Subscription Business Model: How and Why It Works

I order through DoorDash every day, which is my favorite fast food app.I buy the local newspaper from the neighborhood while going to work. The news section is fascinating, and I play the crossword puzzles. It gets my brain going.

I love watching movies from home. I'm looking forward to the new Netflix series coming out. DareDevil was my least favorite, but Iron Fist was the best. So, what’s the point of sharing this with you?

‍

It’s subscriptions. That’s right, if you haven’t guessed it yet. I LOVE SUBSCRIPTIONS.

Who doesn’t? They add joy to our lives. But only if you do it right. Offer the wrong kind of subscription, and your customers will run away. I’m not kidding.

Why Do Subscriptions Work So Well?

Let’s take the New York Times. It gets 7.5 million subscribers every month! While 20% of Americans pay for digital news, the New York Times continues to boast a strong following. Why?

Because it’s rooted in realistic journalism that acts according to the readers’ spirit and is guided by their values, the NY Times' audience understands that it has empathy. It connects with them emotionally. Surveys show that Americans believe the NY Times is a credible news source. And it’s because it stays true to its principles.

Your audience will join you when you make your business more than your mission.

If your customers know they will continue deriving value, they are more likely to be invested in it. As they renew your services, you will build strong relationships with them.Let’s take another example. Suppose you run a family restaurant. You cook special homemade meals for those who don't have the time to cook or make them. They are more likely to purchase your subscription. If you offer to customize their meals according to their tastes and preferences, your business will eventually boom. They will keep coming back for more!

What are the different subscription business models?

Subscription business models come in all shapes and sizes, tailored to various industries and customer needs. Let’s explore some of the most popular ones.

1. Media Subscriptions

Media subscription business models provide access to exclusive content like news, music, or video:

1. Netflix: Netflix offers on-demand streaming of movies, series, and documentaries. It offers Basic, Standard, and Premium subscription plans, differentiating by streaming quality and the number of screens available. Its vast content library and original programming keep subscribers engaged.

2. Subscription Boxes

Curated boxes of products delivered regularly have become a favorite for consumers seeking discovery and convenience:

1. Birchbox: Birchbox sells personalized beauty and grooming products. Each box contains curated samples based on user profiles. Birchbox combines discovery with customization, enticing customers to try new products.
2. KiwiCo: KiwiCo has STEM-focused projects for kids. It features age-appropriate kits for hands-on learning and creativity. Parents love KiwiCo for blending education and entertainment, creating a recurring source of fun for children.

3. B2C Subscriptions

Direct-to-consumer subscription business models provide convenience and reliability, making them popular for essentials.

1. Dollar Shave Club: Dollar Shave Club delivers razors and grooming products. It offers monthly or bi-monthly deliveries of blades and skincare products. Its convenience of automatic restocking appeals to busy professionals.
2. Who Gives a Crap: Eco-friendly toilet paper delivery service? Customers receive biodegradable, recycled toilet paper, and 50% of profits are donated to sanitation projects. The service combines sustainability with home essentials, so it is in demand.

4. SaaS (Software as a Service)

Software companies create customized subscription business models to deliver continuous access and updates:

1. Adobe Creative Cloud: Adobe Creative Cloud gives access to design software like Photoshop, Illustrator, and Premiere Pro. It includes cloud storage, regular updates, and tiered pricing for individuals, businesses, and educators. Customers don’t have to pay a large upfront cost or commit permanently. They can cancel their subscription or switch plans anytime they want.
2. Salesforce: Salesforce is a famous customer relationship management (CRM) software. It offers different levels of customer data management and automation plans. Businesses rely on its tools to drive sales and retain customers.

How to Start a Subscription Business Model at Low Cost?

You don’t have to break the bank to start and grow a subscription business model. But here are the basics:

1. Identify a Niche

Choose a market with consistent demand. Examples include fitness recovery gear, artisan coffee, or eco-friendly cleaning supplies. Use tools like Google Trends to identify popular niches.

