--- description: Subscription services exploded during the pandemic, but is the cost of living crisis taking a bite out of their market? Find out now in our latest report. image: https://gdm-localsites-assets-gfprod.imgix.net/images/software_advice/og_logo-55146305bbe7b450bea05c18e9be9c9a.png title: Do subscription business models have a healthy future? --- # From pandemic to recession, is there a healthy future for subscriptions? Canonical: https://www.softwareadvice.co.uk/blog/3105/is-there-a-future-subscription-business-model Published on 27/09/2022 | Written by David Jani. ![From pandemic to recession, is there a healthy future for subscriptions?](https://images.ctfassets.net/63bmaubptoky/jLSaZroBEbQtfJ_4uPk2X3DEYMUy3he2OLFaw9h05oA/4fd49058c3de16cd75e55122fc49a5e7/Subscription-model-1-UK-Software-Advice-Header.png) > Subscription model businesses have become increasingly common in the UK. Estimates suggest that 22% of UK retailers have developed a service following this paradigm since COVID-19 lockdowns began, in addition to the 28% of retailers offering subscriptions before the pandemic. However, in these uncertain economic times, are the costs of these services becoming a concern for consumers?  ----- ## Article Content Subscription model businesses have become increasingly common in the UK. Estimates suggest that 22% of UK retailers have developed a service following this paradigm since COVID-19 lockdowns began, in addition to the 28% of retailers offering subscriptions before the pandemic. However, in these uncertain economic times, are the costs of these services becoming a concern for consumers? In this articleWhat types of subscription services did we analyse?Does income affect the uptake of non-traditional services?What are the prices online consumers will happily pay for a subscription?Are consumers cancelling non-traditional subscriptions?Has the pandemic trend reversed for subscriptions?According to Kantar’s global issues barometer, the UK has amongst the highest (57%) concerns about the economy. Research also indicates that Brits may have an average of seven active subscription services per household at any time. This can cumulatively represent a high fixed monthly cost for consumers when many are thinking of cutting back on expenses. We, therefore, wanted to evaluate whether Britons were having a rethink about subscriptions given the current cost of living crisis. Does this mean that companies need to review pricing models and how they manage subscriptions as a whole?We surveyed 1,011 UK residents aged 18 to 65 who went online shopping at least once a month to find out how people regard subscription commerce and whether it has a future. Our full methodology can be found at the end of this article.What is a subscription-based business model?S ubscription business models work by offering customers access to a product or service on a recurring basis. This is paid for by a regular or lump sum payment covering the time period the product/service will be supplied.What types of subscription services did we analyse? An important distinction we made in this study was the difference between traditional and non-traditional subscription services. We carefully defined what each type of subscription entailed to our survey sample.The key parts of traditional and non-traditional subscription-based models we presented to our participants were as follows.Traditional subscriptionsWe defined traditional subscriptions as paid online subscriptions to media streaming services. This includes popular choices such as video services like Netflix, Amazon Prime, and Disney+, or music streaming providers like Spotify, Deezer, and Apple music. Non-traditional subscriptionsA non-traditional subscription model was defined as an ‘online paid subscription that offers services or delivers products on a regular basis’. This can include provisions such as product boxes, replenishments of common household items, or access to fitness or education online platforms. Does income affect the uptake of non-traditional services?Income often plays a significant role in determining consumer choice. With a service running on a subscription revenue model , customers are exposed to an ongoing cost, which could deter those with lower salaries from trying a non-traditional service. With national inflation at a 40-year-high, this could be an especially important factor. Therefore, we examined the level to which household income affects the types of subscriptions that people choose.It was clear to see that there is an element of price sensitivity with subscription-funded businesses. In almost every metric, it could be seen that having one or more types of subscription models was higher when household income was higher, and the opposite was true for those who were not subscribed to any type of subscription model business.Nevertheless, it was curious to observe that more low-income participants (earning £15,000 a year or lower) were non-traditional subscribers only compared to those in middle-income brackets. This suggests that these services could represent a way to make genuine savings for online shoppers with the lowest incomes. It was also interesting to observe why non-subscribers had never purchased any type of subscription model before. Amongst the top three key reasons, money was a major factor.  