In subscription services, customers pay at regular intervals for ongoing services such as music or video streaming, cloud storage, and subscription boxes of cosmetics or snacks. They provide sellers predictable revenue and customers a simple, convenient way to pay. They also create a relationship between both parties, where the business fine-tunes the experience for the customer’s needs. Subscription services are a staple of daily life, with a 2024 survey finding that 42% of customers have four or more subscriptions.

Below, we’ll explain how a subscription service works, what types of businesses might benefit from it, how to launch one, and how to retain subscribers.

What’s in this article?

• How does a subscription service work?
  
• What types of businesses benefit from subscription models?
  
• How do you start a subscription service?
  
• How do you retain subscribers?
  
• What are the challenges of scaling a subscription service?
  
• How does Stripe simplify subscription management?
  

How does a subscription service work?

A subscription service turns a single purchase into a recurring payment that is paid at a regular interval (e.g. monthly, yearly). A customer signs up, chooses a plan or tier, provides payment details, and receives access to the service. The business’s payment system charges the customer’s payment method at the start of each new billing period. If the charge fails, it might be able to retry payment or ask the customer to update their details.

Companies can adjust the pricing model to include:

• Usage-based billing (charging by data usage or the number of transactions)

• Discounts for annual prepayment

• A pause on a customer’s subscription without cancellation

• A free trial that automatically transitions into a paid membership when it ends

The pricing structure can affect how many customers sign up, their perception of the service’s value, and whether they stay subscribed. The timing of charges, the plan tiers, free trials, dispute resolution process, and refund policies all contribute to the overall experience.

What types of businesses benefit from subscription models?

The subscription model works across a wide range of industries. Here are some examples:

• Digital services: A software-as-a-service (SaaS) company might create a premium tier that includes exclusive features, faster customer support, or extra data storage.

• Physical products: A soap maker might switch from one-off sales to monthly deliveries of artisanal soaps.

• Membership-based organisations: A scientific journal might have a yearly subscription that offers unlimited access to research reports.

• Health and wellbeing: A fitness app might offer a monthly plan that provides personalised tips and training.

Any business that repeatedly delivers goods or services can use subscriptions. As long as people find real benefits in the company’s product, they are likely to pay on a recurring basis. This provides the business with a steady income that can secure day-to-day operations.

How do you start a subscription service?

Before you commit to creating a subscription service, think carefully about what you’re selling, how you’ll package it, and why it makes sense for customers to keep coming back. Below is a guide to help you get started.

Define the subscription’s value

It’s important to understand what benefit subscribers will receive from the recurring payment. This could be access to premium digital content or a regular shipment of carefully selected goods. Ensure your subscription has a compelling reason to exist as a recurring purchase.

Pick your pricing strategy

Some businesses choose a simple plan, such as one flat rate for everyone each month. Others create tiered plans that let customers pay more for extras or less for a basic version. Consider whether you prefer free trials or immediate billing and whether you’d like to offer a discount to encourage up-front payment for a year. But be careful about how you handle refunds if people cancel early.

Establish your platform

You’ll need a way to manage recurring payments and track subscription statuses. Some entrepreneurs try to do these tasks themselves, but that can get messy. Instead, look into a payment processor that specialises in recurring billing. An all-in-one payment solution like Stripe Billing can handle sign-ups, recurring charges, and advanced features such as proration, promotional codes, and seat-based billing (charging per user seat or licence) for teams.

Plan for growth and maintenance

Once you launch your service, you’ll need to answer customer questions, respond to shipping issues if you sell physical goods, manage account changes and cancellations, and more. A solid customer support system is important for a subscription business. People might forget they subscribed, need an address change, or want to pause their subscriptions. You must be ready to handle these requests efficiently to maintain your subscription service.

Start small and gather data

It’s tempting to try all possible plan variations and try to please every type of user. But consider starting with a single plan or two. See how customers respond, track churn (the rate at which they cancel), and solicit their feedback on what’s missing. Expand or refine your subscriptions once you have data to inform your decisions.

Stay aware of compliance and taxes

Specific tax rules might apply to recurring billing, especially if you’re selling in multiple regions. Digital services in Europe normally have value-added tax (VAT) requirements, while those in the United States might have sales tax requirements. Payment processors can assist with some of these rules, but keep your local regulations in mind.

