A variety of services let customers borrow and use products without having to purchase them outright. In addition to physical rental and leasing services, subscription services—such as content distribution—have become increasingly popular.

Subscriptions, rentals, and leases all provide continuous access to goods and services for a specific time, but what are the differences?

This article explores the differences between subscriptions, rentals, and leases, the advantages and disadvantages of each, and real-world business examples.

What’s in this article?

• Differences between subscriptions, rentals, and leases
  
• Advantages and disadvantages of subscriptions
  
• Advantages and disadvantages of renting
  
• Advantages and disadvantages of leasing
  
• Importance of understanding each business model before use
  

Differences between subscriptions, rentals, and leases

Renting and leasing used to be the most common ways for renting goods and services. In recent years, however, the new category of subscriptions has become popular among Japanese customers, and its market share has expanded.

With the rise of minimalism—living with fewer physical items and limiting purchases to the bare necessities—there has been growth in services for people who prefer to temporarily rent items rather than own them.

Customers can rent goods and services through subscriptions, rentals, and leases, and each option has its own characteristics.

First, let’s clarify the differences between these categories by looking at the fee structure and contract length in the table below.

In all cases, the owner is the business providing the lease, rental, or subscription service.

What is a subscription?

In a subscription model, the customer pays a fee to receive an ongoing service. Typically, this is a fixed fee, such as monthly or annual, and the subscriber can use the product or service for the subscription period for which the fee is paid. In Japanese, this is referred to as a subscription or ongoing purchase.

Examples of a subscription business

• Streaming services (content distribution): Streaming services let customers enjoy an unlimited number of content items for a fixed monthly fee. For example, in the case of movie and TV subscription services, instead of purchasing a single piece of content, customers pay a fixed monthly fee to watch as many movies and TV shows as they want.
  
  

  Examples: Films and TV programs, independent videos, music, e-books and audiobooks

  Case studies: Netflix, Hulu, Amazon Prime

• Software and digital tools (software-as-a-service [SaaS]): This service lets customers access software and online tools for a fixed monthly fee.
  
  

  Examples: Design tools, information management software, cloud storage

  Case studies: Photoshop, Dropbox

• Online learning platforms: Online learning lends itself well to a subscription model. Subscriptions for online business and language learning let students pay a fixed monthly or annual fee to access a variety of services that help them improve their skills.
  
  

  Examples: Programming, marketing, English conversation.

  Case studies: Onsoku.JP (Online School Corporation), JapanWonderGuide (JWG)

• Regular delivery of products sold online and in physical stores: With this subscription service, a client pays a monthly fee to have products delivered to home or office regularly. Regular delivery subscriptions are primarily used for replenishing consumables such as coffee beans, rice and other staples, cosmetics, etc.
  
  

  Examples: Food, cosmetics/personal care, everyday consumables, etc.

  Case studies: Saka No Tochu (organic and pesticide-free vegetable delivery service), Sumifru (regular fruit delivery service)

These subscriptions cover a wide range of goods and services. These include streaming services, which let customers view content at any time during the contract period, and many businesses are entering this sector.

What is a rental?

Renting lets you borrow something for a short time. The period of availability can vary from a day to a week or even a month, depending on the item.

The items rented by the business are usually used items the business owns, and those items are then rented out to more customers. The customer must return the goods by the return date specified at the time of the loan or extend the rental period if necessary.

Examples of a rental business

• Clothing: This is a service that rents clothing for the day for ceremonies such as graduations, coming-of-age parties, and weddings.
  
  

  Examples: Kimono, tuxedo, party dress
  Case studies: Kimono Hearts, Oshare Conscious

• Items used while traveling: This rental service can be used for a day or several days. This can include bicycle rental services provided by hotels at the holiday destination.
  
  

  Examples: Car rental, bicycle rental, pocket Wi-Fi
  Case Studies: Toyota Rent a Car, Nippon Rent-A-Car

• DVD/Blu-ray/CD: Though streaming services are the mainstream, renting out DVDs and other media are also typical examples of rental services.
  
  

  Case studies: Tsutaya, Geo Online

What is a lease?

Leasing is the service of renting items for a long period, from a few months to a few years. Commercial goods leased by leasing businesses are characterized by relatively high prices, especially for business-to-business (B2B) equipment and large facilities.