Fixed expenses were the most chosen reason for not buying a subscription. Another significant chunk of participants (45%) also believed they were not worth the money.As expected, the ongoing cost of a subscription service represents a significant pain point for users. However, whilst these are hurdles to engagement, correct pricing is crucial to reduce this issue.We studied the subscription pricing levels that online consumers already pay and would be comfortable paying to determine how cost affects uptake and ongoing commitment to a service. What are the prices online consumers will happily pay for a subscription?A single recurring subscription is quite often a small fixed cost. However, as we’ve already highlighted, it is common for homes to have multiple services active at any time.The UK government estimates that around £60 per household is spent yearly on unwanted consumer subscriptions and is planning to introduce rules to prevent so-called ‘subscription traps’. Therefore, demonstrating value for money on that cost in addition to the overall price point is very important.When we examined the prices that non-traditional subscription service customers pay, we found that people in the subscription economy didn’t always pick the lowest prices as we might have expected.Many of our participants are paying as much as £20 for a single service, with a combined 29% paying over this amount. The smallest group, making up only 7% of our sample, paid under £5. Whilst this is a curious finding, it does perhaps underscore the idea that non-traditional subscriptions are seen as a luxury and people are willing to pay a significant amount each month for the privilege. It could also indicate the relative price point of many of these services. Indicating that non-traditional services will often cost over £10 a month.The preferred subscription levels that our samples chose further evidence this.The most basic subscription levels were the preference for 54% of our non-traditional subscribers. Less than a quarter of people preferred the premium level, whilst 23% were only offered one price point.Overall it would suggest that many people don’t want to pay a premium for these ongoing services. This is something that companies should take into account when assessing their pricing to avoid subscription fatigue from expensive recurring payments.When we looked further into the pricing that non-traditional subscribers would prefer for different types of products/services, we also observed a general preference for lower costs. In three out of four categories, a monthly price of between £6 and £10 was picked by the biggest proportion of interested subscribers. The only exception was product boxes, where 45% of subscribers were willing to pay £11 to £20. This suggests a disconnect between the desired price point for online shoppers and the prices charged for a non-traditional service. This could become more acutely problematic for non-traditional subscription businesses’ uptake of new customers, not to mention those hoping to maintain long-term existing customers if household budgets get squeezed. How often are online consumers paying for non-traditional subscription packages?Another factor affecting the pricing of traditional and non-traditional subscriptions is how regularly payments must be made. Usually, consumers have a choice of paying a recurring monthly payment or an annual lump sum at a cheaper monthly cost.This can have a significant effect on customer uptake and the longevity of their subscription. Therefore, to investigate this further, we asked our participants how often they paid for their subscriptions and how much they would like to pay for non-traditional services. Three-quarters of our respondents said they paid for non-traditional subscriptions on a monthly basis, as expected. However, it was interesting to note our sample only committed to short-term options rather than taking the opportunity to gain savings from longer-term options covering multiple months.This seems to show that people are drawn to one of the major advantages of subscriptions, which is the flexibility in cancelling. With payments mostly being taken on a monthly basis, subscribers retain the ability to cancel at short notice if costs become too high to maintain.This is further reflected in online consumer preferences for payment frequency too. When we asked the sample how often they wanted to pay for a non-traditional subscription, we found an even greater number (81%) preferred monthly payments.From this, we can clearly see that monthly payments are the best choice for the vast majority of subscribers when offering a non-traditional product or service. Whilst it is possible to offer other options, they do not have the same mainstream appeal. Tips for SMEsPricing for longevity is essential when running a subscription service. A price that is too high will deter potential customers or lead to shorter-term engagement, whilst a price that’s too low will hurt your bottom line.Price optimisation software can assist with the process of getting the balance right. These tools can help assess market conditions, utilising historical user data as well as predictive algorithms to help companies get to the right price point.Are consumers cancelling non-traditional subscriptions?We have already seen there are many pricing and longevity factors that appeal to subscribers. However, another key matter is subscription cancellations.As we observed before, monthly subscriptions costing a relatively small amount of money are the most popular amongst our sample. However, a question remains of whether people are cancelling subscription services due to cost of