From food delivery to Microsoft Office to Webflow — it seems like there's a subscription service for everything these days. The data reflects this trend, as the subscription industry has grown over 435% over the last decade. 

Subscribers can now enjoy things like spin classes, movie nights, gaming, and so much more from the comfort of their own living room thanks to subscriptions. Subscriptions offer businesses a steady stream of revenue while providing subscribers with consistently updated products. It's a win-win for both sides.  

These trends aren't slowing down anytime soon. In this post, you’ll learn the ins and outs of the subscription model and why the vast benefits make subscriptions the future of commerce.

What is a subscription business model and how does it work?  

A subscription business model is a way of selling products or services where customers pay a recurring fee, usually monthly or annually, in exchange for ongoing access or regular fulfillment of the product. Unlike one-time purchases, subscriptions rely on recurring transactions, with a primary focus on retaining and nurturing customer relationships over time.

Components of a subscription business model

Subscription-based companies share a few key components essential to their business, regardless of category.

  • Customer acquisition: Subscription companies must make customers understand the value of the subscription. This may come from free trials, exclusive product offerings, and more strategies. Once customers start using the service, companies must onboard and provide immediate value to the customer to retain them. 

  • Recurring payments: The hallmark of a subscription is recurring payments that happen either weekly, monthly, or annually. Customers pay for access or replenishment of an item.

  • Recurring billing: Businesses use an automated process to charge customers on a regular schedule, while managing payment methods, invoices, and taxes. Billing schedules can fluctuate based on pricing structure.

  • Subscription account management: Companies often provide their customers with customer portals to handle their subscriptions. Usually, subscribers can upgrade, renew, downgrade, pause, bundle, and cancel their subscriptions. 

  • Fulfillment or product delivery: Subscription companies deliver the promised product or service, whether digital or physical, to ensure customer satisfaction. This happens daily, weekly, monthly, quarterly, or yearly.

  • Plan access: Products and services are often offered through tiered plans, each providing varying levels of access. These plans may impose limits on usage or offer unlimited access, depending on the tier selected.

  • Update content or products: Because a subscription is an ongoing service, businesses must provide new products, product enhancements, or incentives to retain customers long term. 

  • Retention and lifecycle management: Businesses work to retain subscribers over time through ongoing value, loyalty incentives, or flexible options (like pausing or upgrading).

  • Customer support: To thrive in the long term, businesses must prioritize investing in effective customer support tools. These tools not only help customers solve issues, but also play a vital role in building trust in your brand. As businesses grow globally, support must also scale. A strong online help center and automation tools, such as chatbots, can deliver quick and relevant support anytime, anywhere. For situations requiring a personal touch, prioritize building bilingual support teams to better meet diverse customer needs.

  • Analytics and reporting: Businesses use analytics for monthly recurring revenue, churn, customer lifetime value, and more to monitor business health and optimize performance.

  • Financial, security, and legal compliance: Businesses must follow financial and legal requirements, such as ASC-606, IFRS-15, PCI-DSS Level 1 compliance, and more. Compliance requirements for your revenue are influenced by factors such as regulations, pricing models, fulfillment strategies, currency, and much more. Many companies lack expertise across different regions and rely on third-party tools to simplify this process. Accurate revenue recognition is especially important when entering new markets. Solutions like Recurly’s Revenue Recognition are purpose built for this use case. 

Types of subscription models

These are some of the most popular subscription models companies rely on today.

Replenishment model

  • Automatically delivers consumable products (like razors or vitamins) on a regular schedule so customers never run out

  • Focuses on convenience and consistency

Curation model

  • Offers a personalized or surprise selection of products (like beauty boxes or book clubs) each delivery cycle

  • Designed to delight and create discovery experiences

Access or membership model

  • Provides exclusive access to content, tools, discounts, or communities (like streaming, gym membership, or other loyalty clubs) for a recurring fee

  • Adds value through exclusivity and ongoing benefits

Usage-based (pay-as-you-go) model

  • Charges based on how much a customer uses (like API calls or storage)

  • Gives customers flexibility and aligns price directly with usage

Tiered or flat-rate model

  • Offers fixed or tiered pricing based on features, volume, or user counts (like SaaS plans)

  • Helps meet different customer needs and encourages upgrades

Hybrid model

  • Combines multiple models (such as recurring access with optional add-ons or one-time purchases)

  • Provides ultimate flexibility and customization for different audiences

Top benefits of subscription models 

They beat their competitors

Looking for proof that consumers are hooked on the feelings of convenience and variety that subscription services provide? Subscription model companies now do better than their non-subscription model competitors.

To understand why this is happening, you need to first understand the subscription model vs. one-time payment. In a one-time transaction model, you make a sale and get the profit, but to continue making money, you have to continue selling items. On the other hand, the Monthly Recurring Revenue (MRR) model allows businesses to accumulate revenue very quickly with a guaranteed resale month after month and build customer satisfaction with the long-term relationships.