2. Source Products

• Partner with dropshipping platforms like Spocket to avoid inventory costs.
• Start small with curated products that are easy to ship.
• Offer a starter kit featuring 3-5 items under $30.

3. Build a Website

• Use affordable platforms like Shopify or Wix to create a subscription-friendly website.
• Integrate subscription management tools like Recharge for recurring billing.

4. Market Smart

• Use social media ads to target your niche audience.
• Collaborate with micro-influencers who are already familiar with your target demographic.

5. Test and Scale

Start with a small audience and refine your offering based on feedback. Gradually scale by expanding your product range and marketing reach.

How to Upgrade to a Subscription Model for Your Business?

Transitioning to a subscription model can unlock steady revenue but requires planning. Let’s consider "Simply Clean," a fictional business offering eco-friendly cleaning supplies, and how it could make the switch.

Before Transition: One-Time Purchases

• Revenue: $10,000/month
• Challenge: Revenue fluctuates based on seasonal demand.
• Customer Experience: Minimal engagement after purchase.

Making the Switch

1. Create Subscription Tiers
   • Basic: $15/month for essentials like dish soap and sponges.
   • Premium: $30/month, adding laundry detergent and cleaning sprays.
2. Introduce Value
   • Free delivery for subscribers.
   • Exclusive monthly tips on eco-friendly cleaning.
3. Invest in Technology
   • Add subscription billing to your website.
   • Use analytics to track customer retention.

After Transition: Recurring Revenue

• Revenue: $15,000/month (60% of revenue from subscriptions).
• Benefits: Steady income, stronger customer relationships, and predictable cash flow.
• Challenges: Initial marketing costs to attract subscribers (~$2,000).

How to Make Up for Unforeseen Losses

• Offer discounts for annual plans to secure long-term subscribers.
• Upsell premium options or add-ons, like custom cleaning cloths or refill packs.
• Leverage referrals: Reward existing subscribers for bringing in new customers.

Why It’s Worth It

While the initial investment may seem daunting, a subscription model provides consistent revenue and builds a loyal customer base. Over time, the benefits far outweigh the costs, making it a smart strategy for businesses looking to grow sustainably.

When Subscriptions Can Go Wrong

You’ve just launched your dream subscription service called Daily Scribbles, a monthly subscription for stationery enthusiasts. You send out a curated box filled with notebooks, pens, stickers, and other writing essentials each month. The target market? Creative professionals and journaling specialists who thrive on fresh, high-quality supplies.

For the first six months, everything goes smoothly. Subscribers rave about the unique items in their boxes, social media buzz grows, and you even gain a few influencer endorsements. It feels like you’ve struck gold.

When the Bubble Bursts

By month seven, things start to unravel. Complaints roll in:

• “The notebooks feel repetitive. I already have three similar ones!”
• “The pens this month leaked all over my bag.”
• “I didn’t get my box until two weeks after the promised date.”

Your churn rate spikes. Social media mentions turn sour, with frustrated customers tagging your brand in negative posts. Worse, you lose 20% of your subscriber base in a month.

So, what went wrong?

Breaking Down the Failure

1. Lack of Innovation
   You didn’t evolve the product offerings, so customers began to see the items as redundant, reducing their perceived value.
2. Quality Issues
   Rushed supplier changes led to subpar products, undermining trust in your brand.
3. Logistical Hiccups
   You scaled too quickly without ensuring your logistics could handle the volume, leading to late deliveries.

The Road to Recovery

Recovering from a stumble like this requires a strategic approach. Here’s how Daily Scribbles could turn things around:

1. Face the Issues Head-On

Transparency is critical. Send an email to your subscribers acknowledging the complaints, apologizing for the shortcomings, and outlining the steps you’ll take to improve.

• Statement: “We hear you and acknowledge that our recent boxes didn’t meet your expectations. Here’s what we’re doing to fix it.”