living pressures and how easy or simple this process is for users.As we expected, many of our participants had started subscribing to non-traditional services during the years of the COVID-19 pandemic. Two-thirds (66%) of those we asked started their subscription after July 2020. This contrasts with only 15% that had been regular subscribers prior to July 2019.When looking at cancellations, it was seen that most non-traditional subscribers had ended a subscription before. Almost two-thirds (65%) answered yes to the question of whether they had ever cancelled a subscription, whilst only 35% said no. Whilst this shows a large proportion of our survey sample has cancelled a subscription before, it doesn’t seem to indicate that non-traditional subscriptions are a declining trend overall. Whilst many of these participants have ended a non-traditional subscription, they still have other ones active. We calculated an unsubscription attrition rate of 5% from our sample. This appears to suggest that most of our sample were not deterred by subscription models in general and had kept them going.It was also interesting to observe that many also expressed the view that it was easy to cancel their subscriptions when they had chosen to do so. A combined 83% said they found cancelling a non-traditional subscription easy. Only 17% found the process difficult. Overall, this reflects well on companies offering non-traditional services by demonstrating dedication to a good customer experience. This is also despite the fact that among the most significant disadvantages of a subscription business model is the possibility that many people may unsubscribe all at once, affecting cash flow. Whilst the natural reaction might be to safeguard recurring revenue by adding some extra steps to cancellation, it is also good practice to give consumers a transparent method to end their subscriptions. Not doing so could harm a company’s reputation rather than help it.Avoiding subscription trap practicesThe UK is introducing rules that give the Competition and Markets Authority (CMA) more power to fine businesses that trap their customers in hard-to-cancel subscriptions. In 2022 the CMA also rolled out a publicity campaign helping the public identify these practices and to report companies who exploit them.As a subscription requires regular ongoing payments, it is essential for businesses to carefully map out a transparent and user-friendly way for subscribers to leave. Subscription management software can prove useful in this regard as it can help you provide consumers with plan management options and cancellation management tools.Has the pandemic trend reversed for subscriptions?The pandemic saw many more people rely on subscription services due to movement restrictions and worries about catching COVID-19. Since then, it seems many people have retained these services.Subscriptions on their own are often a smaller cost to a consumer, but if too many are active at once, this can amount to large outgoings. These fixed expenses were the biggest reason that people avoided buying a subscription.Therefore SMEs adopting a subscription model should consider offering:The option to subscribe monthly – so users don’t feel too trapped by an offer Flexible pricing tiers – to capture the widest market possibleThe option to pause rather than cancel subscriptions – to avoid losing users entirelyDespite the additional costs involved, non-traditional subscriptions are popular with lower earners, although some services such as product boxes did encourage users to spend higher amounts than they would for other alternative options.In the second part of our report focusing on subscriptions as a service, we will examine more of the trends amongst non-traditional subscriptions. This will dive more into the services and products that appeal most to online shoppers in the UK and how users discover them.Looking for subscription management software? Check out our catalogue. ## Disclaimer > MethodologyData for Software Advice’s Subscription Model 2022 survey was collected in August 2022. Results comprise responses from 1,011 UK participants. The criteria to be selected for this study are as follows:UK residentsAged 18 or olderShops online at least once per month or moreShown and understood the definition of a ‘non-traditional subscription’ ## About the author ### David Jani David is a Content Analyst for the UK, providing key insights into tech, software and business trends for SMEs. Cardiff University graduate. He loves traveling, cooking and F1. ## Related Articles - [4 different types of property management for SMEs](https://www.softwareadvice.co.uk/blog/3541/types-property-management-smes) - [Is the UK workforce able to maintain work-life balance?](https://www.softwareadvice.co.uk/blog/3465/work-life-balance-uk-workforce) - [The 4 best-ranked employee engagement platforms by UK users](https://www.softwareadvice.co.uk/blog/3163/best-ranked-employee-engagement-tools-uk-users) - [Brand storytelling for SMEs: What you need to know](https://www.softwareadvice.co.uk/blog/2525/brand-storytelling-for-smes) - [Brand loyalty in the UK: What do consumers really think?](https://www.softwareadvice.co.uk/blog/3289/brand-loyalty-in-the-uk-what-do-consumers-really-think) ## Links - [View on SoftwareAdvice](https://www.softwareadvice.co.uk/blog/3105/is-there-a-future-subscription-business-model) - [Blog](https://www.softwareadvice.co.uk/blog) - [Home](https://www.softwareadvice.co.uk/) ----- ## Structured Data