Subscription revenue is income that businesses earn from customers who make regular, recurring payments (monthly, quarterly or annual) for ongoing access to a product, service or content. This revenue model is popular across various industries, such as software, entertainment and publishing. As such, the global subscription economy is projected to reach a total transaction value of US$996 billion in 2028.

In subscription models, revenue is typically predictable, which helps businesses to plan and invest in long-term growth. It can also promote customer loyalty, as customers tend to stay with a service or product that they're familiar with, especially when it comes with exclusive benefits or unique experiences.

Businesses that deal with subscription revenue tend to share the same overall goal: to increase revenue over time. This guide will cover common challenges associated with – and the best strategies for improving – subscription revenue.

What's in this article?

• Subscription revenue challenges
  
• How to increase subscription revenue
  

Subscription revenue challenges

Subscription-based businesses face certain costs, operational difficulties and regulatory hurdles which need to be managed as the company expands.

• Customer acquisition and retention costs: The cost of acquiring new subscribers and retaining existing ones can be high. Businesses must invest in marketing campaigns, promotional offers and customer service to attract and retain customers, which affects profitability. Businesses competing for the same pool of potential subscribers can also drive up these costs in subscription-based markets.

• Churn management: Churn is the rate at which subscribers cancel their subscriptions, and it's a very important metric for subscription-based businesses. High rates of churn can negate the benefits of acquiring new subscribers, leading to a lack of growth. To manage churn, businesses need to understand the reasons behind customer cancellations and then address these concerns.

• Scaling infrastructure and operations: As subscription revenue grows, businesses must scale their infrastructure and operations to meet the increased demand. This scaling includes technology infrastructure, customer support, billing systems and inventory management (for physical product subscriptions). Inefficiencies in scaling can lead to service disruptions, in turn affecting customer satisfaction and retention.

• Subscription pricing and packaging: Determining the optimal pricing and packaging for subscriptions can be complex. Businesses must balance value for customers with profitability. Overpricing can lead to lower subscription rates, while underpricing can undermine revenue. Finding the right balance requires continuous market research, customer feedback and competitor analysis.

• Regulatory compliance: Subscription-based businesses often collect and process customer data, which means that they must comply with data protection laws, such as the EU's General Data Protection Regulation (GDPR) or the California Consumer Privacy Act (CCPA). This can be difficult to navigate, especially for businesses which are operating in multiple jurisdictions, and failures in this area can lead to reputational damage and legal repercussions.

• Content and feature development: For many subscription-based businesses, especially in media and technology, content and feature development is key to attracting and retaining subscribers. Continuously providing fresh, high-quality content or innovative features can be resource-intensive, and businesses must invest in talent, technology and creative resources to meet customer expectations and stay competitive.

• Customer experience: Customer experience is especially important for subscription-based businesses, which rely on attracting loyal, long-term customers in order to succeed. Personalisation, such as customised recommendations or tailored content, can boost customer satisfaction, but it requires sophisticated technology, data analytics and additional care regarding customer privacy and consent.

• Financial planning: Subscription revenue can be more predictable than traditional sales models, but accurate financial planning and forecasting remain a challenge. Businesses must account for various factors, such as churn, seasonal fluctuations and changing customer preferences. Inaccurate forecasts can lead to cash flow issues and can affect business sustainability.

How to increase subscription revenue

Upselling and cross-selling

Current customers are already engaged, so giving them the option of higher-tier plans with additional features (upselling) or complementary products/services (cross-selling) has a higher chance of success.

• Example: A streaming service could offer a premium plan with 4K streaming or additional user profiles, while cross-selling with other products, such as merchandise or affiliated services.
  

Flexible and transparent pricing

Customers appreciate choice and clarity. Tiered subscription plans with various features provide flexibility and encourage more customers to subscribe.

• Example: Software companies might have basic, professional and enterprise plans, detailing the features included in each one.
  

Referral programmes

Referral programmes use word-of-mouth to drive new subscriptions. Customers who refer others are advocates, making it more likely that new subscribers will join. Incentives, such as discounts or exclusive rewards, encourage existing customers to make referrals.