Examples of a leasing business

Many of the commercial items covered by leases are large, heavy equipment, and once a lease is signed and the equipment is installed, it is typically intended to be used for an extended period.

• Car lease: The difference between leasing and renting a car is the rental period. While a car can be rented for as little as one day, a car lease is a contract that lasts from several months to a year. Therefore, if you need to rent a car for a longer period, whether for personal or business use, you should choose a car lease instead.
  
  

  Case studies: KINTO, Cosmo My Car Lease

• Office supplies such as multifunction printers (MFPs) and copiers: You can lease office supplies, such as an MFP or a copier. In addition, some leasing businesses offer rental services for cabinets, lockers, desks, chairs and other office equipment.
  
  

  Case studies: Copyki Honpo, OfficeSupport.com

So far, we have described the basic differences between subscriptions, rentals, and leases and looked at examples of each service. Next, we will discuss the advantages and disadvantages of each.

Advantages and disadvantages of subscriptions

Below are the advantages and disadvantages of subscriptions for customers and providers.

Advantages of subscriptions

Benefits for business owners

• Stable income: Businesses collect usage fees from customers regularly, resulting in a stable revenue stream.
  
• Data analytics: Detailed data on customer usage and popular content can be collected and used to improve the business
  
• Low up-front costs: This makes it easy to acquire customers with low barriers to entry.
  

Benefits for customers

• Increased customer choice: Customers no longer need to purchase content each time they want to watch or listen to something.
  
• No up-front costs: Though there is a monthly fee, there are no up-front costs such as a registration fee, and customers pay only a fixed fee.
  
• More cost-efficient: It is less expensive to use a subscription than to purchase a single item (in the case of a regular delivery service for a product, the price might be discounted, as in “XX% off for regular delivery” compared with a one-time purchase).
  
• Less physical media: With streaming services, you can enjoy more content without owning DVDs or CDs for a fixed monthly fee.
  
• Convenience: It’s easy to sign up and cancel a subscription
  

Disadvantages of subscriptions

Disadvantages for business owners

• Difficult to generate revenue early on: In the early stages of starting a business, it is difficult to generate revenue until the business has acquired customers.
  
• Need a wide range of content: Before introducing subscriptions, the business needs to be comfortable running the business, have expertise in systems and tools, and have a certain amount of content and products.
  
• Competitive industry: There is often a constant need to add content and products or additional services.
  
• Ease of cancellation: Can be terminated immediately.
  

Disadvantages for customers

• Regular payments, regardless of use: Flat fees are charged even when not in use.
  
• Individual services might not have everything customers want: If customers can’t find a product or service they like in one place, signing up for multiple subscriptions can be counterproductive and expensive.
  
• If a customer cancels, they have nothing to show for it: That is, if a customer cancels a streaming service, they will not be able to watch their favorite content.
  

Advantages and disadvantages of renting

Rental services have several shared advantages and disadvantages with subscriptions.

Advantages of renting

Benefits for business owners

• Continuous income: The higher the turnover of product rentals, the more recurring income can be expected.
  
• Better for the environment: Renting items helps reduce the need to purchase new items and reduces household waste. It can also be a good way to demonstrate a business’s commitment to environmental issues.
  
• Easier to acquire customers: With rentals, it’s easier for customers to feel comfortable using a product, even if they’ve never used it before, compared with buying something for the first time. It can also be effective in encouraging continued use of the product if people like the product after renting it.
  
• Lower barriers for new entrants: Because a rental business does not require a storefront, it can operate with minimal staff and can be started without a large inventory.
  

Benefits for customers

• Easy to find and select desired products and services: Instead of having to choose from a vast array of content, as with streaming services, the choices are more limited, making it easier to select the specific content and services you want.
  
• No ongoing costs: When customers rent only when they need an item, they can choose only what they want and don’t have to pay extra fees for things they aren’t interested in.
  
• Can cancel before the contract ends: Because the rental business owns the items and rents them to customers, the rental agreement can be terminated early without significant problems. (Fees might apply, however).
  
• Consistent pricing: Unlike subscription-based businesses, rental businesses don’t typically raise their prices.
  

Disadvantages of renting

Disadvantages for business owners

• Inability to recover initial investment costs: As with subscriptions, it takes time to generate revenue, and it can be difficult to recoup initial costs.
  
