Looking to build a subscription model? Do it with a digital mindset.

What do tacos, NFTs, and invoicing software have in common? You can—or soon will be able to—get them as a subscription.  

While those examples are new, subscriptions themselves are not. From newspapers and magazines to Amazon Prime and Peloton, they’ve been part of consumers’ lives for decades. In the B2B space, software-as-a-service (SaaS) became the go-to delivery model for many business applications—Salesforce, Office 365, Dropbox—following the proliferation of cloud and hosted computing.  

Now, subscriptions are crossing into new industries. They’re becoming a viable option for products and services that have never before seemed right for this model. They offer both B2C and B2B businesses the opportunity to capture a new—and more predictable—revenue stream. And their popularity is growing:

• Surveys of more than 2,100 U.S. consumers revealed the average subscriber has about 3.7 subscriptions. Other research found 82% of U.S. adults now have subscription services, up from 79% in 2018. 
• Those numbers translate into higher spend: A 2021 West Monroe survey found consumers’ average monthly spend on subscription services is $273, up from $237 in 2018. That’s a 15% increase, or an additional $430 per year.
• Consumers aren’t the only ones spending more on subscriptions. Businesses are, too. Forbes reported, “When COVID-19 was declared a pandemic, paid subscriptions spiked to 40% higher than their pre-COVID-19 baseline... At [their] peak in mid-May 2020, there was a 115% jump in new trial subscription growth for business and professional services, a 79% rise in software growth, and a 45% increase for e-commerce.”

These stats should make organizations wonder: Is a subscription model right for our business? Is it right for our products and services?

So how do you create that value? Among other things, you need data-driven insights and a frictionless customer experience—and businesses with a digital operating model are better positioned to deliver on both. Here’s what we mean.

Data-driven insights will continuously improve your subscription model 

The ability to collect, analyze, and use data is embedded into a digital business’s operating model. It’s what you need to stay ahead of and deliver on what customers want—and, in a subscription model, it’s how you attract, retain, and grow your subscriber base.   

Data on your customers—what they want and need—should define your initial subscription offering. But beyond that, subscriptions provide a gateway to even more data that can be leveraged, such as:

• What products and services are selling more or less than others 
• How customers and end users adopt and use your products and services 
• Subscriber demographics (geography, industry, company size, title, etc.) 
• Why customers renew, upgrade, or add on—for example, whether access to certain features convert them from a “freemium” subscription to a paid tier 

When paired with predictive analytics and modeling tools, this data can help you make better, faster decisions about your subscription model to:

• Drive sales. Analysis of what products and services are selling, and which aren’t—as well as the demographics of customers who are buying or not buying—can be used to refine sales and marketing strategies.  
• Manage resources. If you know the average subscriber retains their subscription for two years, you can calculate the lifetime value of a customer, and determine how much (or how little) you should spend to acquire and retain new customers.  
• Boost revenue retention. Armed with data on why customers renew, upgrade, or cancel, you can predict when a customer might walk away, and take action to reduce churn.

You can also use data to make your subscription more valuable to customers by:

• Enhancing the offering. How do people interact with and use the product or service they’re subscribed to? Are they using it in ways you didn’t consider? What features go unused or underused? What features converted the most people from freemium to paid, or from a trial to an ongoing renewal? With the answers to these questions, you can iteratively improve on your offering—giving customers more of the products, services, and features they want—and none of what they don’t. 
• Reinforcing B2B partnerships. In a B2B subscription model, the customer (that is, the buyer) isn’t always the end-user. (Think about who makes the decision to buy Salesforce, and who actually uses Salesforce.) That means they might not have a full understanding of how their employees or customers use your products or services. But you do. With the data you collect and analyze, you can offer your buyer insights that help them improve their own organization and operating model—and influence their future purchase and renewal decisions.  
• Driving continuous engagement. Subscriptions allow subscribers to “set it and forget it”—but businesses can’t treat their customers that way. You need to make the subscription experience “sticky” for your customers and end users to keep them from canceling—and that’s where customer engagement comes in. Digital engagement strategies offer a scalable, cost-effective way to engage with large audiences. With AI and analytics as part of a B2C subscription platform, customers can get personalized suggestions, exclusive content, or curated samples—based on data on their past purchases. In a B2B model, usage data can help design an engaging digital workflow that drives greater adoption and usage—think gamified training, interactive learning paths, guided self-service support, AI-based recommendation engines, and digital assistants.