• Example: A meal kit subscription service that offers a free month for both the referrer and the new subscriber.
  

Valuable add-ons

Add-ons allow subscribers to customise their experience, increasing average revenue per user (ARPU). Customisation can lead to higher levels of customer satisfaction and increased revenue. Add-ons are smaller, optional enhancements to the core subscription.

• Example: A music streaming service that offers high-fidelity sound as an add-on or a bundle for family plans.
  

Outstanding customer service

Excellent customer service can reduce churn and build customer loyalty. Happy customers are more likely to renew and recommend the service to others. Providing support through preferred channels can improve the customer experience.

• Example: A subscription company might provide proactive emails with onboarding tips or 24/7 customer support to resolve issues quickly.
  

Retention strategies

Retaining existing customers is generally less expensive than acquiring new ones. A variety of strategies, such as win-back offers for lapsed subscribers and personalised content, help to keep subscribers engaged.

• Example: A subscription company that sends exclusive discounts to customers who haven't logged in for a while or that offers personalised content based on user behaviour.
  

Loyalty programmes

Loyalty programmes incentivise long-term subscriptions and show appreciation for continued patronage. Customers who feel valued are more likely to remain loyal, leading to longer subscription lifetimes.

• Example: An online course platform that awards "badges" or anniversary discounts for continued use, encouraging subscribers to stay with the platform.
  

Free trials when a credit card is provided up front

Offering free trials when a credit card is provided up front allows businesses to capture leads while minimising trial abuse. Potential subscribers can experience the product, which increases the likelihood of conversion.

• Example: A software service that offers a 14-day free trial with a credit card requirement, ensuring a serious intent to subscribe.
  

Annual discounts

Annual subscriptions encourage longer-term commitments, boosting cash flow and reducing churn. Discounts for annual subscriptions can motivate customers to commit for longer periods of time, providing a predictable revenue stream.

• Example: A fitness app that gives a major discount to customers who pay for a full year up front.
  

A/B testing

A/B testing is used to develop marketing strategies, pricing pages and sign-up flows. Testing different variations allows businesses to understand what works best for driving subscriptions.

• Example: A subscription company might test different layouts for the pricing page or different email promotions to find the most effective strategy.
  

Partnerships

Partnerships with complementary businesses can expand the customer base and create cross-promotion opportunities. Collaborating with businesses that have related products or services can be helpful in reaching new audiences and driving more subscriptions.

• Example: A fitness app that partners with a sports equipment company for cross-promotional opportunities.
  

Content and feature innovation

Update products or services with new content and features on a regular basis to keep subscribers engaged, providing them with reasons to continue their subscription. This is especially important in content-based businesses where customers seek fresh material.

• Example: A streaming service that releases exclusive content, early access or innovative features to keep subscribers interested.
  

Discounts and promotions

Discounts and promotions can attract new subscribers by lowering the barrier to entry. This strategy should be used carefully to avoid eroding perceived value over time.

• Example: A company that allows trial periods or discounted subscriptions for the first few months to encourage sign-ups, while ensuring that it doesn't affect long-term profitability.
  

Marketing and lead generation

Effective marketing campaigns can attract new subscribers. Using multiple channels, such as social media, email and content marketing, helps to reach potential customers and increases the subscriber base.

• Example: A subscription company that uses targeted marketing messages that are personalised for specific customer segments to attract a broader audience.
  

Data-driven insights

Data analytics provide insights into customer behaviour and preferences. This information can help to reduce churn, identify at-risk subscribers, and hone pricing and product development.

• Example: A subscription company that analyses customer usage patterns to tailor services, or that sends win-back offers to lapsed subscribers based on their preferences.
  

Simplified subscription process

Making it easy for customers to subscribe, upgrade or renew improves the user experience and reduces churn. Complicated processes can lead to lost opportunities.

• Example: A company that simplifies the subscription and upgrade process, or that gives flexible payment options to encourage renewals.