Many companies are adopting a subscription business model. Why? Recurring revenue is a more sustainable path to business growth than new customer acquisition. Business owners can make more informed and accurate decisions with a recurring revenue stream.
Subscriptions aren’t limited to magazines. Almost any business can adopt the recurring revenue business model. So, if you’re looking for ideas for subscription businesses, this article is for you.
This guide will explore 12 recurring subscription business ideas to boost business growth. We’ll also cover,
- What recurring revenue is
- The benefits of recurring revenue
- The types of recurring revenue models
Let’s begin.
What is recurring business revenue?
Recurring revenue refers to income businesses receive from charging customers a recurring fee to access products or services. Rather than a one-time payment, customers are billed on a daily, monthly, quarterly, or annual basis.
The defining characteristic of this model is that access to a product or service is directly linked to continued payments. The result is a stable and predictable revenue stream over a given period. No wonder 70% of business leaders say subscription models are key to growth. You can focus your efforts on retention strategies that maximize the lifetime value of existing customers.
It’s not just business owners that find this model attractive. Venture capitalists prefer investing in companies with recurring revenue because it signals stability.
That said, you shouldn’t forget about customer acquisition. Customer churn is a challenge. People cancel subscriptions for various reasons. So, in addition to customer retention strategies, you will need to add new customers to remain profitable.
Still, it will be a fraction of what you need using the pay-per-use business model.
Successful companies like Netflix, Microsoft, and Gilette use subscriptions and memberships to create recurring revenue streams for their businesses.
5 benefits of opting for a recurring business revenue
Having a stable and predictable income has several benefits.
1. Potential for scalable growth
The recurring revenue model provides data that enables businesses to understand their cash flow, customer acquisition costs, and retention rates. With these insights, you can invest in growth strategies with minimal risk. It also makes it easier to upsell to active customers, increasing profitability.
A great example of this scalability is Netflix. The subscription model enabled the streaming giant to scale from online DVD rentals to on-demand video.
2. Clear visibility
Many investors and venture capitalists prefer investing in subscription and membership business ideas. In fact, generating recurring revenue increases your business’ valuation by up to eight times. Why? Lower risk and consistent ROI. It also signals that the brand has achieved product-market fit, i.e., that customers are willing for the service.
Monthly recurring revenue (MRR) is the total income generated from active subscriptions (excluding one-time purchases or fees) in a given month. To calculate it, multiply the number of monthly subscribers by the average revenue per user (ARPU). So, if you have 150 users on the $75 per month plan, the MRR is $11,250.
MRR allows you to forecast future earnings accurately and manage expenses accordingly. For example, you can predict income a year in advance. Multiply MRR by 12 and you get your annual recurring revenue (ARR). So, $11,250 x 12 = $135,000.
MRR also helps you identify areas to focus attention. Let’s say cancellations for your coaching business are on the rise. You can use feedback surveys to discover opportunities for improvement and invest in marketing strategies to win back churned customers.
MRR can change drastically. New subscribers increase monthly revenue, and cancellations decrease it. Upgrades, downgrades, and special offers further complicate the situation. Subscription analytic tools, like Baremetrics, automatically track subscriber activity and predict revenue based on past and current data.
3. Approachable pricing plans
Price is often an entry barrier to customers. For instance, in the old days, customers had to spend hundreds and thousands of dollars up-front for software, making it difficult for many people to own and use these services.
Subscription payments allow you to expand your target audience by creating attractive pricing plans, including free versions. Customers are more likely to consider your product at $25 per month versus an up-front charge of $300. Depending on your product, you can create various pricing plans for different customer segments.
Slack has no entry barrier; prospects can start with a free account. Paying plans also catch potential customers’ attention with low pricing. However, note the asterisks on these plans. The price shown is for one active user. The final price depends on the total number of users.
There are different ways to structure recurring revenue pricing. These include:
- Flat rate pricing – fixed amount regardless of usage and features
- Tiered pricing – variable prices depending on features and benefits
- Usage-based pricing – based on usage (time, volume, or number of transactions)
- Value-based pricing – based on the customer’s perceived value (i.e. outcomes)
Each pricing structure has its advantages and disadvantages. For example, the flat rate is straightforward and reduces churn due to price sensitivity. However, it limits revenue growth because it doesn’t highlight value for different customer segments.
On the other hand, tiered pricing allows you to segment customers based on needs and willingness to pay. But it’s complex and requires defined value propositions for each tier.
4. Foster strong customer bond
According to the Pareto business principle, 80% of revenue comes from 20% of customers. Recurring business models allow you to identify these VIPs and focus on developing strong bonds with them.
It’s easier to build relationships with repeat customers than single transaction shoppers. Subscription and membership models enable you to collect and analyze first-party data on customers’ needs, preferences, and behaviors. That allows you to develop relevant marketing strategies to increase customer lifetime value (CLTV).