Example: Software

Adobe and Microsoft, two software giants, have in the last decade moved from perpetual licenses of software packages like Creative Cloud and Office to subscription models that allow them to derive more revenue this way.

When Adobe was using a traditional business model, it could only collect a one-time purchase of $999 from customers for Adobe Photoshop. Once the one-off purchases were paid, the company had no way to get further revenue from its customers unless they wanted to upgrade to a new Photoshop version, which happens every few years at the most. Now, Adobe offers their product on a subscription basis of $9.99 per month. That pricing structure is 100 times less than the one-time cost of $999 for unlimited access. However, customer loyalty and subscription fees can offer a steady stream of revenue as long as customers want to use Adobe's Creative Suite services. That’s the power of a loyal customer base.

Example: Media & Publishing

Subscriptions have transformed the media and publishing industry by offering a more stable revenue model than advertising alone. As traditional publishers compete with tech platforms for ad dollars, many have shifted to direct reader relationships. This approach allows them to delve deeper into the news while expanding their platform to better align with the preferences of their subscribers.  The New York Times is a standout example — beyond just news, it offers personalized bundles that include access to games like The Crossword, cooking guides, and even audio journalism. This approach deepens engagement, caters to diverse reader interests, and increases the lifetime value of each subscriber.

Subscriptions make the ultimate gift

Subscriptions are a gift that keeps on giving. Whether it's a digital product or a physical one, the gift invites a consumer (who loves experiences) to share their experience with a potential customer who can pick up the subscription basis. Depending on the types of subscription business you manage, it's likely that an adoring current customer will give your product to others while also boosting the chances that the gift recipient gets hooked on your goods or services and turn into a loyal customer.

Rapid acquisition

Gift subscriptions also tap into seasonal and life-event-driven buying behaviors — holidays, birthdays, anniversaries — making them a repeatable revenue stream throughout the year. Enabling subscription gifting is a win-win: one purchase turns into two loyal customers.

The subscription business model offers convenience for consumers

Consumers are seeking greater value and flexibility, and subscriptions offer just that. With a subscription, customers can budget for recurring expenses while enjoying the option to pause when finances are tight or their needs change. Subscriptions also provide more value over time, allowing consumers to access a range of services or products at a lower cost compared to purchasing individual items. Here's how:

Predictable costs every billing cycle

When people shop for a subscription product, they're looking at a fixed price (often billed on a monthly, quarterly, or annual basis). As it turns out, predictable costs over a consistent period of time make for a good customer experience. Now a buyer can budget their own finances more effectively, making room in their wallet for consistent monthly/yearly subscriptions based on their needs. Consistent billing and consistent revenue for your business. 

Consumers enjoy temporary ownership

Who likes to be tied down? Surprisingly, subscription-based services appeal to many consumers who enjoy the benefits of "temporary ownership." Services like Rent the Runway and furniture rental are booming because today’s consumers prioritize experiences over owning things. They’d rather spend $2,000 on a trip to Mount Kilimanjaro than on $2,000 worth of stuff cluttering their homes.

Consumers with an "experiences over things" mindset may even forgo owning a car and instead use Uber as their main method of transportation so that more of their budget can go towards traveling, skydiving, and other "bucket list" experiences instead of gas, parking, and car maintenance.

When was the last time you bought a full software package just ready to go? It’s rare these days and for good reason. Subscriptions offer a more economical solution, allowing businesses to pay a predictable monthly/yearly fee instead of shelling out hundreds of thousands — or even millions — on major upgrades every few years. Rather than purchasing entire suites like Adobe Creative Suite or Microsoft 365 periodically, companies now access the latest tools and updates continuously through subscription models.

Subscriptions are also convenient for businesses

Subscription models aren’t just convenient for consumers — they give businesses greater predictability. With recurring revenue, companies can better forecast demand, plan inventory, and iterate on their products and services. Especially for physical products with long lead times, knowing what to expect each month or quarter allows teams to make smarter, more efficient operational decisions.

Predictability 

When the majority of sales are prescheduled, you have a more predictable stream of revenue. This recurring revenue helps ensure the viability of the business, even in times of turbulence and financial fluctuations. It also helps keep your business operations up and running smoothly.

Subscription-based services enables a multitude of pricing strategies

Subscription pricing is far from monolithic. Here are a few common examples of subscription pricing strategies:

1. Fixed recurring model

This pricing strategy is ideal for businesses offering a consistent product or service at a set price on a recurring basis. Think streaming platforms like Netflix Kocowa, JioHotstar, iQIYI, where subscribers pay for ongoing access to curated content. For products with built-in variety, this provides a predictable revenue stream so your business team can focus on operational efficiency. A fixed recurring model allows you to predict revenue while minimizing the need for complex customization. This model can also be seen in monthly box subscriptions like FabFitFun and HelloFresh.  