• Repair and management of items: Cleaning and quality checks are usually performed after items are returned and before they are rented out again. Because items can’t be immediately rented out again, processes need to be carefully managed to maintain a good turnover rate.
  
• Other businesses might compete on price: Rental is an easy market for new entrants, so businesses in this sector might face price competition as more competitors enter the market.
  

Disadvantages for customers

• Subscriptions can be more affordable: Because of the sheer volume of content offered by streaming services compared with DVD and CD rentals, subscriptions might be a better overall value if customers want to watch a lot of content.
  
• It can be cheaper to buy than to rent the same thing over and over again: Because rental periods are typically short, it might not make sense to pay repeatedly for the same item, and it might be cheaper and less inconvenient to buy it outright.
  
• Time-consuming to rent and return: Renting items usually requires a trip to the rental store or other location to check out and return the product. Some rental businesses offer services such as home pickup, drop-off at a mailbox, or return to the nearest convenience store, depending on the item. Customers can also be charged a late fee if they do not return an item by the due date.
  

Advantages and disadvantages of leasing

Advantages of leasing

Benefits for business owners

• Building long-term relationships with customers: Leasing businesses can maintain long-term relationships with customers because long-term contracts are the norm. When a lease expires, a business can offer new models and equipment, which can encourage customers to continue using the service.
  
• Easier to plan sales activities: Leasing contracts have a fixed term, so it is easy to know when a contract will be renewed or an item will be replaced. This makes it easier to plan effective sales activities to coincide with the end of a contract.
  

Benefits for customers

• Lower up-front costs: Buying equipment usually requires a substantial down payment or other sum, and leasing can reduce the initial cost. This frees up funds for advertising and promotional activities.
  
• Access to the latest equipment: By setting lease terms based on the useful life of the equipment, customers can avoid the problem of continuing to use older models of equipment and can introduce more up-to-date equipment that improves productivity. At the end of the lease term, the leasing business is also responsible for collecting and disposing of the obsolete equipment.
  
• Simpler paperwork and accounting: If equipment is purchased directly, only the depreciation portion of the equipment can be charged as an expense, depending on the nature of the equipment. Leasing, on the other hand, allows for a fixed monthly lease payment to be expensed, smoothing expenses and simplifying paperwork and accounting.
  

Disadvantages of leasing

Disadvantages for business owners

• Potential inability to recover up-front costs: Most leased equipment is expensive. Therefore, the inability to recoup the up-front cost of the equipment from the leasing business can be a significant risk to business operations (e.g., if the business to which the assets were leased goes out of business).
  

Disadvantages for customers

• Cannot be canceled during the contract period: Like subscriptions, the service is provided for an extended period. Note, however, that leases are different from subscriptions, which can be canceled at any time. Leases can’t be canceled midterm, and a penalty fee is usually charged if midterm cancellation is allowed. Another reason leases often don’t allow cancellations is that the leasing business purchases the equipment the customer selects on the customer’s behalf. Though the leasing business is responsible for the cost of purchasing the equipment and any associated taxes, if the customer cancels the contract before the end of the lease term, the leasing business incurs a loss, and therefore the customer cannot, in principle, cancel the contract before the end of the lease term. This is also a major difference from renting services, in which businesses rent out items they already own.
  
• The total amount paid can be more expensive: Leases typically include administrative fees, interest, and title insurance premiums paid to the leasing business. As a result, the expense can be higher than for purchasing the product.
  
• No ownership rights even if used for a long period: A customer does not own the equipment at the end of a lease, even if they’ve used it for many years. If a customer wants to continue using the equipment after the lease expires, they must pay to lease it again. In some cases, customers might have been better off buying the equipment outright.
  

Importance of understanding each business model before use

This article has discussed the differences between subscriptions, rentals, and leases as well as the advantages and disadvantages of each.

We will likely see an increase in rental services as the idea of reducing material clutter becomes more prevalent.

Subscriptions, rentals, and leases differ in terms of transaction type and other details, so make sure you understand the pros and cons before choosing a service type that fits your budget.

For entrepreneurs looking to launch a subscription service business, Stripe Billing specializes in processing recurring payments and provides a variety of features necessary for subscriptions, including regular billing to customers, payment methods, and payment management systems. Businesses can design a subscription plan that meets their needs and simplify and fine-tune all subscription-related administrative tasks.