Subscription business model

E-commerce has been following a growth trend both locally and globally for years. Today, we have all come to understand that to successfully develop your business, you need to have the readiness to offer your services and products online. This understanding is supported by data from the Bank of Estonia as well as by the wide-reaching research results from Europe and the US.

The rise of e-commerce has triggered market competition in nearly all sectors of the economy since purchasing, ordering and comparing products or services online has become easier than ever before. In the fight for the client one now also needs to be smarter and more modern than ever before.

One of the most crucial rules of e-commerce is to make a client into a regular client as quickly as possible. That means that on top of a good-quality product, your best chance to create a regular customer is to offer them a subscription option.

Recurring payments within the subscription business model

Subscription business model is a business model where a client registers for a recurring product or a service subscription and pays for it in regular payments. This applies to anything from a newspaper or a magazine subscription to any recurring services such as gym memberships or purchases of consumer goods.

The development of payment systems makes registering for a subscription payment very simple: the client only needs to enter their card details on the merchant’s web platform and tick the box confirming that they want to order the product every week, month, quarter or in any other time frame. When it comes to physical products, the delivery also plays a critical role – it needs to be as fast as possible, budget-friendly and not come from too far.

Why does a company benefit from the subscription business model and recurring payments?

• Increases cash flow – your company gets an automatically received regular, monthly income
• Gets you a regular customer – any following, easy purchase fixes the client
• Helps you keep a regular customer – automatic payments are simple and hassle-free for the end-user
• Easier than signing an ongoing e-invoice contract – the client only needs to save their card details to register for a subscription payment

What kind of business use it?

The subscription payment model is used by companies from many different areas, such as toothbrush company Bam and Boo and Dollar Shave Club, a company dedicated to selling shaving tools, to name a few. Subscription payment-based digital service providers like Spotify, Netflix and Amazon Prime are gathering more fame as we speak.

What types of businesses benefit the most?

A short answer is that all regularly recurring services and products can be sold through a subscription-based model. For example, this includes monthly gym or insurance payments and monthly orders of consumer goods (foods, socks, toothbrushes, fitness clothes).

Tien Tzuo, the founder and CEO of Zuora, the leading subscription economy SaaS provider, has said that everything we buy, from transport to entertainment and foods, will soon become a monthly subscription.

The growth of e-commerce in the coming years is backed up by McKinsey’s research. Thereby, in order to stay alive in a tight competition, one needs to keep an eye on the changing trends. The most popular and fastest-growing trend right now is making a subscription payment available for your client and helping to cultivate a long-term client relationship through that.