Business models
The subscription business model
The subscription business model: customers pay a fixed amount every month or year for as long as they keep using the product. You earn the same customers' money again and again, so each month starts with revenue you already have.
How it makes money
You earn the same customers' money again and again, so each month starts with revenue you already have. Prices are usually set by plan, and customers move up as their needs grow.
Real examples
- Netflix charges monthly for streaming.
- Spotify Premium charges monthly for music without ads.
- The New York Times charges for digital access.
The numbers to watch
- Monthly recurring revenue
- Churn: the share of customers who leave each month
- Customer lifetime value compared with what it costs to win a customer
Who it fits
Products people use again and again: software, media, boxes of things that run out.
What goes wrong
Customers forget why they signed up. If they stop using it, they cancel, and new customers then only replace the ones you lose.
Try it this week
Write down what a customer would get every single month. If you cannot fill the list, it may not be a subscription.
Then give it a time: one block of 90 minutes this week, in your calendar. Our playbooks have the next steps for finding your first customers.
Questions
What is an example of the subscription model?
Netflix charges monthly for streaming.
What is the biggest risk with the subscription model?
Customers forget why they signed up.
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