For example, if you notice a customer’s usage exceeds their account limits, you can send personalized marketing messages upselling higher plans. Or you can create an online community to share useful content and engage customers.
5. Manage expenses efficiently
When you know how much money you can make in a given timeframe, you can make informed decisions and manage expenses efficiently.
Recurring business models take the guesswork out of planning with accurate financial forecasting of revenue and costs. For example, a food service company doesn’t have to worry about overstocking or understocking supplies. They know how much stock they need based on the number of subscribers.
That way, you can increase or decrease expenses to match income, boosting profitability.
5 types of recurring business models
Recurring business models come in various forms depending on your subscription product, business strategy, and revenue goals.
1. SaaS
Software as a service (SaaS) is an online business model where customers pay to access digital services. For instance, a small business could pay a cloud storage company to hold its data instead of owning expensive IT infrastructure such as servers. Other SaaS services include email marketing platforms, project management software, and customer relationship management tools.
2. Rental
Rental models are commonly applied to tangible goods such as equipment and facilities. The fee is for the use of the item for a fixed period. For example, you pay monthly rent for office space for a five-year term. This is the only recurring revenue business model with a hard contract, meaning there are penalties for breach of terms.
3. Subscription
Subscriptions are the most common recurring revenue model and date back before the digital age. Customers pay a recurring fee to access a product or service. These include niche magazines, fitness centers, and streaming platforms like Netflix. SaaS is a type of subscription service. While there is overlap between subscription and SaaS, the SaaS model allows for a pay-per-use, one-time, and prorated pay structure.
4. Usage
The usage business model (also pay-as-you-go) charges customers based on how they utilize the product or service. You can bill customers by how much or how long they use a product. For example, mobile data companies charge users for the amount of data they use. This benefits customers as they only pay for what they consume. However, it offers less income predictability than other models.
5. Membership
Memberships are similar to subscriptions, but there’s an element of exclusivity. Instead of paying to access a service, members pay to get exclusive benefits, discounts, or content. For example, content creators use Patreon to share exclusive or early-release content with paying subscribers. You should choose this model if your goal is to build customer loyalty.
To summarize, the SaaS model is used for digital goods, and the rental model for tangible goods. Subscriptions give customers access to the service while memberships give them exclusive benefits. In the usage mode, customers pay for what they use.
12 Recurring subscription business ideas
Now that you understand the different types of recurring revenue, we’ll explore 12 of the best subscription business ideas to demonstrate the flexibility of the business model.
1. Domain registrar and web hosting
Offering web hosting services is a great subscription business idea for web developers. You can make recurring revenue by selling domain space to non-techy clients, a win-win situation. Best of all, you don’t have to start a successful business from scratch.
Reseller hosting providers allow you to buy a VPS (virtual private server) at wholesale prices. So, you don’t have to worry about expensive server and hosting infrastructure. You then rent these white-label domain spaces to customers under your brand name.
Reseller hosting companies like Hostinger offer 300 websites per account, with daily backups, unlimited bandwidth, and more. You can manage multiple websites from one dashboard and share access with customers.
When starting a web hosting business, you must consider two things. First, choose a provider with white-label plans so your customers don’t realize they’re on a reseller hosting platform. Second, the reseller company should offer technical and customer support.
2. Freelance marketplace
Freelance marketplaces, like Fiverr and Upwork, connect businesses and skilled workers. Freelancers create profiles detailing their expertise, experience, and portfolios. Companies post projects outlining their needs, timelines, and budget.
Many businesses use these platforms as a cost-effective stopgap to meet staffing needs.
There are different kinds of marketplaces, and you can customize yours to fit specific audiences.
- Local freelance marketplaces are tied to a specific geographic location (city, country, or region). For example, you can create a marketplace and connect local businesses with local talent.
- Global freelance platforms don’t have geographic barriers or parameters.
- Niche freelance marketplaces specialize in a particular industry. For example, 99designs connects freelance graphic designers with clients. Other niche ideas include accounting, construction, and entertainment.
- General freelance platforms host various freelancers in various disciplines and specialties.
You can also mix and match to create a unique recurring subscription business idea.
See the example below.
Salita is a local and niche marketplace that offers language services (interpreters and translators) to clients in Norway.
As a subscription-based business idea, employment marketplaces allow you to collect revenue from freelancers, employers, or both. There’s also the option to generate income with targeted advertising.
3. Organic food
People have to eat, and with growing environmental and health concerns, they want to eat organic food. According to a report from Grand View Research, the organic food and beverage market is expected to reach $564.22 billion by 2030.
Despite increasing demand for healthy and eco-friendly food, not many people have time to pop down to the local farmer’s market, if they have one. This presents lucrative opportunities for entrepreneurs or farmers with food subscription business ideas. Customers sign up for weekly or monthly delivery to avoid repeated checkout.
