How to find the right model for your product

It’s the golden age of subscription models, because the global trend is moving away from “want to have” to “be able to use”. If you too want to sell your products or services by subscription, read here which models are available and which is right for you.

Do you have to have the Porsche in the garage or is it enough to be able to drive it when needed? This idea underlies subscription models that are no longer limited to Netflix and Spotify memberships. Because both customers and companies can benefit from subscriptions. While customers enjoy maximum flexibility, often save money, and benefit from a wider choice, entrepreneurs are attracted by long-term customer relationships, a high degree of cost control, and thus considerably better planning capability. By the way, you can read more about the advantages and what is sold by subscription nowadays here.

If you too are thinking about offering your products or services by subscription, you are now spoilt for choice, as there are numerous different models.

These subscription models are available:

• Replenishment subscriptions: Here, the same or similar products are sent to subscribers at set time intervals. This is especially worthwhile for items of regular use. Customers thus save time (when shopping) and money (because of quantity and time, as they save shopping). One example: The Female Company, which offers period products by subscription.
• Curated subscriptions: In the case of curated subscriptions, different products are put together in each case – often according to personal preferences that were collected on the basis of a questionnaire when the subscription was taken out. Subscribers are surprised with each new delivery and have the opportunity to test different products. Examples: Hello Fresh for food and Glossybox for cosmetics.
• Club membership: If the subscriber opts for a club membership, he or she receives access to exclusive content or discounts – similar to a classic gym membership. Well-known examples come mainly from the entertainment industry (Netflix, Spotify, etc.), but there are also examples in the clothing sector, for example at JustFab.
• Consumption subscription: Here, the customer only pays for actual use of the service and thus has maximum flexibility. Classic examples are car sharing (here partly with a basic fee for a lower usage price) or e-scooters.
• Rental subscription: Rental subscriptions are aimed at two things: long-term use with a high degree of flexibility at the same time. This includes, for example, new types of models such as Porsche Drive. So you subscribe to a car for a fixed term. Depending on the tariff, it is also possible to change the model in some cases. If problems occur or something breaks, the provider will take care of it.

Deciding on a particular subscription model is the first step – figuring out how you’re going to charge for it is the second. Because here, too, there are a lot of different options and some things to consider.

This is how subscriptions can be billed:

• Usage-based billing: Usage-based billing is familiar, for example, from e-scooter providers such as Lime or Tier. Here, no flat fee is usually due; instead, the customer only pays for the service actually provided, for example, the time used or kilometers driven.
• User-based billing: In contrast, user-based billing is independent of the actual service provided. A fixed weekly, monthly or annual amount is paid – regardless of whether the customer has used the product or service. A classic example: a gym membership or a Netflix subscription.
• Tiered billing: Here there are different levels such as Bronze, Silver and Gold or Basic, Advanced and Premium. Each level offers a different scope of services and has a correspondingly increasing membership fee.
• Hybrid billing: Hybrid billing is a hybrid of different payment models. Here, for example, there is the option to pay monthly or annually. An annual payment brings financial benefits, a monthly one greater flexibility for the user.
• Freemium: This is a free plan with the option to upgrade to a paid premium plan with greater choice or more features. A well-known example: Spotify can be used free of charge with commercial interruptions – if the user wants to listen to music undisturbed, he has to invest in the paid premium rate.

As is so often the case, there is no right or wrong, no better or worse, when it comes to choosing the right subscription model or the ideal billing method. It’s more about the products you sell or the services you offer – and what your customers want.

If you need decision support or assistance with the billing process, you can turn to nexnet, who have been experts in this area since the advent of subscription models.

If you want to learn more about the different subscription and pricing models, take a look at nexnet’s free whitepaper.