Customer acquisition costs are increasing at a rapid pace and many merchants are offering memberships and subscriptions to acquire recurring revenue streams and minimize customer churn. As a business owner, selecting the right business model is a crucial decision that sets the tone for your entire business performance and growth. Subscriptions and memberships are often used interchangeably—but are quite different from each other—which creates confusion for most merchants.
Both subscriptions and membership business models help businesses maintain constant engagement with consumers, but deliver different values. Appstle, a leading app provider, empowers Shopify merchants to grow and increase their revenue through innovative subscriptions and membership apps. In this blog, their specialists have discussed subscription and membership-based businesses in detail. Knowing the difference between subscription and membership-based business models will help you communicate your offerings more accurately to your target customers, while also deeply assessing the models to choose the one that would be a better fit for your business and intended use case.
What is a Subscription-Based Business Model
With a subscription-based business model, you can sell products and services at regular intervals and earn recurring revenue.
Due to its ability to produce predictable revenue and strengthen customer relationships, subscription-based businesses have become quite popular in the past few years. Some prime examples are Netflix, a video streaming service that allows its subscribers to watch unlimited content for a monthly fee, and Birchbox, an online makeup store that sends curated boxes to its subscribers. After the huge popularity of these companies, many other businesses (existing and new) started offering subscription-based products/services.
The key to a successful subscription business is maintaining a good relationship with your customersand offering personalized, curated products.
What is a Membership-Based Business Model
With memberships, you give your customers access to something exclusive, depending on their needs and preferences. Unlike subscriptions, memberships can be free or paid; it all comes down to what value your members will get after signing up.
In this model, people of similar tastes, needs, or interest join different memberships to enjoy access to discounts, services, and other benefits. Membership businesses can offer subscription or non-subscription options. For example, you can charge a one-time fee from your members for a certain type of benefit or charge a recurring membership fee (subscription) for a premier package with exclusive benefits. A well known example for memberships is Amazon Prime, which offers fast and free shipping for an annual fee of $139.
What Makes Memberships Different than Subscriptions
You must be wondering if a membership business can have subscription options, what makes one business model different from another? Recurring payments, and what you offer to your customers is where the difference lies!
A subscription-based business offers products and services at regular intervals. On the other hand, membership based businesses offer access to a variety of things, including special discounts, bonuses, member-only products, community spaces, rewards, free shipping, etc. Memberships are more focused on building a loyal base of your customers, and it’s up to you whether you choose to earn recurring revenue from it. Subscriptions on the other hand are more focused on dependable income,i.e., recurring revenue from recurring product deliveries.
Here are some factors that differentiate both business models.
Membership Businesses Can Leverage Exclusivity
Memberships can invoke a sense of exclusivity and scarcity in your target audience. You can choose to limit the number of members you can take. This encourages your potential customers to join as soon as membership opens.
You can also screen applicants and choose members from a certain niche to build a community that’s relevant to your business. Making your business exclusive to fewer members will allow you to charge premium fees for access to high-quality benefits. Many luxury brands use this strategy to deliver a one-of-a-kind user experience and generate high profits.
A similar model wouldn’t work for a subscription business. For example, if Birchbox offers its exclusive boxes to only certain groups like makeup artists, it would lose a lot of revenue. Instead, they set the price of each box differently so people can choose from standard and premium options.
Memberships are More Community-Focused
If you’re running an eCommerce store and want to build better relationships with your customers, you can offer memberships. You can sell your products separately but offer some more member-only benefits (e.g. make up tutorials from coveted make up artists or influencers) to build an online community among your customers. This will allow you to keep a constant engagement, and you can charge a fee for it.
You can also encourage your members to engage with each other, learn about new launches, engage on social media posts, share your products, etc. Subscriptions also include some community elements, but interaction isn’t the main goal here. Subscribers can use your products/services on their own, without interacting with you or other subscribers.
Subscription Businesses Require a Continuous Stream of Products
In order to retain your subscribers, you have to constantly provide products and services that fulfill their needs. You must create a product development strategy to innovate and introduce fresh offerings to your subscribers so they keep coming back for more. This will help you maintain and increase your revenue.
The differences between memberships and subscriptions might seem subtle at first, but both models have something unique to offer your business and customers. As an online merchant, choosing any of the options will significantly impact how you run your business.
If your online store is built on Shopify or Shopify Plus, you can check out subscription apps and membership apps from Appstle. These apps offer easy integration, intuitive features, and complete customization so you offer exactly what your customers need. You can also migrate from existing Shopify apps like Bold Subscriptions, Yotpo subscriptions, Recharge Payments, etc. Contact them for more details.
About the Author
Hannah S. is an eCommerce expert with over 5 years of experience in the industry. She is affiliated with Appstle and also writes for various magazines and websites to guide new and existing business owners. In her free time, she loves to crochet, sketch and bake.