2. Engage Your Customers

Run a survey to understand what subscribers want to see in future boxes. Use their feedback to introduce fresh, exciting items.

• Launch a monthly poll where subscribers vote on at least one item they’d like in their next box.

3. Upgrade Your Quality Control

Audit your supply chain to ensure all products meet your brand standards. Partner with reliable vendors and test every item before shipping.

4. Introduce a Loyalty Program

Win back trust by rewarding loyal subscribers. Offer discounts, exclusive items, or gifts for staying on board during the transition.

• Reward: “Three months free for customers who stick with us through our renewal phase.”

5. Fix the Logistics

Invest in better delivery partners and streamline your fulfillment processes to ensure boxes arrive on time.

Building Back Better

Over the next six months, you implement these changes. New partnerships with boutique suppliers bring unique, high-quality items to each box. Your customer engagement initiatives create excitement, with polls and sneak peeks driving anticipation. Social media buzz reignites, this time with glowing reviews.

Most importantly, you’ve learned a valuable lesson: complacency can kill a subscription business. Daily Scribbles recovers and grows stronger by staying adaptable and focused on your customers.

Breaking Down Subscription Tiers

Here is how to get your subscription business models working for you!

1. Entry-Level: The Starter Plan

Price Range: $10–$20/month
Target Audience: New customers exploring your products/services.
What to Include:

• A limited selection of products or services.
• Discounts on first-time purchases or smaller-sized offerings.
• Access an essential feature or tool (e.g., one curated product or a free monthly guide).

Why It Works: Low entry costs make it appealing to those hesitant to commit. Once customers see the value, it serves as a gateway to higher tiers.

2. Mid-Tier: The Premium Plan

Price Range: $30–$50/month
Target Audience: Regular customers looking for enhanced value.
What to Include:

• Access to more products or services each month.
• Exclusive perks like seasonal gifts or early access to new launches.
• Bundles and discounts on bulk purchases.

Example: A mid-tier subscription business model for a fitness brand can include monthly workout gear, healthy snacks, and access to one live virtual class per week.

Why It Works: Balances cost with added value, attracting those willing to pay for extra perks.

3. Top-Tier: The VIP Plan

Price Range: $75–$100+/month
Target Audience: Loyal customers and enthusiasts seeking exclusive access.
What to Include:

• Personalized services or custom items (e.g., bespoke products or one-on-one consultations).
• Access to members-only events, workshops, or Q&A sessions.
• Higher discounts on bulk purchases, free shipping, or lifetime access to specific tools.

Example: A VIP subscription business model for an art supply service could include premium-grade materials and custom engravings. It invites students to virtual art classes hosted by industry professionals.

Why It Works: The subscription business model fosters loyalty by creating a sense of exclusivity and personalized care.

Testing Your Subscription Business Model Services: A Step-by-Step Guide

Creating a subscription business model service is only the beginning. To ensure it thrives, you must continuously test, track, and refine your offerings. Below, we’ll walk through the entire process of testing a subscription service with actionable examples, metrics to monitor, and tools. Imagine you’re launching a "Monthly Fitness Recovery Box" targeting fitness enthusiasts. Here’s what to do.

Step 1: Define Your Test Goals

Before diving into testing, establish clear objectives. Ask yourself:

• Are you trying to reduce churn?
• Are you optimizing pricing for maximum profitability?
• Do you want to identify which features customers value most?

Your First Goal: "Determine whether offering free shipping for annual subscriptions increases conversions by 20%."

Step 2: Create Customer Personas

You can understand your customers better by creating buyer personas. These are fictional profiles based on accurate data and insights about your audience. Here’s how to create them step-by-step:

Step 1: Gather Data

Use multiple sources to collect insights about your audience:

• Website Analytics: Tools like Google Analytics show demographics, browsing behaviors, and referral sources.
• Surveys and Polls: Ask your customers about their preferences, pain points, and habits.
• Social Media Insights: Platforms like Instagram and Facebook offer data on your followers’ ages, locations, and interests.
• Customer Support Data: Analyze recurring questions or complaints to identify unmet needs.

