Over the last decade, the ways companies sell their products have seen a profound shift. Not only have businesses started to focus on e-commerce more than ever before, but they are also actively adopting new business models, subscriptions and memberships being the key ones.

By employing these models, companies are more efficient at maintaining constant engagement with customers. Basically, both subscription and membership models have much in common, as they generate recurring revenue while customers use services during a certain period of time.

Plenty of companies have adopted subscription and membership models, and if you're considering trying one of them, this guide is for you. Go on reading to find out everything you might want to know about subscription and membership models to make an informed decision about which to choose for your business growth.

The subscription business model explained

A subscription model in e-commerce is a business model where a company provides services on a regular basis in exchange for regular payments from the customer. It enables businesses to leverage customer relationships in order to ensure a steady stream of income, as subscribers are charged on a monthly, quarterly or annual basis for a product or service.

Without any doubt, subscriptions are a win-win: customers enjoy the convenience of getting a product or service they need to be delivered straight to their doorstep, while businesses gain the opportunity to improve customer retention and predict the revenue.

The subscription model is commonly used throughout the following areas of business:
  • Publishing
  • Streaming content
  • Food delivery
  • SaaS
  • PaaS
  • E-commerce
  • Subscription boxes

A membership model explained

A membership is a business model where members pay a recurring fee to access the value an organization creates. A membership business is in many ways similar to the subscription model. While the subscription model allows customers to get products and services on a regular basis, a membership gives them access to discounts on products or services. Membership enables businesses to attain a higher level of customer engagement by granting exclusive membership privileges, premium positioning, and creating online communities.

Most typically, a membership model is employed by:
  • E-learning platforms
  • Streaming services
  • The event industry
  • Communities
  • Non-profit organizations
  • E-commerce stores

Advantages of the subscription and membership business models

Recurring revenue

The major advantage of these models is of course recurring revenue. With the subscription model, it’s also easier to predict how much revenue your business will receive each month. This is especially useful when you're allocating a budget for your business strategy. Knowing your future income, you have an accurate representation of your company's resources, which gives you more freedom to invest in growth and innovation.

Simplified business process

Without any doubt, the subscription model streamlines the process of selling and buying, both for the business and customers. Fair enough, as the subscribers don’t need to buy a product or service every month, and the business doesn't need to handle multiple orders. This definitely adds to the productivity of the businesses, saving them plenty of time and effort.

Improved customer retention

Both subscription and membership models help companies to retain a greater number of clients on a regular basis. Longer relationships with consumers enable businesses to better understand their target audience and use this data in producing effective solutions for business growth.

Exciting marketing opportunities

As we have previously mentioned, long-term relationships with customers facilitate developing successful marketing strategies based on customers’ preferences and usage behaviours. In addition, testimonials left by your subscribers on the website add value to the business image.

Business consistency

A subscription makes it easy to anticipate demand and supply, creating a solid ground for maintaining consistency of business processes. Also, this model enables more efficient planning. For example, product vendors or other services can be hired ahead, saving your time, effort and costs.

Which model is better?

The most obvious benefit of the subscription model is that it allows you to efficiently plan your financial operations as well as calculate their revenues more precisely. On the flip side, membership is more about consistent customer engagement as it helps create a feeling of being a part of a community. The additional value provided by the membership model is one of the best ways to encourage your audience to spend money on merchandise and exclusive content.

You might want to leverage both models, as their combination can provide enormous benefits to your business. For starters, by combining membership and subscription, you’ll be able to easily attract your target audience. In order to grow leads in specific niches, it’s a good idea to start with free memberships and eventually introduce subscriptions. Secondly, you can provide special offers through memberships, creating an opportunity to ensure higher revenues. What is more, a subscription coupled up with membership is all about enhanced customer loyalty. Just look at how it works: you can set an expenditure threshold by reaching which a subscriber enters a VIP membership that allows access to some features for free.

The good news is that both models work online, however, the membership model is meant to be used for non-physical services, for example, digital courses, access to cloud-stored files, or maintenance fees for a service — in fact, anything that doesn’t require shipping. No matter which model you choose (or decide to combine them), you need a platform optimized for your unique business needs, such as Subbly.

The bottom line

All in all, subscription and membership business models are definitely here to stay. They provide businesses with recurring revenue, help build deeper relationships with customers and receive incredibly valuable data for further business development.