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The Subscription Economy and What it Means for Your Nonprofit

by Emily Snoek

Behavioral Economics

09.11.2018

Subscriptions are becoming the new norm across all industries. It started in the technology industry when there was a move from ‘buying’ to ‘renting’ software as platforms migrated to the cloud. This then moved into other industries, greatly increasing people’s comfort level with purchasing goods and services in a subscription format.

The e-commerce subscription industry alone has experienced outrageous growth over the past 5 years, growing by 100% a year on average.

If you’re like 49% of Americans, you probably have a subscription to something. Maybe it’s a streaming service like Netflix, Hulu, or Spotify. Or maybe you experience monthly delight when your BirchBox, StitchFix, or BarkBox shipment arrives in the mail.

What’s Behind this Trend?

1. Subscriptions have become the new norm.

The prevalence of subscription products and services is a trend that has created a new norm. People have become comfortable with paying for something they want on a monthly basis rather than a large, one-time, up-front payment.

2. Subscriptions offset what is known as ‘loss-aversion’

Loss aversion addresses the pain of losing something, say $10, and states that the loss of $10 is psychologically more powerful than the pleasure of gaining its equivalent.

Subscriptions combat this by allowing people to pay for a service in smaller increments, instead of committing to a lump sum up-front. Because they’re paying on a monthly basis and retaining their ability to cancel their subscription at any time, the psychological pain of parting with their hard-earned money is reduced.

3. Subscribers pay monthly but also get rewarded monthly.

The most popular subscriptions out there right now are created to delight and surprise consumers on a monthly basis, such as BirchBox. People are gravitating toward these curated, personalized subscriptions, spreading out the positive experience the subscriptions provide. A simple reason behind the trend toward subscriptions is that people like them. They enjoy their subscription and they feel good when their monthly box comes in the mail.

What Does this Mean for Your Nonprofit?

People’s comfort with subscription models for diverse services and products presents a huge opportunity for creative companies or nonprofits looking to innovate.

Our Creative Scientists think the subscription economy is especially promising for nonprofits.

Here’s what you can do about it:

1. Embrace the subscription model

People like the flexibility of paying for something over time instead of all at once, particularly if they can cancel their subscription whenever they want. And people want to give.

In fact, research conducted by the Center for Advanced Hindsight suggests people want to give more than twice what they actually give. So the sooner you get comfortable with the subscription model and make it easy for your donors to set up recurring donations, the better.

2. Leverage a monthly giving program to increase annual donation amounts

Research demonstrates that recurring donors are super beneficial to nonprofits, often proving over 4 times more valuable than one-time donors! In one study, monthly donors gave 42% more on average over the course of one year than one-time donors. And perhaps more importantly, monthly donors are much more retainable than one-time donors (to the tune of 2-4 times more!). Understand the value of recurring donors and craft your fundraising around bringing more of them to the table.

3. Thank and remind your recurring donors every month!

People feel great when they give. And with a monthly sustainer program they have twelve chances a year to feel great. Keep this positivity going and increase their sense of identification with your organization by thanking them every month; after all, they are donating every month. This is an ongoing relationship and you can nurture brand loyalty by reminding your donors about their importance to you.

Make giving as easy as possible by encouraging monthly recurring donations. The prevalence of subscriptions normalizes monthly giving, and many donors will already recognize the benefit of setting something up once and just letting it continue. Think of monthly donations as a way for your donors to do something they already want to do. 

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