Step 2: Segment Your Audience

Break down your audience into distinct groups based on:

• Demographics: Age, gender, income, education, and geographic location.
• Psychographics: Values, attitudes, interests, and lifestyles.
• Behaviors: Purchase frequency, product preferences, or browsing patterns.

Step 3: Build Personas

Combine the data into profiles. Each persona should include:

• Name and Background: "Eco-Conscious Emma, a 28-year-old marketing professional from Berlin."
• Goals: Emma wants to reduce her environmental footprint while maintaining a stylish lifestyle.
• Challenges: She needs help finding affordable, sustainable products.
• Shopping Habits: Emma prefers online shopping and is drawn to brands with eco-friendly packaging.

Step 3: Choose Metrics to Track

To measure the success of your subscription service, track these key metrics:

1. Customer Acquisition Cost (CAC)

What It Measures: The cost to acquire one customer.

How to Track: Divide total marketing spend by the number of new subscribers.

Example: If you spend $1,000 on ads and acquire 50 new customers, your CAC is $20.

Goal: Keep this as low as possible while maintaining quality leads.

2. Churn Rate

What It Measures: The percentage of customers who cancel their subscriptions.

How to Track: Divide the number of cancellations by the total number of subscribers during a period.

Example: If 10 out of 200 customers cancel in a month, your churn rate is 5%.

Goal: Aim for a churn rate below 10%.

3. Customer Lifetime Value (CLV)

What It Measures: The total revenue a customer brings during their subscription period.

How to Track: Multiply the average monthly revenue per user by the average subscription duration.

Example: If customers spend $40/month and stay 12 months, their CLV is $480.

Goal: Increase CLV by improving retention and upselling.

4. Conversion Rate

What It Measures: The percentage of visitors who subscribe.

How to Track: Divide the number of subscribers by the number of page visitors.

Example: If 1,000 people visit your page and 50 subscribe, your conversion rate is 5%.

Goal: Increase by optimizing your landing page and offers.

Step 4: A/B Test Different Variables

Run A/B tests to understand what resonates most with your audience. Here’s how to set them up:

1. Test Pricing Models

• A: Offer monthly subscriptions at $40/month.
• B: Offer annual subscriptions at $400/year (effectively $33.33/month).
• Metric: Compare the number of sign-ups for monthly vs. annual plans.
• Tool: Use platforms like Google Optimize or Optimizely to run the tests.

2. Test Call-to-Actions (CTAs)

• A: "Start Your Recovery Journey Today!"
• B: "Get Free Shipping When You Subscribe Now!"
• Metric: Track each CTA's click-through rate (CTR) using tools like Hotjar or ClickFunnels.

3. Test Product Combinations

• A: Include foam rollers, protein shakes, and towels.
• B: Include resistance bands, massage balls, and recovery gels.
• Metric: Monitor which combination drives higher satisfaction ratings in post-delivery surveys.

Step 5: Collect and Analyze Feedback

1. Customer Surveys

Send a short survey to subscribers after their first box arrives. Include questions like:

• “What did you enjoy most about this box?”
• “What items would you like to see in future boxes?”
• “Rate your overall experience from 1–5.”

Tools to Use: Google Forms, Typeform, or SurveyMonkey.

2. Customer Support Interactions

Monitor common issues raised in support tickets or emails.

• Example: If multiple customers mention delayed shipments, it’s time to revisit your logistics process.

3. Social Media Monitoring

Track hashtags, mentions, and reviews to gauge sentiment.

• Example: A customer posts an unboxing video excitedly about the foam roller. Use this insight to emphasize the product in future campaigns.

Step 6: Implement Changes Based on Findings

1. Optimize Your Offerings: If surveys reveal customers love protein shakes, make them a consistent item in future boxes.
2. Adjust Pricing: If A/B testing shows a significant preference for annual plans, highlight those plans in your marketing materials.
3. Enhance Your Value Proposition: Add free shipping, exclusive discounts, or bonus items for long-term subscribers.