You can create a fruit-of-the-month membership website where you send a different fruit each month.
The fruit company’s subscription boxes come in four sizes, from 4 pieces (classic box) to 30 pieces (executive box). The fruit calendar shows customers which fruit to expect in the coming months.
A vegetable or meat box delivery service is another way to meet demand for farm-fresh produce. For instance, you can create a monthly subscription box based on specific nutrition profiles or dietary restrictions. Alternatively, customers can customize their subscription box on your e-commerce business website.
Farm to People offers customers two farm boxes: a seasonal produce subscription box with an assortment of in-season fruit and vegetables and a cook’s subscription box, which includes protein and other grocery items based on diet.
Add value to your membership business with educational newsletters about the health benefits of organic foods, the seasonality of certain foods, or your ethical farming practices.
4. Gardening supplies
Another response to the growing demand for healthy food is the rise of home or community gardens. People in urban areas or food deserts have started growing herbs and vegetables. A gardening membership business is just the thing to meet these customer’s needs.
The Urban Organic Gardner Seed Club sends subscription boxes monthly with everything the customer needs to start and manage a garden. These include seed packs, fertilizer, starting pods, growing guides, and plant labels.
In addition to sending gardening supplies, you could share educational material on growing and caring for different plants. You can also create a forum or online community website where members can network and share tips.
5. Instrument accessories
String musicians like violinists and guitarists change their strings regularly depending on the number of playing hours. Other factors that impact string quality are corrosion, kinks, and windings. So, here’s an opportunity to earn recurring revenue.
Most learners replace strings every three months. However, professional and touring musicians need to replace strings monthly or weekly.
Stringjoy crafts and sends quality guitar strings via monthly subscriptions.
Another recurring revenue business idea related to musical instruments is rental. Many amateurs and learners can’t afford to own their instruments. Moreover, the current share economy means people prefer rentals over ownership. Think Uber.
Running an instrument rental business is simple with the right tools. You want rental software that manages inventory, online booking, and electronic payments. It’s also important to plot out rental agreements, highlighting responsibilities and penalties. Be sure to insure your instruments for loss and damages.
6. Software
These days there’s an app for anything – exercise, novels, video conferencing, etc. The SaaS industry is booming. Statista estimates the market will be worth $232 billion by 2024.
Most SaaS companies operate on a recurring basis. Customers not only pay for access but also ongoing maintenance and support.
Headspace is a meditation and sleep app that offers monthly and annual subscription plans.
A lot goes into starting a SaaS business but we’ll only cover the basic steps here.
- Identify gaps in the marketing or a problem your software can solve.
Let’s say you want to build a video streaming app. Well, there are hundreds of those and Netflix dominates the market. However, you notice a rise in Korean culture consumption, especially reality shows. That’s a gap an app for Korean content with English subtitles can fill.
- Validate your idea.
There are a couple of ways to do this. First, conduct market research to understand the competitor landscape and who you’re building software for. Second, develop a prototype or minimum viable product (MVP) to see how the market reacts to your subscription product.
- Develop a business plan
This document describes your business goals and how you will achieve them. It outlines your product information, market analysis, marketing strategies, and financial projections, including pricing. As a startup, business plans are beneficial in attracting investors.
7. Stock media platform
Content creators can also join the recurring revenue bandwagon. Membership websites like Patreon or Buy Me A Coffee enable creatives like photographers to monetize their work.
Alternatively, you can build a stock media platform or website or add a subscription plugin like Sell Media.
The more photos or videos you have, the more valuable your photography business is to customers. You’ll also be able to set attractive plans and download limits.
Here’s an example from iStock to help you structure your subscription pricing plans.
There are separate plans for pictures and videos. Each plan has download limits that affect the final price.
8. Online course learning
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The eLearning industry is another market poised for explosive growth, with a projected value of $325 billion by 2025. It’s not just education institutions cashing in. Industry leaders and hobby enthusiasts are creating online courses to share their knowledge and skills.
From knitting to exam prep to certification, you can build courses around anything you’re passionate and knowledgeable about. Course builders help you create lesson plans, syllabi, assignments, etc.
The subscription model works best for courses with ongoing content, multiple units or models, and bundle courses. For instance, you can create marketing courses around SEO and content marketing which require regular updates to align with new best practices.
It also works for courses with deadlines or if you want to limit content access for a specific time.
9. Online magazine
If you’re looking for tried and true subscription business ideas, look no further than online magazines.
Magazine subscriptions aren’t new but, thanks to the internet, they are easier and cheaper to produce. All you need is a membership site and writing talent. Gone are the costs associated with printing and distributing content.
There are different formats for digital magazines.
