Subscription - What is a subscription?
A subscription is an arrangement whereby goods, services or stock are sold periodically rather than individually.
If your business offer subscriptions, you can use recurring invoices to automate your billing process.
Most subscriptions require customers to sign some form of contract or to agree to set terms and conditions. These terms and conditions may outline the length of the subscription, a renewal procedure, cancellation policy, payment terms, and usage or quantity limits.
Although the subscription business model was initially used by magazines and newspapers, it’s now common across many sectors and markets. Since the subscription model was picked up by other types of organisations, the way subscriptions are managed has diversified.
Some of the different types of subscriptions include:
The fixed usage subscription model offers a set price for a fixed quantity of goods or services over a set time frame.
For example, magazine subscriptions are often offered on a fixed subscription – a customer pays a set amount upfront to receive a magazine at regular intervals, usually weekly or monthly, over a specific period of time.
The unlimited usage subscription model offers a set price for unlimited access to a good or service.
The usage can be personal – for example, a gym membership which gives the member unlimited access to gym facilities – or transferrable, such as a phone contract subscription which offers unlimited calls and texts to an entire family across several devices.
Also known as the convenience model or no-commitment billing, this model enables customers to purchase products or services periodically without any long-term commitment. Customers can cancel their subscription at any time.
The pay-as-you-go-subscription model has been popularised by subscription ‘beauty boxes’ and similar services, whereby customers pay monthly and in return receive a monthly delivery of beauty products.
Commonly used by websites and cloud service providers, the freemium model offers access to limited levels of content for free, but only offers additional content or premium features to paying subscribers.
For example, some music streaming services offer freemium subscriptions – whereas any user can stream music online, only paying customers are able to save playlists and listen offline.
The subscription model has benefits for both the businesses using the model and the customers purchasing the subscription.
Benefits for businesses include:
Predictable revenue: whilst customers can end their subscription, the terms and conditions and a fixed price enable businesses to more accurately predict revenue and income, therefore making it easier to plan ahead financially.
Customer loyalty: the subscription model has also proven to increase average customer lifetime value (ACLV) through creating opportunities for upselling and cross-selling different products or services.
Subscription benefits for customers include:
Convenience: rather than making multiple payments, a customer can set up a one-off transaction.
Cost: subscription services can be more cost-effective than non-recurring models, and customers avoid the bank charges/transaction fees which could incur with multiple one-off payments.
A stock subscription is a contract or legal agreement whereby an investor purchases shares of company stock on a regular basis over a specified period of time. Stock subscriptions are usually offered to the company’s management and employees, often without brokerage fees or commissions.
For the employee, this reduced price is a good deal and gives them financial interest in the company. For the business, stock subscriptions reduce staff turnover by giving employees an incentive and motivation to stay with the company. It also represents a steady, yet often modest, cash inflow.
If you offer subscriptions or have customers who make regular, repeat purchases, recurring invoicing automates the process of creating and sending invoices, making it easier to bill your customer and get paid.