model creates lifetime relationships with clients.
Many online businesses try the subscription model but move to freemium or advertising, probably because they don’t have a needed commodity or a passionate following.

More on Online Business Models

See our mega-page of links and info on various online business models.