West Monroe fielded a survey in 2018 delving into consumer spending on subscription services. Each of the 2,500 participants was asked to estimate their monthly spend on subscriptions, itemize their actual spend, and provide a level of satisfaction with products and services spanning 21 different categories such as wellness, music, and gaming.
The main takeaway then? Consumers were spending a lot on subscription services but didn’t truly grasp how much they were actually spending. That disconnect has only intensified three years later.
We know this because we conducted the same survey again in 2021. Not only are Americans spending more each month on subscription services, their estimates for how much they spend substantially decreased. Many of these services — i.e., home internet, cable, and mobile phone — seem to have been relegated to a background utility role in people’s minds.
The broader digital shift of the last decade has made goods and services that consumers purchased transactionally available through monthly subscriptions. As consumers become more familiar with subscription services replacing a la carte purchases, businesses of all kinds are finding new ways to leverage monthly recurring revenue models.
The proliferation of subscription models has led more companies to focus on consumer experiences — building products, services and brands that are so sticky they appear to seamlessly blend into consumers’ lives. This greater focus on stickiness for customers can be seen in the data of how many people report being “happy and hooked” on a large variety of services. Against this backdrop, as subscription services continue to evolve in terms of perceived quality and quantity, consumers face more challenges to know exactly where their money is going each month.
We first teased out to what extent consumers are able to accurately estimate how much they spend. We then delved into how much they spend on which services. Finally, we asked questions to shed light on which services they were most or least dependent on and which ones were most top of mind.
Let’s dig into the 2021 data.
In order to capture their estimates, we asked people to think generally about “recurring monthly expenses associated with digital services, devices, and subscription boxes” — including prompts of specific examples and service categories like WiFi, mobile service, Netflix, Spotify, Birchbox, Dollar Shave Club, GoDaddy, PlayStation Now, iCloud, Fitbit, etc. Then we gave them 10 seconds to guess how much they spend each month. After recording this initial answer, we then asked them to repeat the exercise with 30 seconds to think about the question more carefully.
The average monthly spend on subscription services is $273, up from $237 in 2018. This 15% increase is the equivalent of an additional $430 per year.
Despite this increase, consumers were more off-target on how much they thought they spent than they were three years ago. It also shows that there is a 340% increase from the consumer’s initial guess to actual spend.
Next, we took people through an exhaustive inventory of their recurring monthly expenses, across 21 categories. A number of services, particularly apps, have free versions. For our analysis we focused solely on consumers using paid versions of these apps.
Below is a snapshot that shows how much people underestimated and overestimated their actual spend.
The survey revealed that, in aggregate, more people underestimated their spending today compared to 2018, rising to nearly 90% of the total (vs. 84% in 2018).
We also found that although consumers are spending more than they were three years ago, their guesses for how much they thought they spent decreased from what they thought in 2018.
More specifically, in 2021 we saw higher dollar amounts of underestimation compared to three years ago. The percentage of people who were off by more than $200 grew to 66%, from 24% in 2018. Additionally, 13% of respondents underestimated by more than $400.
Additional surveys, like a recent one from JP Morgan Chase, show that nearly two-thirds of consumers also admitted to forgetting about at least one recurring payment service within the last year.
More financial institutions like Chase, Mint, and newer startups like Truebill and AskTrim.com, are promoting different tracking solutions to help consumers navigate an increasingly complex subscription landscape.
We know that Americans are spending more each month on subscriptions. But what exactly are they spending on?
Below is a list of the services from most popular to least popular, along with the most frequently selected amount spent on each service. Respondents were allowed to select the closest amount to what they pay per month, in $10 increments. So, if someone pays $8.99 per month for an app, they selected $10.
It’s clear that consumers aren’t always aware of the services to which they subscribe, but we wanted to find out more about which expenses were top-of-mind for people and which were not. We asked people to rate how acutely aware they are of that monthly expense, on a scale of 1 to 10. We found some significant changes comparing the latest results to those from three years ago, particularly that mobile phones and internet subscriptions faded into the background.
The top expenses in terms of consumer awareness in 2018 were mobile phone service, followed by home internet. Today, those items were among the lowest ranked. This suggests monthly cell phone, internet, and cable bills are increasingly thought of alongside other utility costs and are simply baked into standard operating costs of daily life, like electricity or water.
The pandemic has clearly changed how people spend their time and money. For many, working from home has meant more free time to commit to a new fitness routine or to get the dog they’ve always wanted. As people sought to use their time at home to invest in themselves, new relationships, or families, consumer subscription services were ready to meet that demand.
That’s why other key changes in consumer awareness revolved around products and services like wellness, fashion, and dating subscriptions. Today, these subscriptions ranked higher in terms of awareness compared to 2018. While subscription rates in these categories budged only slightly, their increase in awareness can be attributed to consumers allocating more personal time to these areas.
For businesses, the move toward more subscription offerings is driven by an understandable desire for predictable and recurring revenue streams. This leads to customer-centric strategies to keep consumers engaged and renewing — strategies that tap into a common human failing. As Professor Scott Galloway of the NYU Stern School of Business writes, “the most accretive action taken by any business is to move from a transactional model to recurring revenue. This exploits one of the fundamental flaws of our species, the inability to register time. Time flies — it goes faster than our estimated consumption of a product during a given time period. This helps explain why only 18% of gym members go to the gym consistently.“ Put another way, businesses are either intent on “hooking” consumers as much as possible or on fading into the background like a cell phone or internet service provider.
To understand the level of perceived consumer value and satisfaction from subscription services, we asked survey participants how dependent they felt on each of the services they subscribed to and how happy they were about the fact that they were hooked. They selected one of four options for each subscribed service: 1) Hooked and I love it 2) Hooked and I wish it wasn’t 3) Not hooked and not happy with it 4) Not hooked, but happy with it.
Consumers reported a high level of satisfaction with the paid services they subscribe to, with positive sentiments increasing over the last few years. In 2018, paid subscriptions earned high marks for usefulness and satisfaction—the average percentage of consumers who were “hooked and happy” across all categories was 51%. That average increased to 61% today.
Looking at individual types of subscription services, some of the biggest changes in terms of increasing consumer satisfaction mirror the earlier findings about what consumers are paying attention to and spending more time and money on. More consumers reported being happy and hooked customers of paid dating apps than in 2018—increasing from 39% to 58%. Likewise, fashion, pet, and meal subscription services experienced a boost in consumer satisfaction from a few years ago. Paid diet and fitness apps saw one of the biggest reported increases in “not hooked and not happy with it.”
An interesting takeaway for businesses is finding the right balance on consumer awareness: Being too top of mind can be a problem, as it means a service’s worth is more likely to be questioned.
The economy’s ongoing move toward digital has opened new ways for consumers to purchase—and for businesses to sell—goods and services. The shift away from transactional sales to monthly subscription models is well underway, and from the consumer’s perspective, most seem to be comfortable and happy with their spending and value received. Even as they underestimate how much they’re spending and what they spend on, it’s likely that many of these services are so ingrained in consumer’s lives they don’t necessarily register as subscription expenses. It’s also possible that as people are spending more on subscriptions, they are spending less on other goods and services that were once purchased transactionally.
It’s easier than ever for consumers to punch in a credit card number online. New trackers can help consumers gain more insight to where their money is going and help prompt more careful consideration on subscriptions.
For businesses that are not already thinking about how to leverage subscription revenue, now is the time. Consumers are primed to adopt service-based subscriptions across a host of industries and channels. The most successful subscription offerings are supported by consumer experience strategies that create the stickiness necessary to keep customers hooked, happy, and renewing.