Over the past decade, subscription-based business models have delivered extraordinary growth. In many sectors, such as SaaS and media and entertainment, the subscription economy has outperformed traditional revenue models by a wide margin, supported by predictable cash flows and the appeal of recurring revenue. But economic pressure, increased competition, and more discerning customers mean that having a subscription model is no longer a guarantee of success. What matters now is retention.
With customer acquisition costs rising by roughly 15-30%1 year on year, businesses can no longer afford to let customers drift away. We are seeing a new behavior pattern emerge where up to a quarter of consumers behave like "boomerangs" - subscribing, lapsing, and resubscribing based on their immediate needs. And it’s not only B2C organizations that are experiencing this fluidity; B2B buyers now expect the same freedom that streaming services offer in their personal lives in their workplaces.
Why flexibility is key to retention in subscription business models
To survive this shift, organizations must treat flexibility as a core product feature. The ability to pause a subscription or swap between tiers might seem counterintuitive to a finance director seeking predictable revenue, but the data tells a different story. Providing a "pause" function, for instance, can save one in two subscribers who would otherwise churn.
This demand for flexibility is driving a rapid move toward hybrid and consumption-based pricing models. During periods of uncertainty, CIOs are reluctant to commit to massive upfront contracts, preferring instead to pay for what they actually use. This has led nearly 60% of SaaS2 companies to adopt some form of usage or hybrid pricing. However, this approach isn’t without its operational problems.
Some organizations are managing complex systems where flat subscriptions, pure usage models, and one-off purchases blend simultaneously. The key is to hide this challenge from the customer, who should experience a simple, intuitive purchasing journey, even if the billing logic in the background is incredibly sophisticated.
AI’s impact: Forcing a rethink on subscription model pricing
Artificial Intelligence (AI) is acting as a major catalyst for these new business models. It is forcing a change in how we capture value. That’s because, in traditional digital products, serving one additional customer costs almost nothing; with Generative AI, every query carries extra compute cost. The more a customer uses your product, the more it costs you to serve them.
This is pushing companies to abandon per-seat pricing in favour of resolution or outcome-based pricing. If an AI customer service agent can resolve 60% of an organization’s support tickets, charging by the seat no longer makes sense. This shift aligns pricing directly with the value the customer receives, but it requires a billing architecture capable of metering and rating these complex events in real-time.
Breaking the architecture deadlock: Designing agile systems for modern subscription models
For many organizations, a fragmented estate of legacy platforms and disparate data silos mean that launching a new pricing model is a months-long ordeal.
We often see businesses paralysed by the scale of the required change, assuming they need to replace everything to get to a modern state. But a "big bang" migration is rarely the best path because it often takes years, by which time the market has moved on. A more effective approach is to slice the problem. Start with a specific business unit, a new product line, or a particular geography. This allows you to stand up a modern, flexible architecture alongside your legacy core.
By ringfencing specific areas for innovation, you can prove the value, test new models, and learn fast without risking your entire revenue stream. This method gives business units the autonomy to experiment with new revenue streams, such as events or direct-to-consumer sales, that would be impossible in a rigid legacy environment.
Conclusion
The shift to hybrid and usage-based models is the future of monetization. Flexibility is now a primary driver of retention, and the ability to align price with value is the key to sustainable growth. However, capitalizing on this opportunity means a fundamental rethink of your operational architecture, away from rigid, monolithic systems toward agile frameworks that allow you to experiment and pivot quickly.
Are you ready to untangle the complexity of your billing operations and unlock new sources of revenue? Learn more about our subscriptions management services or get in touch with our experts today to discuss how we can help you build a future-proof commercial architecture.
References
1. Hensel,A. (2024). DTC Briefing: How brands like Kopari Beauty, Olipop and more are rethinking their marketing operations as they scale. Modern Retail.
2. Zuora. Subscription Economy Index
