Gone are the days of running out of things and dashing to the nearest store last minute. Today, people subscribe for a vast amount of online products and services, including medicine, skincare products, clothing, grocery supply, and more.
The subscription model requires consumers to pay a fixed fee at consistent intervals throughout the year in order to receive a product or use a service. This win-win situation not only provides an ultimate “set and forget it” solution to customers but also enables companies to receive passive income and is a great way to turn customers into loyal and paying followers.
In this article, we’ll look into the power of subscriptions, the outlook of the ecommerce subscription model, and tips for launching a successful ecommerce subscription campaign.
The Benefits of an Ecommerce Subscription Model
The surge in the adoption of ecommerce subscriptions has been driven by the convenience it offers the consumers. It offers Shopify stores several operation benefits, including:
Return on investment
All businesses strive to build a loyal customer base and reduce churn rate, and subscriptions are golden opportunities to achieve that. Imagine spending $1000 to advertise your product in a month. If your products cost $100 each, you need to sell 10 items to recover the cost of advisement. Then the next month, you go out to advertise your products again!
But what if you spend the $100 on advertisements, but instead of your customers making a one-time purchase, they make a six-month subscription. In this case, you’ll spend $1000 on marketing but gain $100*6month from 10 customers.
Offering subscription services can improve your customer retention. Typically, clients will subscribe to your brand because they love it and will most likely purchase several times until something doesn’t feel right, or they’re unsatisfied with the result. Your company will learn more about clients’ needs through the ongoing interactions and customize subscriptions to offer the specific style to the customer. In turn, that’ll increase the value of your brand to the customer.
With a subscription service, there is much more predictability thanks to money coming in on a recurring basis. You know the number of subscribers you have, and even if some fall behind, that number isn’t usually significant. Besides, a subscription model can enable you to have a clearer idea of the minimal amount of products you need to have at a particular point in time. This helps you to make predictions related to inventory, which can lower your costs significantly.
Consistent revenue source
All businesses are on the lookout to find ways of securing recurring revenue. Subscriptions are the key tool in creating a loyal clientele base and generating consistent revenue. Since you’ll be aware of the fixed revenue, subscriptions can increase the overall stability, valuation of the business, and you can have better cash flow management. This not only enhances your chances of getting investment but also enables you to establish a reputation as a solid company.
More customer engagement opportunities
A subscription-based model offers your company the opportunity to interact with clients on a regular basis. You can engage them by taking their feedback, updating them about your brand, conversing with them about a certain cause, or even gifting them. This can help improve your customer relationship and experience. Besides, you can use engagement opportunities to pitch your premium plans and upsells.
If you have clients who’ve subscribed, you don’t need to convince them anymore throughout the time they are subscribed (as long as you offer value to them). You can easily focus on nurturing relationships because you understand the current status of the customers who’ve subscribed. According to statistics, it’s 5-25 more expensive to gain a new client.
Better decision making
Whether it’s deciding the annual budget, expenditures, hiring people, or business expansions, all companies need to make decisions frequently. Many times, businesses fail to make the right decisions due to insufficient data at hand. With a subscription-based model, you’ll have different forms of data such as cash flow, product popularity, and types of customers that can help you make better decisions.
Low shipping cost
Since you already know what you’ll sell next, you can optimize packaging and shipping. The customer expects to receive their order on a schedule, so you can ship it whenever it’s convenient for your business. That means you can choose relatively slower and inexpensive ways to ship the subscription orders. For instance, with a traditional ecommerce business, the customer wants the package to arrive few days after ordering it, but with a subscription, you can have a package take two weeks.
Subscription Industry Outlook
While the subscription model dates back to the days of Gutenberg and the printing press, the industry has been booming over the past few years. According to a 2018 study, the largest subscription firms generated over $2.6 billion in 2016 compared to $57 million in 2011. Besides, the Subscription Economy Index shows that subscription revenues grew five times faster than US retail sales and S& P 500 from 2012 to 2019.
Today, customers are increasingly subscribing to brands that have not previously been offered as subscriptions. This trend is typically driven by clients who have various subscriptions- of the 15 percent of customers who receive subscription products, 35 percent subscribe to over three services.
The latest projections show that by 2023, 75 percent of businesses offering different products will be offering subscriptions, and the global ecommerce industry will be worth $246.6 billion by 2025.
Types of Subscriptions
A subscription eCommerce model takes different forms based on the target audience and your brand niche. The most common types of subscription services include:
Replenishment subscription service
The subscription approach offers regular, recurring deliveries of consumable products such as beauty products, toiletries, razors, body care, food, or groceries. These are products that customers would typically need to replenish after a few days, weeks, or months. Dollar Shave Club was one of the early adopters of this subscription business model and it has definitely paid off.
Curation or discovery subscription service
This subscription entails offering collections of products to clients based on their unique tastes and needs. For instance, it can be a monthly beauty and grooming subscription that a consumer subscribes to depending on their needs. Birchbox and other subscription boxes are prime examples. On-demand entertainment services are also classified as curation since they offer collections of TV shows and movies all in one place for subscribers. To offer a curation subscription, you can ask your shoppers to take a questionnaire to define their style and preferences.
