How to Choose Between a Subscription or Membership Model

And what to consider if your company plans to add one to their offerings

So many of us use the terms subscriptions and memberships interchangeably, but they aren’t really the same, though they both use the recurring revenue business model. But sometimes they feel the same. For example, streaming service Netflix has members and memberships and their services include streaming video and mobile games. Disney+ is also a streaming service, but they call their customers subscribers, and they count subscriptions separately.

Key differences

Headshot of Diane Pierson, founder and chief market strategist, Innovate on Purpose
Diane Pierson, founder and chief market strategist, Innovate on Purpose

Let’s look at the key differences between subscriptions and memberships with expert Diane Pierson, founder and chief marketing strategist of the consulting firm Innovate on Purpose, as our guide. Pierson explains it this way:

  • Memberships deliver value.
  • Subscriptions capture value.

Membership benefits are part of the product – the value a company delivers for the money a customer pays them. For example, Costco offers memberships. In exchange for an annual fee, consumers get discounted products, special offers, exclusive deals, and promotional pricing. They also get access to services like Costco Travel and special credit card offers.

LinkedIn uses a membership model using the freemium model. They offer their services for free, or users can pay for a Premium Career membership or Premium Business membership. Companies can also sign up for a sales navigator membership and a recruiter membership.  

“Anyone can get a ‘free’ membership to LinkedIn; but LinkedIn gets the network effect of you being on LinkedIn, which is something recruiters and advertisers are happy to pay for. Like companies pay for access to the ‘free’ members of Facebook. In those cases, the subscriber exchanges data and eyeballs for knowledge and community,” Pierson said.

Another membership example is Forbes. While they used to rely on magazine and advertising revenue, they have expanded the model to include digital memberships which offer more than just editorial content. Members receive unlimited digital access, including breaking news; a personalized experience on MyForbes; fewer ads; and access to members-only events. Forbes regularly delivers more benefits to their members to remind them of their value.

Subscriptions also utilize a recurring revenue model where value is exchanged between the subscription company and the subscriber. Canva is a good example of a subscription that utilizes a freemium model. Canva, a user-friendly design tool, has a free version with limited free templates, photos, graphics and cloud storage. An entrepreneur can upgrade to a Canva Pro subscription to unlimited access to premium content and cloud storage. Canva for Teams and Canva for Universities are also upgraded subscription options.

In this Venn diagram we can see where membership, subscriptions, and products and services can overlap.

Source: Diane Pierson, Innovate on Purpose

Memberships offer community, affinity and exclusivity. When done right, memberships offer more than the product or service a consumer is subscribing to. Members become a community where they may be able to communicate with other users (e.g., private Facebook group, community forum), share ideas and get the benefits of the product or service. In contrast, subscriptions are customer or product focused. For subscribers, it is about convenience and pricing.

Copyright © 2023 Authority Media Network, LLC. All rights reserved. Reproduction without permission is prohibited.

How to choose a membership model or a subscription model

Whether it is a new company starting out, or an existing company looking for different revenue streams, they should consider both models.

“As business owners, our motivation to offer subscriptions is clear: it’s a great way to build recurring revenue. But what’s the motivation for the buyer? And will you need to sweeten the deal with membership benefits like exclusivity (nobody else can get your product except members), community (I get to hang out with the cool kids) or affinity (I can learn from these folks),” said Pierson. 

“First, consider what problem you’re solving for the market, and whether it can best be solved by including a membership in the solution. Then, how does the market want to pay? If the right motivations are there, offer a subscription,” Pierson explained.

Any product or service can be sold as a subscription. The industries or products are most successful when one of the following three factors are at play, Pierson said.

  • There’s an insuring motivation (e.g., car insurance, emergency pest control, heated seats, pet insurance) that motivates a market to pay for something they may not ever receive. The overriding market motivation to pay in this way is economy – you pay for something you don’t use/use rarely in small monthly increments because to pay for use if you needed the product would be cost-prohibitive, or unavailable, without it.
  • There’s a continuous need (e.g., software, furniture, gym) that makes the subscription payment model a convenience. With this model, it may be cheaper to buy a subscription, but if not, the subscription offers compensating (membership) benefits such as automatic upgrades or exclusive discounts or access.
  • OR, what I call a desire for self-surprise (e.g., subscription box, concert series) for the product, which often includes a novel, festive, luxurious or surprise element that can be as valuable as the physical product delivered. Of the three listed here, this third factor is the only one where the market assumption is NOT that it’s cheaper to buy a subscription.

Other factors

Whether your business chooses the membership or subscription model, there are other important considerations:

  • Customer engagement: A member or subscriber may cancel their membership or subscription based on one negative experience, whether it is a customer service issue, an outage, failed payment or other reasons. Companies must deliver a positive customer experience to have good retention.
  • Content frequency: Companies that offer content (e.g., digital news, streaming video or audio, etc.) must continually refresh and add new content. For news outlets, that’s what they do every day. For streaming services, however, it is critical to bring exclusive content, fresh content and provide value for the price the subscriber is spending.
  • Company goals, short and long term
  • Competition and industry trends

“Remember that memberships = products and subscription = pricing model, and both have to reflect the desires and preferences of the company’s market to succeed.”

Diane Pierson, Innovate on Purpose

Copyright © 2023 Authority Media Network, LLC. All rights reserved. Reproduction without permission is prohibited.

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