2. Quantity-based pricing

Quantity-based pricing is best for companies seeking to dynamically increase or decrease the price of their services based on the quantity purchased. Take Quizlet as an example, where subscribers can access a certain amount of quizzes for free but must pay for more of their digital product. Customers have varying needs when it comes to the quantity of products or services they require. Quantity-based pricing enables you to refine your strategy, striking the perfect balance between consistent revenue and customer satisfaction.

3. Usage-based model

This model is best for companies who want to allow their subscribers to only pay for what they use. Twilio excels at presenting its pricing with a simple, customer-centric approach: “only pay for what you use.” Customers are charged based on usage, including fees per phone number, per message segment sent or received, and pass-through carrier charges. This usage-based pricing model is consistent across their services, such as charging per active user (after you hit 200+ users) on their Conversations APIs for Facebook Messenger and Chat platforms. 

Subscription pricing models can also take a hybrid approach combining multiple purchase types. Check out our pricing model page here to find out more. 

The subscription business model works for every industry imaginable

Businesses of all kinds use subscription business models to sell products and services and receive monthly or yearly recurring subscription revenue.

Many companies believe that subscription-based revenue models wouldn't work for them. Still, even those companies previously steeped in the one-time sales model have seen enormous success by switching some or all of their business to subscriptions. Peloton serves as a prime example of a successful hybrid model. While the bike is available as a one-time purchase, its subscription ecosystem adds immense value with exclusive live classes, comprehensive programs, optional challenges, and more, creating a seamless and engaging fitness experience. 

You would never expect that a company that sells swimsuits, like Speedo, could have a market for a subscription-based business model. But they do. Instead of selling swimsuits on a recurring basis, the Speedo subscription allows swimmers to track their swims, connect with other swimmers worldwide, and view engaging and informative content for about $8/month.

With the right positioning, strategy, and pricing, any industry can adopt a subscription-based model. This approach not only aligns with evolving consumer preferences but also offers significant financial benefits for businesses. By focusing on customer retention over constant acquisition, subscriptions provide companies with more predictable and sustainable revenue streams.

Tracking business performance under the subscription business model

At this point, you may be asking yourself, "What subscription business model metrics do I need to track?" Here's what we recommend:

  • Monthly recurring revenue (MRR): MRR refers to all predictable revenue you can expect each month, including all invoiced recurring charges, credits, and refunds from active subscribers

  • Average revenue per user (ARPU): This average shows you how much revenue you can expect to get over each customer lifetime

  • Voluntary churn rates: The total number of subscribers who have chosen to end their subscriptions over a particular time period

  • Involuntary churn rate: The total number of subscribers whose subscriptions end due to a failed payment or technical failure (Involuntary churn happens more than you might expect and is preventable)

  • Churn MRR: The amount of monthly recurring revenue lost from customer cancellations

  • Customer retention rate: This metric tracks how long subscribers stay, and how much revenue they generate over time

  • Trial conversion rate: The rate at which people who sign up for a free trial become paying subscribers

Check out more metrics every subscription business should keep an eye on.

How the right tech stack helps you succeed

A key requirement to launch a successful subscription business is that your tech stack needs to be on point in order to serve your global customer base through both one-time and subscription offerings. To help you grow and expand, your tech stack must:

  • Have the ability to ensure payment success with the right set of payment gateways. A payment gateway works like a digital version of a physical point-of-sale (POS) terminal and facilitates transferring funds from the customer to the company’s bank account. Different payment gateways provide different acceptance rates for different regions, industries, and business models, so it's important to find a subscription billing platform that supports multiple gateways.

  • Leverage scalable solutions to tackle challenges and drive growth effectively. Tools such as global payment processing, customizable international selling options, and streamlined subscriber management across channels are critical components for achieving success on a larger scale. Scalability allows you to adapt to market changes quickly without needing to build time-consuming solutions.

  • Integrate advanced data analytics to drive smarter, more informed decisions. A robust analytics platform goes beyond simple reporting — it unifies data from diverse sources such as websites, mobile apps, data warehouses, and more. This integration provides comprehensive visibility across every aspect of your subscription business. To achieve this, you'll need an analytics system capable of seamlessly consolidating and centralizing these data streams into a single, clear view for actionable insights.

  • Optimize your business with composable commerce tools that seamlessly integrate best-in-class solutions for your subscription model. This strategy enables you to choose the right technology to speed up time-to-market, outpace competitors, and create a platform that keeps subscribers engaged and loyal. Don’t lock your business into a one-size-fits-all infrastructure, build a system ready for flexibility and adaptability.   

See it for yourself: Check out this Recurly product tour or book your own demo, and see why it is the subscription management and billing platform that helps leading brands grow recurring revenue.