- PDF magazines
- Online flipbooks
- Native app magazines
- HTML5 magazines
The best format is the HTML. It delivers maximum impact for low effort. It uses the same technology as websites and works on any modern browser. Responsive design elements ensure a pleasant user experience for mobile and desktop users.
You also have tremendous design freedom. For instance, you can embed background videos and create fluid animation. A huge advantage is you can turn your table of contents into hyperlinks so readers can jump to sections that interest them.
Below is a great example of a website magazine.
It looks and behaves like a website with a headline, cover image, CTA, and navigational links. Readers turn the page using the directional arrows.
Just because there aren’t printing and distributing costs associated with online magazines, doesn’t mean there aren’t costs. You still have to pay writers, editors, graphic designers, etc. Also, if you choose to sell on third-party apps, there is a membership fee to pay.
That’s why subscriptions come in. But today’s consumers are used to getting content for free. Your ability to generate money from this model depends on the competitor landscape and how engaging your content is.
One way to address this is by tapping into niche markets. If you’re the only Afrofuturism magazine in town, people won’t have a problem with a $2.99 membership website. Secondly, consider incorporating a paywall, where readers access a few articles for free and have to subscribe to see additional content. Alternatively, you could gatekeep high-quality pieces at various points in the publication.
10. Health and wellness
According to the Global Wellness Institute, the industry is worth $5.6 trillion. It includes personal care and beauty, healthy eating and weight loss, wellness tourism, physical activity, and more. For people in the wellness space, there’s a lot of opportunity to earn recurring income.
For instance, you can sell prescriptions, vitamin boxes, nutritional shakes, essential oils, or yoga classes. And because customers have to continue using the product or service to experience the benefits, the subscription model makes sense.
Ora Organic offers plant-based protein powder subscriptions at a 20% discount. Customers can choose delivery intervals of 30-, 45-, and 60-days.
A different wellness example you can model your business after is Peloton.
The subscription gives customers access to hundreds of live and on-demand workout classes with experienced instructors across various disciplines.
11. Maintenance services
Maintenance services like cleaning can be a source of recurring income. Many people are willing to pay for someone to clean their home. Not to mention commercial buildings.
A cleaning business can be profitable if you have a penchant for cleanliness. Depending on whether you’re running a solo operation or have employees, the startup costs are low and returns high.
What kind of cleaning businesses can you start?
- Commercial cleaning
- Residential cleaning
- Deep cleaning
- Carpet cleaning
- Green/ eco-friendly cleaning
- Move-in/Move-out cleaning
Once you’ve decided on the service you’ll offer, you can structure pricing by time or size of space.
Simply Clean offers weekly, bi-weekly, and monthly residential cleaning services. They provide high and low estimates by square feet. For an exact quote, you must fill out a three-minute questionnaire about the type of flooring, appliances, house occupants, and more.
12. Investment/ Financial advisor
Financial advisers conduct analysis, make stock recommendations, and manage client’s assets for a fee. They also educate customers on their financial health and help them build wealth.
The subscription-based model allows financial advisors to offer services to customers who don’t fulfill the minimum asset requirement under the AUM structure.
AUM (assets under management) is the total market value of investments an advisor manages. Advisors receive commissions under this system. As a result, most enforce a minimum asset requirement (usually in the millions of dollars) that many people don’t have.
Offering advisory services on a recurring basis lowers the entry barrier for people who need them. You can customize services based on the client’s needs or financial status. For instance, you can have plans for young professionals, growing families, and retirees.
Recurring revenue FAQs
1. What is recurring revenue?
Recurring revenue refers to income businesses receive from charging customers daily, monthly, or yearly fees for products or services. Access to goods or services is directly linked to continued payments.
2. Are subscription-based revenue models suitable for every business?
Any business can be profitable using recurring revenue models as long as it provides continuous value. However, digital and content businesses excel in this model.
3. How is pricing determined in recurring revenue models?
There are four primary ways to structure pricing in subscription models: flat-rate, tiered, usage-based, and value-based. Operation costs and the competitive landscape are other factors to consider when pricing your subscription business ideas.
4. Are recurring revenue models sustainable?
Yes. The stability of predictable cash flow allows businesses to forecast revenue and plan growth accurately. Coupled with retention strategies, business costs are lower since it is cheaper to retain existing customers than acquire new ones.
In Closing
Subscription business models are becoming more popular. The value proposition for customers is convenience. For companies, they offer stable and predictable income. That’s not all. Recurring revenue businesses have higher valuations than those without, attracting investors.
Knowing how much you will make in a given period empowers you to make well-informed decisions about how and where to spend money. You can manage costs effectively and develop relevant strategies for growth and customer satisfaction.
The sky is the limit when it comes to recurring revenue business ideas. Whether it’s novelty snacks or industry expertise, there are options to suit any product or service. Hopefully, you have found a recurring revenue model that works for your business.
You can also try any of the subscription business ideas in this article.