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The market for subscription services is constantly growing, and with that growth, we can see new subscription-based payment models popping up all over the world. Some of these models are highly popular among customers, while others might only be appropriate for certain types of businesses.
In this article, we’ll take a look at 7 companies which have been thriving thanks to some unique subscription-based payment models. Read on to find the inspiration you need to incorporate subscriptions into your own business.
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What Is a Subscription-Based Payment Model?
A subscription-based payment model is a way of selling goods or services where the customers pay a regular fee (e.g. monthly or annually) to receive a product or service. This model is often used for products that are consumed over time, such as a streaming service, a magazine subscription, or a gym membership.
Under a subscription payment model, the customer typically commits to paying the fee for a certain period of time, after which they can choose to renew or cancel their subscription. The fee is usually lower than the cost of buying the product or service as a one-time purchase.
7 Examples of Subscription-Based Payment Models
1. Amazon Prime – Flat Rate Pricing
Flat-rate (or flat-fee) pricing is the most basic subscription model. The company charges the customer a regular fee (e.g. monthly or annually) for the product or service. The fee doesn’t change no matter how much or how little the customer uses the subscription benefits.
Amazon Prime is probably one of the most well-known examples of flat-rate pricing for subscriptions. When it was first rolled out, Amazon offered yearly membership for one fixed price of around $100.
Now, Amazon offers annual and monthly memberships – both of which still have flat rates. By offering both annual and monthly subscriptions, Amazon provides choices for customers who may not want to commit for an entire year.
Members receive perks such as one-day free shipping, exclusive discounts, and access to Amazon services like Amazon Photo and Prime Reading. No matter how often they use the included services, they’ll always pay the same amount.
2. Netflix – Tiered Pricing
With tiered pricing, the customer can choose from different subscription options that offer different levels of access or features. This is a great model for software or streaming companies that want to offer their customers flexibility.
Netflix works on a tiered pricing model. It offers customers several options when signing up for its services. Depending on the country, this generally includes:
- Basic – watch on one device in regular HD
- Basic with ads – all the perks of the basic tier but subsidized with ads for a discounted price for users
- Standard – watch on two devices in full HD
- Premium – watch on four devices in ultra HD
Customers that use a lot of devices, such as families, or those that care about video quality are more likely to accept higher fees for more features. Other people may want to watch all the shows and movies, but don’t care about sitting through a few ads if it saves them some money.
3. BarkBox – Subscribe and Save
‘Subscribe and save’ is a unique subscription payment model that works as a combination between flat-rate and tiered pricing. In this model, customers pay a flat-fee subscription rate to receive products or services. The longer the subscription, the less it costs, so customers can save money by committing for an extended term.
BarkBox is a subscription service that uses ‘subscribe and save’ to increase conversion. The basic BarkBox is a curated box of dog toys and treats which costs $35 a month. If you subscribe for six months, this price becomes $25/month and if you subscribe for an entire year, this price becomes $20/month.
This pricing model helps BarkBox have a better sense of recurring revenue, as they are able to project their finances 6 and 12 months out. Dog owners can save money by subscribing for a longer period. The one-off option still exists for customers that may not be ready to commit to the longer periods.
4. Zipcar – Usage-Based Pricing
With a usage-based subscription model, also known as pay-as-you-go, the price increases as the customer uses the subscription.
Zipcar is a car-sharing subscription service with usage-based pricing. Users pay a monthly or annual fee for access to a variety of vehicles around the city. Then, when they want to use an available vehicle, they can use the mobile app to reserve and unlock it.
Users are charged per hour for usage of the vehicle. For instance, in Seattle users can use a Honda CR-V for $11/hour, capped at $83 for a 24-hour period. Most trips include 180 miles per 24-hour period, with additional miles costing $0.58/mile.
The usage-based subscription model works well for Zipcar, as it can offer convenience to customers who may not own a car and be more competitive than traditional rental car companies. With usage-based pricing, Zipcar is able to maintain the vehicles and charge accordingly.
5. Qwilr – Per-User Pricing
With a per-user pricing model (also called per-seat), the customer is charged by the number of users on their plan. This model is very common with B2B products and services, especially software. The pricing scales proportionally as the number of users grows.
Per-user pricing is best for frequently used products that may require collaboration or teamwork but limited to only a few users. If hundreds of people need to use the software, the per-user model is not cost-effective for customers.
Qwilr is business software that allows users to create sales and business proposals easily. Its pricing model is simple: $35 per user per month for businesses. As B2B software, it generally would only need to be used by the sales, marketing, or leadership team, which would keep the number of users down.
For Qwilr, per-user is a simple model to monitor and adjust, but it also offers convenience for customers that may not need enterprise-level pricing.
6. HubSpot – Per-Feature Bundle Model
Per-feature subscription-based pricing is a bit more complex than many of the other models. Similar to tiered pricing, per-feature has a base price, with additional features available for higher prices. Unlike tiered pricing, per-feature pricing allows customers to pick and choose exactly what features they need.
This is another pricing model that is common with SaaS companies. One example is HubSpot, the robust B2B software that offers tools for marketing, sales, web analytics, and customer service. While HubSpot has specific hubs for each of those areas, it also offers customers the chance to create a bundle by mixing and matching the features from the hubs that they need.
With HubSpot Bundles, customers can choose from an array of features and add-ons to fit their specific needs. When customers only have to pay for what they’ll actually use, they’re more likely to use the platform for the long term.
7. Duolingo – Freemium Model
A freemium pricing model is one where a company offers a forever-free version of the service or product and a premium version with additional functions or features. The forever-free version in freemium pricing is often subsidized by ad revenue, but not always.
Duolingo is a language-learning app that operates on a freemium pricing model. In the most basic version, users can access a host of language learning lessons and tools. After each lesson, they must watch a short ad to continue using the app. Additionally, free users are limited in the amount of mistakes they can make per day, which can impede the learning process.
Super Duolingo – the paid premium version – offers users a more streamlined experience. There are no ads and no limits on mistakes. The premium version has additional features like more lessons as well.
According to Luis Von Ahn, the founder of Duolingo, 94% of the 37 million active monthly users opt for the free version of the app, which is supported by ads. However, the other 6% of the users – the premium paid subscribers – make up the majority of the revenue (72% to be exact).
The Benefits of Using Pay.com as Your Payment Service Provider
Pay.com is the most efficient way for your business to accept payments, whether they are one-off or recurring. We offer a wide range of payment options and you can easily add or remove payment methods to ensure customer satisfaction as your business grows or changes.
When you work with Pay.com, you can use our advanced API to integrate our payment components into your own website or platform and provide your customers with a smooth, frictionless checkout process. You enjoy the benefits of our Level 1 PCI DSS compliance without having to worry about meeting the requirements on your own.
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The Bottom Line: Which Subscription-Based Payment Model is Right for Your Business?
Subscription services continue to grow in popularity, both for businesses and consumers. A wide variety of companies use subscription services to better project their finances, maintain recurring revenue, and provide their customers with convenience.
If you’re thinking of incorporating subscriptions into your business, you'll need to select the right payment model. The right model for you will depend on your products or services, your customer base, and your business goals.
If you're thinking about implementing subscription services, Pay.com provides the best way to accept recurring payments. It's easy to set up your account and get started. You can use one of our no-code solutions or incorporate our payment components into your existing site through our developer-friendly API.
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