Customers demand a frictionless, integrated experience  

People like subscription services for lots of reasons: cost, convenience, control. But subscribers-only rates and automated payments are the bare minimum that customers expect from a subscription. Another thing they expect? Simple, functional ways to engage with their subscription, whenever and however they want. 

That means building a subscription model takes more than a great idea for the product or service you want to offer. You need to design a customer experience to match—one that seamlessly bridges both of the worlds today’s customers live in: the physical and the digital.

So what should that look like in a subscription model? Let’s consider an example from an industry dipping its (theoretical) toes into subscription-based services: banking. 

Many financial institutions offer “concierge banking” perks—identity theft protection, trading portfolio management, extended warranty services—but only to enterprise or private banking clients, or to credit card customers as part of an annual fee. Now, community banks such as Baltimore-based Howard Bank have begun bundling extras like these into a subscription attached to a customer’s account.  

It works like this: Customers upgrade their free checking account to one of two options. For $7 to $15 each month, they get all the banking essentials of the free account—plus access to perks like discounts on local and national retailers, roadside assistance, identify theft help and benefits, and more. 

The caveat: In a subscription model like this, a customer will only see the value in that monthly charge if they can actually access and use the add-on services—easily, and whenever and wherever they want to. (Getting a discount at their favorite store through their bank subscription is valuable—but not if they forget to print out a paper coupon and present it to the cashier.) 

That led Howard Bank to support its subscription-based service offering with a custom-built digital product: a mobile app. Once customers download the app, they can access their subscription perks through a single digital interface that seamlessly connects and responds to their physical world. 

If their car breaks down, or if they drop their phone and crack the screen, they can use the app to call for roadside assistance or file a claim immediately. Plus, the app uses geo-tracking to show customers nearby deals and discounts—instant savings they can redeem immediately—at thousands of dining, shopping, entertainment, travel, and services locations.  

Through its subscriptions, the bank saves customers money and simplifies their lives. It offers them a host of services for $7 to $15 a month, accessible from anywhere via a single digital, mobile hub—services that would be much more expensive to pay for individually, and much more frustrating to piece together and manage.   

What’s Howard Bank get out of it? For one, the app increases the likelihood the subscription will become so “sticky” in customers’ lives, they’ll never cancel—the more they use it to access their discounts and services, the more they’ll see the value in their subscription.  

And, in fact, by engaging customers outside of their banking needs, the bank itself becomes stickier in their lives—making them more inclined to use their Howard Bank debit cards and banking services. And, as a bonus: Howard gains access to customers’ location and app usage data, which it can use to target promotions, refine the app design, and build other customized digital products.

Will subscriptions eat the world? 

Venture capitalist Marc Andreessen wrote a decade ago that software was “eating the world,” and he was right.

So will subscriptions eat the world? It’s too soon to tell. But one thing is for sure: As consumers and businesses alike grow more subscription-curious, organizations should be considering what a subscription model might look like for them.  

But while subscription revenue is more predictable than other sales channel revenues, it’s far from guaranteed. For a subscription model to succeed, it needs to be so sticky that customers can’t imagine their lives without it. 

With a customer-centric strategy and a digital-first mindset, businesses can design a subscription experience that customers love. Data-driven insights will help you build—and keep refining—a subscription model that meets customers’ needs, while an integrated, frictionless experience will help customers maximize the value of their subscription. You’ll keep customers happy and hooked on their subscription—and keep those recurring revenues rolling in.