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The rise of the subscription economy
In recent years, there's been a major shift in the way people consume products and services. Rather than buying items outright, more and more people are opting to subscribe to monthly or quarterly plans that provide them with access to the goods and services they use. This shift is the driver behind the rise of the subscription economy.
What is the subscription economy?
To put it simply, it's an economic model in which businesses provide their customers with access to goods and services on a subscription basis. This could mean anything from a monthly gym membership to a quarterly wine club shipment.
What makes subscriptions such an interesting revenue stream for businesses?
One of the most appealing aspects of subscriptions is the recurring revenue stream that they provide. When you have a large base of subscribers, you can easily predict your future cash flow and manage expenses accordingly. “As subscriptions tend to be sticky, they are almost an evergreen asset. This means, once the initial customer acquisition cost has been recuperated, they create almost everlasting profits.
When trying to understand and value these recurring revenue businesses venture capitalists and investors use a multiples of their future cash flows to put a value on the company.
So what does that mean?
Simply put the recurring revenue streams that these businesses are generating are the main and core asset of their business