Why and how companies have been moving to subscription models

Subscription models are all about sustainable annual recurring revenue (ARR). If you already get the gist, you can stop reading here.

In the business world, the better your company can showcase a sustainable revenue model, the better you'll appear to your board. And subscription models are a great example of this.

Let's get into the details of why that is, and how you can take advantage of subscriptions.

Why subscriptions are so important

Unlike typical product sales, subscriptions make financial forecasting easier and more predictable. 

They allow you to increase the lifetime value (LTV) of your existing users. And because all you need is for your users to stay subscribed (rather than buying new products), retention is cheaper too.

Example products that can benefit from subscription models

Let's look at a few products the can offer users extra benefits through a subscription:

• Smart cameras – expanded cloud storage
• GPS trackers – deeper insights
• Exercise equipment – fitness classes
• Printers – automated ink replenishments

When done right, subscriptions not only increase LTV, they can also help to extend the overall lifetime of your users.

In some cases, brands even sell their products at a loss knowing that they'll recuperate the costs later through their subscription.

How to introduce a subscription model for your brand

One of the most important things to consider when planning your subscription model is how you can make it a necessity. What additional value can you offer that makes a subscription worthwhile for your users? Without this, your subscription may never take off.

From there, you should think about the freemium option of your subscription model. Start with the basic package, then decide which features people would be happy to pay extra for. For example, raw data may be a free feature, but insights may cost extra.

If, after launching your subscription, you find that users aren't converting, the problem may be your offer. You can learn more about this by taking a look at our subscription conversion points.

How subscriptions impact your app store listings

It's important to note that app stores have different classifications for different types of subscriptions.

If you're offering a subscription for features unrelated to your app, you can opt into shortening the subscription purchase funnel, just like with retail stores. An example of this could be a GPS data plan.

But if you're offering a subscription that enhances or adds extra features in the app, you'll be forced to pay a 15-30% app store tax on your final revenue.