Subscription Economy and Its Value to Businesses and Customers

Over the past years, the subscription economy has seen a burst in activity as companies spanning various industries work to fill the demand for subscription-based services. According to data from Global Market Insights, the subscription billing management market size was valued at $6.89 billion in 2023 and is anticipated to see a compound annual growth rate of over 16.10% between 2024 and 2032. As more businesses look to meet shifting customer demands, there has been an increase in the adoption of subscription-based business models in industries like software, media, and e-commerce.

Of course, the benefits of using a subscription-based business model extend to customers as much as to organizations. In this post, we'll look at the value that the thriving subscription economy brings to businesses and customers:

What is the subscription economy?

Today, the subscription economy is growing thanks to many businesses shifting away from traditional payment models. Instead of a one-time fee, businesses charge customers a recurring payment at predetermined intervals — from daily to annually. Subscription billing software Softrax helps organizations keep track of ongoing contracts regardless of the complexity of the billing model. Businesses must keep track of ongoing subscriptions and subsequent revenue as the customer base grows to adjust strategies and operations accordingly.

By 2023, 75% of direct-to-consumer brands were expected to offer customers some form of subscription billing. This ranges across various consumer businesses, from household products to utility companies. There are many benefits businesses can enjoy from opting into the subscription economy. Below, we'll look at the value of subscription billing to both businesses and customers:

Predictable cashflow

For many businesses and organizations, adopting a subscription billing model ensures a predictable recurring revenue, leading to a steady flow of income. As mentioned above, companies typically use billing software to monitor revenue and customer behavior. Businesses can use these insights to determine what products and services are doing well and adjust their pricing and offerings to satisfy customers.

In a previous post, we highlighted how telecommunication companies in India are making use of the rapid digital adoption in India to offer multifunctional utility services. The country saw a surge in overall data subscriber adoption and consumption in the past years thanks to the 5G rollout. By adopting a subscription billing model, Indian telcos can meet customers' 5G needs by raising tariffs to provide stable and consistent services.

Improved customer retention

Another key benefit of adopting a subscription billing model is that it keeps customers satisfied. Today, businesses like consumer tech companies rely on subscriptions to help lock in customers and revenue while boosting engagement. Insights from dating app Bumble's Associate Director of Growth Product Marketing indicate how businesses can treat subscriptions as an additional on top of a core product — the freemium model.

If you've used music streaming platforms like Spotify, you have the core product where you can listen to music for free — albeit having to hear an occasional ad or two. Spotify provides an option to subscribe to their Premium service for a recurring cost, with the promise that you won't have to listen to ads and other additional features. As you can see, the subscription benefits the business by providing revenue but also aims to please customers through an ad-free experience.

Increased flexibility

Finally, the subscription economy introduces more flexibility and control for customers. Businesses need to consider the subscription billing model not as a mere means to increase revenue but to provide customers with options. In Capterra's recent survey, the company found that 38% of consumers say they would cancel their subscription in the event their current plans increased in price. Instead of simply raising prices, perhaps providing a lower-tiered subscription can help.

The survey also highlights concerns about "subscription fatigue," citing that 47% of consumers question the value they receive for their subscriptions. To bridge this transparency gap, businesses should invest in communicating consumer expectations and delivering on perceived benefits. This involves sharpening marketing campaigns so that customers know what they are paying for and are happy.