Step 7: Monitor Long-Term Success

Track metrics consistently to see if changes lead to improvements.

• After offering free shipping on annual plans, does your CLV increase?
• Does the churn rate decrease after you add personalization options?

Use dashboards from tools like Shopify Analytics, Stripe, or Klaviyo to visualize trends over time.

Step 8: Continuous Testing and Improvement

Subscription businesses thrive on innovation. Regularly introduce new features, products, or tiers and test their impact. For instance:

• Launch a “Deluxe Recovery Box” at a higher price, including premium products like massage guns or custom yoga mats.
• Run seasonal promotions, such as holiday-themed boxes, to attract new subscribers.

Is Dropshipping a Good Subscription Service?

When we think of subscription services, we often think of curated beauty boxes, coffee deliveries, or streaming services. But can dropshipping work as a subscription model? The answer is yes—but only if done right.

How Spocket Can Help

Spocket, a leading platform for dropshipping and print-on-demand services, gives e-commerce sellers the tools to create subscription-worthy offerings. Here’s how Spocket enables success in this space:

1. Huge Product Catalog

Spocket has a huge network of sellers! (over 500k+)!

It has over 100 million trending dropshipping products, 80% EU/US suppliers, and even offers AliExpress dropshipping services! When you sign up and start dropshipping with it, your product sourcing, inventory management, and tracking are automatically handled.

2. Print-on-Demand Services

Spocket’s print-on-demand features are a big winner for sellers looking to add a personalized touch. You can design custom items—like T-shirts, mugs, or tote bags—tailored to specific subscription themes. For example:

• A fitness subscription could include personalized workout gear.
• A pet care box might offer custom bowls or collars.
• You can create custom merch and your lineup of printed duffle bags, too
• Spocket’s branded invoicing features are a must-try!

3. Smooth Integrations

Spocket integrates with major online stores like Shopify, BigCommerce, Wix, and WooCommerce. It makes it easy to set up, manage, and scale your store, including its subscription services.

4. Flexible Order Fulfillments

Unlike traditional subscription services that require bulk inventory purchases, Spocket’s dropshipping model allows for just-in-time order fulfillment. This reduces cancellations and ensures that every shipped product aligns with customer demand. Refunds and returns are taken care of only in the cases of defects. All your products are delivered to your customers right up to their doorstep, no matter where they are located. You can also try ordering free samples to test products before you commit to dropshipping them for profits.

You can claim Spocket’s 14-day free trial. There are many options for upgrading your plan if you’re happy with how things are going. Try it out. Significant savings are awaiting you on their yearly plans.

Fresh Ideas for Dropshipping Subscriptions

Let’s explore unique and varied ideas for subscription services using drop shipping. These examples cater to different audiences, price ranges, and interests, providing ample inspiration for your next business venture.

1. Personalized Coffee Lovers’ Box

Target Audience: Busy professionals, coffee lovers
Price Range: $30–$50/month
What to Include:

• Specialty coffee beans are sourced from different regions each month.
• Personalized mugs featuring customer-chosen designs or names (leveraging Spocket's print-on-demand services).
• Bonus items like a reusable coffee scoop or travel thermos.

Why It Works: Coffee lovers enjoy exploring new flavors and appreciate high-quality accessories. Adding personalization makes it feel exclusive.

2. Monthly Pet Care Package

Target Audience: Pet owners
Price Range: $25–$45/month
What to Include:

• Treats tailored to pet types (e.g., cats, dogs, or small mammals).
• We customize pet accessories like collars, leashes, or bandanas with the pet’s name.
• I am rotating toys to keep pets entertained.

Why It Works: Pet owners love spoiling their furry friends; customizable options add a heartfelt touch. Offering options for different pets broadens your audience.

