The raise of the subscription model
Nowadays there is almost nothing you can’t buy by signing up for a subscription. First introduced in the 1600s by newspaper and book publishers, the subscription model has been adopted by a broad range of industries. From meat to cheese, from shirts to pants, these days you can even get regular access to airline tickets or sunglasses delivered to your doorstep every month.
The subscription economy has seen massive growth over the past decade and grew more than 400% over the last 10 years. The graph below provided by Zuora shows subscription business sales has severely outgrown two other key benchmarks – the S&P 500 sales and U.S. retail sales. This means that subscription businesses grew revenues about 5x faster from January 2012 to December 2022.
Why companies and customers like it
For businesses, the subscription model creates consistency. Revenues are more predictable and customer acquisition costs are going down. Through the subscription model, customers become more valuable to companies the longer they use a certain product or service as they provide a regular cash flow.
For customers, this business model is an easy way to try a product or service for the first time and use it regularly with no high upfront cost. In a world where curious clients want to try new products and services, this model offers convenience for shoppers who like simplicity. In the UK, nine out of ten of the adult population are signing up for things like streaming, food and beauty products on a regular basis according to moneyadviceservice.org.
How much do we spend on subscriptions?
Now given the never ending subscription offerings, it is not a surprise that people spend a lot of money on recurring payments. This is exacerbated by the fact that many companies offer free trials which automatically lead into a paid subscription after the trial period. According to YouGov, half of Brits (47%) signed up for subscriptions accidentally. These accidental sign-ups alone lead to a cost of £800M in 2018. A survey by the Mirror revealed that 84% of people in Britain did not realise they had signed up for a subscription and 80% had issues cancelling them.
While accidental sign-ups are only one part of the problem, the other part is subscriptions people simply don’t use. According to This is MONEY, the typical adult spends £496 on regular payments each month. Out of this, an incredible £39 per head and month goes to unused direct debits and standing orders. This equates to £25 billion each year in Great Britain which could be saved by just cancelling them.
Unused gym memberships are the biggest contributors to this amount according to This is MONEY and YourMoney.com. According to the latter, nearly a fifth of consumers never review their subscriptions and more than a quarter have continued to pay for subscriptions without realising that the price had increased.