How do you retain subscribers?

Acquiring new subscribers is exciting, but the true test is whether they stay. A sudden rise in sign-ups might be followed by an equivalent drop if you don’t continually nurture these relationships. Below are some tips for keeping your customers engaged:

• Consistent quality: People could unsubscribe if they sense a drop in quality. For instance, if your app content used to be of high quality but recently seems recycled or low effort, people lose the reason to pay each month. Steady improvement and consistent delivery show you value your subscribers.

• Honest communication: When you need to raise prices or adjust features, be transparent. Let people know early, explain why, and provide ways for them to manage the change. Surprises or hidden fees can frustrate subscribers and make them consider leaving. Transparency can encourage loyalty, even if you have to raise prices.

• Easy cancellation and plan changes: Make it easy for subscribers to change their plans or cancel. Doing so can reduce the urgency people feel to unsubscribe.

• Personalisation and engagement: People love to feel seen and heard. For instance, a monthly subscription box can include a short note acknowledging the subscriber’s preferences or promoting a new product they might enjoy. If you run a SaaS platform, consider ways to let users customise their experiences. Surveys, usage stats, or targeted suggestions can keep them engaged.

• Regular updates and improvements: A subscription business should send periodic messages or newsletters that discuss what’s new, whether that’s fresh content, new shipping options, or limited-time perks. Demonstrate the value you’re adding on a routine basis.

What are the challenges of scaling a subscription service?

Once you have a core group of dedicated subscribers, you might start thinking about how to expand. But scaling presents its own challenges. Here’s a closer look.

Payment processing

Processing payments for a small group of customers might be straightforward, but you add layers of complexity when you expand to thousands or millions of accounts. The odds of expired credit cards, disputed charges, or late payments multiply. You’ll need a system that can gracefully handle these cases without overwhelming your support team with manual tasks.

Customer experience

It’s easy to provide personal attention early on, but as you grow, you might not be able to respond to every support ticket manually. Automation can help, but it can make interactions with your company feel impersonal. Striking a balance here can take time.

International finance

Scaling often leads to international expansion, which involves accommodating different taxes, currencies, and payment methods. For example, a subscription business might need to accept credit cards in some regions, bank transfers in others, or local digital wallets in certain countries. This can be a lot to manage without the right infrastructure.

Customer retention

Different customers cancel for different reasons. Some might no longer be able to afford your service, while others might find your product no longer fits their needs. As your subscriber base grows, you’ll encounter a wider variety of reasons people leave. Pinpointing where the largest issues are might require better analytics and segmenting.

Plan variations

A business might start with a single plan but then discover that larger customers want dedicated account managers or that smaller customers want a cheaper, lighter tier. Offering more plan choices can attract new audiences, but each plan variation adds complexity to your billing logic, customer support, and marketing.

How does Stripe simplify subscription management?

Stripe is known for its flexibility, detailed application programming interfaces (APIs), and Dashboard that lets you oversee your entire billing operation. Here’s how Stripe helps manage subscriptions:

• Automated recurring billing: Stripe Billing handles recurring charges, proration when subscribers switch plans mid-cycle, automatic invoicing, and failed payments. Built-in dunning management retries charges and sends reminders to update payment info. This helps you recover revenue that might otherwise be lost.

• Support for many business models: Some subscription services charge a flat rate every month, while others rely on seat-based pricing, usage-based pricing, or a hybrid model. Stripe easily supports these models without forcing you to use rigid billing templates.

• Customisable experience: Stripe offers embedded checkout pages so you can start accepting subscriptions fast. If you prefer a more custom setup, Stripe’s APIs allow you to shape your subscription flow from sign-up to cancellation. You can create a simple customer experience that matches your website or app and rely on Stripe’s infrastructure for billing and more.

• Built-in fraud prevention: Modern subscription businesses process a lot of transactions, which can attract fraudulent actors. Stripe Radar uses machine learning to identify suspicious charges and allows you to set your own rules to reject or flag certain transactions. This real-time monitoring can prevent bigger issues later on.

• Scalability: Many successful businesses start locally and then expand internationally. Stripe supports numerous currencies and payment methods so it’s simpler to accommodate customers around the world.