Glossary definition

What is a subscription business model?

If you subscribe to an entertainment streaming service, a software-as-a-service (SaaS) type of malware detection, or monthly razors, you are a customer of a company with a subscription business model.

Companies using a subscription business model charge customers a recurring fee for a product or service they provide. Based on the agreement or contract between the company and the customer, these fees may be based on or structured for usage-based billing, rating, SaaS billing, or have a fixed term.

Consumers benefit with more ways to buy and an easy way to try new products. Business-to-business (B2B) buyers benefit with lower upfront costs and companies providing the goods or services- suppliers, benefit with a more predictable revenue stream. Suppliers know how much revenue they have coming in on a recurring basis, which helps with budgeting and planning, forecasting and more. Additionally, suppliers with powerful, multidimensional reporting can use the buyers’ data to improve cross sell and upsell opportunities and, quickly deploy new product offerings with flexible pricing and packaging that helps attract and retain customers.

B2B suppliers taking on a subscription business model need to account for revenue recognition requirements such as the ASC 606 and IFRS 15 mandate. Additionally, they may need contract management capabilities and to be able to measure key performance indicators unique to the subscription and SaaS industry. Many companies with a subscription busines model rely on SaaS metrics to help them monitor the state of their business.

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