Access or bargain subscription service
This model allows customers to purchase a membership to access the company’s products. Usually, items sold are availed in the form of hefty discounts, deals, and perks. The approach is mainly used in packaged foods, health and wellness, and fashion and apparel.
Fixed eCommerce subscription
In this case, the Shopify store offers a set price for a specific set of products for a defined duration. You simply give the customer the option to subscribe weekly or monthly, but you determine the brackets and pricing.
Pay as you go subscriptions
Also referred to as the convenience subscription model, the eCommerce shopper pays for the product as and when they use it. Usually, it applies if you offer services as add-ons along with products. For instance, if you provide cleaning products and services, you can apply the pay-as-you-go approach as the customers might not need professional cleaning at all times.
Unlimited subscription approach
The model refers to when a shopper pays a fixed price to use an unlimited collection of products. The products can be used by the customer personally or by a group of friends or family. For instance, if a customer purchases a burger, they get an unlimited refill of beverage.
Premium member subscriptions
In this model, the company nudges the client to pay a basic access fee to use the products. Simultaneously, you will charge them an extra fee to access the premium content that could include discounts, exclusive deals, or first access to limited edition products.
Freemium subscription model
Your business can offer something for free in exchange for the customer’s contact information. It can be a product or service that you offer recurrently to learn more about the client. Spotify is a good example of this. They offer a free product, but if you want to get more access, you’ll need to pay for it.
Tips for Launching a Successful Ecommerce Subscription
Whether you have a more traditional eCommerce business or you’re yet to take the first step in doing so, there are some tips for getting a subscription model up and running. That includes:
Create subscription-focused customer personas
You need to understand the target customers’ personas before effectively engaging with and selling to them. That entails their psychographic, demographic, and behavioral information. It also includes their need for a subscription-based service and their propensity to becoming long-time subscribers to your brand. Defining and refining the personas of your customers requires you to dig into a variety of data sources.
Typically, the essential components of a detailed customer persona include:
- Before and after– You need to find out the changes or improvements the customers are hoping to make in their lives and how your brand can help them achieve them.
- Mindset– Find out how they approach the problem or issue at hand and if they are reluctant or excited about finding a solution.
- Triggers– You need to understand what happens in their lives that cues them into the issue they’re facing and what triggers them to start seeking a solution.
Find out what’s missing or lacking
To succeed in any industry, you’ll need to have an in-depth understanding of your niche. This knowledge is crucial as it helps you generate and keep a following of paying subscribers over time. That’s because a knowledgeable brand can offer high-quality recommendations or products that are difficult to find elsewhere. Besides, you can recognize what’s missing or the things your competitors aren’t doing that your targeted customers want. Consequently, you can get laser-focused on bringing that value to the customers.
Highlight what makes you different
Besides the conventional businesses in your niche, you’re likely to be competing against other subscription-based models. Hence, you need to differentiate your services and show how your subscription’s unique value proposition sets you apart from others. However, while going above and beyond the competitors is vital to dominating the industry, you’ll also need to know how to communicate this value effectively. You can do this by highlighting your revolutionary product or service, faster delivery or easier returns, or even a charitable cause that your customers are passionate about.
Tie the model and pricing to business goals
It’s crucial to ensure that your ecommerce subscription model will generate substantial revenue for your company. You need to launch the subscription-based service knowing exactly how it will enable your business to grow immediately and in the long run. You can do that by pricing your products to ensure profitability and sustainability or developing tiers of service to enhance retention and customer lifetime value (LTV). By tying price points and multiple tiers of service to your ultimate business goals, you can increase the number of subscribers you generate and maximize your overall revenue.
Add the correct subscription to your existing operations
If you’re running an ecommerce business, you should add a subscription model to your overall operations. But, when making this leap, you need to ensure that you offer additional value to your customer experience. The subscription-based model shouldn’t detract from the value you offer your existing customers. Moreover, this additional value needs to be communicated clearly to the existing and new target customer base. The last thing your brand wants is for the customers to think you’re offering subscriptions just to squeeze more money from them without providing anything in return.
Choose the Right Ecommerce Platform
A fully functioning ecommerce platform is essential in ensuring you launch and run a subscription service. The third-party ecommerce platform should handle the technical aspects of the subscription model and cater to your business’s current and future needs. Therefore, it should be a reputable platform that is user-friendly and allows for a quick and straightforward setup. Besides offering an intuitive user interface, the provider should also offer experiences such as a comprehensive, hands-on onboarding process and ongoing proactive support.
An ecommerce subscription service is a highly effective model when done right. The benefits your company gains from reliable subscribers and revenue streams are massive. Even so, none of these benefits are inherent, and you’ll need to have a robust and strategic approach to succeed in this initiative. It’s therefore imperatively crucial to choose an ecommerce subscription expert who can help you bring your ideas into reality and leverage the latest technologies.