Subscriptions are when companies sell products or services for an agreed fee on a regular and ongoing basis. They typically charge customers weekly, monthly, or annually.
Subscriptions, or recurring payment agreements, offer regular access to products or services. They cover areas like media, software, and more. Customers enjoy uninterrupted service in return for spending a set, regular fee over a specific time period.
If they want to continue using a service after the specified time window, they must renew their contract to retain access. If they want to cancel, they simply let their subscription expire. In Germany, there must even be a “cancellation button” that allows cancellation to be submitted at any time.
The Difference Between Subscriptions and Rental Agreements
Both of these models provide access to a product or service for a specific period. However, their timelines and the nature of the relationship between the customer and provider differ.
Rental contracts are usually short-lived, varying from a few hours to three months. On the other hand, subscription contracts are typically longer, ranging from three to 24 months for consumer durable products and potentially several years for industrial subscriptions.
Subscriptions often provide ongoing access to a product or service, such as a software platform or streaming service, while rental agreements are usually for temporary use of a physical item.
The Difference Between Subscriptions and Leases
Leasing is long-term with termination fees, while subscriptions are flexible without extra charges for switching products. They offer additional services and cover costs, unlike leases. Some leases may lack insurance and maintenance, but subscriptions often include these services.
For instance, car owners that pay via a subscription service can request pick-up and servicing. Changing a leased product incurs penalties, but not in subscriptions.
The Different Kinds of Subscription Model
There are several types of subscription models that have emerged as the subscription business model diversified across various sectors. Here is a list of the more common subscription business models.
- Fixed usage subscription: This model involves a set price for a fixed quantity of goods or services over a specific time frame. An example is with magazines, where a customer pays a predetermined amount upfront to receive a magazine at regular intervals, usually weekly or monthly, over a specific period.
- Unlimited usage subscription: This subscription model offers a set price for unlimited access to a good or service. It could be personal, such as a gym membership that provides the member unlimited access to gym facilities, or transferrable like a phone contract offering unlimited calls and texts to an entire family across several devices.
- Pay-as-you-go subscription: Also known as the convenience model or no-commitment billing, this model allows customers to purchase products or services periodically without any long-term commitment. Customers can cancel their subscription at any time. This model has been popularized by ‘beauty boxes’ and similar services, where customers pay monthly and receive a monthly delivery of beauty products.
- Freemium model: Often used by websites and cloud service providers, the freemium model provides access to limited levels of content for free, with additional content or premium features available to paying subscribers. An example is some music streaming services which allow any user to stream music online, but only paying customers can save playlists and listen offline.