3. Seasonal Home Décor Kits

Target Audience: Home decorators, seasonal enthusiasts
Price Range: $40–$70/quarter
What to Include:

• A centerpiece decoration (e.g., table runners, wreaths, or candles).
• Small décor items like throw pillow covers with seasonal prints.
• Printable wall art, leveraging Spocket’s print-on-demand features.

Why It Works: Subscribers look forward to freshening their homes with new styles for every season without shopping around.

4. Fitness Recovery Box

Target Audience: Gym-goers, athletes, wellness enthusiasts
Price Range: $35–$60/month
What to Include:

• High-quality foam rollers or resistance bands.
• Nutrition supplements, like protein powder samples or recovery drinks.
• Branded fitness towels or water bottles with motivational quotes.

Why It Works: Fitness-focused consumers often seek recovery tools and new supplements. Recurring deliveries keep them engaged with their goals.

5. Craft and DIY Supplies Subscription

Target Audience: Hobbyists, crafters
Price Range: $20–$40/month
What to Include:

• Materials for a specific monthly project (e.g., knitting, painting, or scrapbooking supplies).
• Instructions and ideas for creative projects.
• Tools like scissors, brushes, or templates with custom engravings.

Why It Works: The box is educational and exciting, giving hobbyists something new to look forward to and complete monthly.

6. Eco-Friendly Lifestyle Box

Target Audience: Sustainability-conscious consumers
Price Range: $30–$50/month
What to Include:

• Reusable items like bamboo utensils or stainless steel straws.
• Custom tote bags with eco-themed prints.
• Biodegradable cleaning supplies or skincare products.

Why It Works: The subscription taps into growing environmental awareness, offering practical and meaningful products that resonate with eco-conscious buyers.

7. Gamers’ Loot Box

Target Audience: Gamers, streamers, gaming enthusiasts
Price Range: $40–$80/month
What to Include:

• Custom T-shirts or hoodies featuring popular game themes (via Spocket’s print-on-demand services).
• Accessories like RGB mousepads, controller grips, or themed mugs.
• Digital codes for game credits or exclusive content.

Why It Works: Gamers are always looking for exclusive merchandise and practical accessories to elevate their gaming experience.

8. Subscription Snack Crate

Target Audience: Families, snack lovers, explorers of global flavors
Price Range: $20–$35/month
What to Include:

• Unique snacks are sourced from different countries each month.
• Custom recipe cards to create meals using the snacks.
• A reusable snack box with fun designs.

Why It Works: The cultural discovery aspect intrigues subscribers for every delivery.

9. Artist’s Monthly Toolkit

Target Audience: Beginner and professional artists
Price Range: $30–$60/month
What to Include:

• High-quality sketchbooks with customizable covers.
• Rotating art supplies like watercolors, acrylics, or markers.
• Tips and tutorials from professional artists in a booklet or video link.

Why It Works: Artists constantly need fresh supplies and inspiration. A curated selection saves them time and offers surprises every month.

10. Kids’ Educational Box

Target Audience: Parents, teachers, caregivers
Price Range: $25–$45/month
What to Include:

• Fun, age-appropriate educational toys or puzzles.
• Printable learning materials like flashcards or activity sheets.
• Themed T-shirts or backpacks for kids with custom designs.

Why It Works: Parents value tools that aid their children’s development, and the surprise element keeps kids excited.

11. Self-Care and Wellness Box

Target Audience: Busy professionals, wellness seekers
Price Range: $30–$55/month
What to Include:

• Custom candles or journals with motivational themes.
• Bath bombs, herbal teas, or skincare masks.
• A print-on-demand affirmation card set.

Why It Works: Self-care products align with the growing interest in mindfulness and mental well-being, making it a thoughtful subscription.

Conclusion

Subscriptions are not just a business model but a bridge to building lasting customer relationships. By providing consistent value, maintaining transparency, and adapting to customer needs, you can create a service that resonates profoundly and keeps subscribers engaged. And if you are diving into the world of dropshipping for selling subscriptions, Spocket can help.