Best Practices

Best Practices for Subscription Business Models

Digital businesses have no shortage of business models from which to choose. While it is critical to offer unique value to customers and continually generate revenue, the right business model accelerates the path to success. A solid business model enables digital businesses to not only survive downturns but also strengthens and grows businesses long term. It pays to carefully study, choose and implement the right business model for your market while being aware of and committed to identifying and tracking key business metrics.

Overview of Business Models

The business models fall into four major categories: Subscription, Microtransaction, Indirect and Hybrid. This table highlights the major advantages, disadvantages and key metrics of a few models and sub-models:

Model or Sub-modelMajor AdvantagesMajor DisadvantagesKey Metrics
Frequent subscriptionsPredictable revenueHigher cost barrierACLV and MRR
Infrequent subscriptionsLong-term and predictable revenueLower retention with higher cost barrierACLV and MRR
FreemiumNo price restrictions and no need for free trialsChallenging pricing strategy since the majority of users do not payPercentage of paying users, ARPU and ARPPU
MicrotransactionsLow cost barrier for purchasesLow margins since the majority of users do not pay and high payment costsPercentage of paying users, ARPU and ARPPU
Virtual goods and virtual currenciesHigh acquisition rates and low cost barriersVirtual economy management since the majority of users do not payPercentage of paying users, ARPU and ARPPU
Dual currenciesHigh acquisition rates, reduced conversion frictionPotential legal issues with RMT and low percentage of paying usersPercentage of paying users, ARPU and ARPPU
AdvertisingMass adoption with users assuming no costsDependency on market rate for advertising and no direct revenueCPM and CPC
Offer-basedMass adoption with users assuming no costsDependency on market rate for advertising and no direct revenueACPM, CPS and CPL

Best-Practice Tips for Business Subscription Models

The business models for selling digital goods and services online vary substantially. Picking the right model for your business depends on your industry, customer demographics, product or service, and risk tolerance. Even though all of these models have pros and cons, they also share commonalities.

In general, regardless of model, keep in mind these four best-practice tips:

  1. Iterate fast and decisively — Rapid iteration involves reacting promptly to new or evolving market trends and to obvious signs that your strategy is not delivering the desired results. Regardless of whether iteration is aimed at staying ahead of the business or recovering from unsuccessful strategies, you can effectively complement the iteration with tools and access to key metrics that help make the right business decisions.
  2. Identify and monitor metrics — Always make this task a high priority. Determine the important and controllable metrics that apply to your business and put the processes and infrastructure in place to track them effectively.
  3. Gain insight into your customer base and purchase patterns — Understand your customer needs and the motivations behind them. Regardless of your company’s size, always stay in touch and engage in close dialog with your customers.
  4. Add value to your products or services — Keep usability in mind and continue to add features, capabilities and even new products to keep your customers excited about your offerings. Targeted promotions and perks can help drive this excitement, but the product must constantly improve.

Download Chargeback Management Best Practices Guides:

Download Best Practices