The Benefits Of A Subscription Based Ecommerce Model

The eCommerce subscription market is booming and will continue to grow. If offering subscriptions isn’t something you have considered for your business, this post will help you start. Launching subscriptions has the capacity to increase revenue by 112%, so could a key player of your retention strategy. By 2023, 75% of businesses that sell to customers directly are expected to offer subscriptions, and in this blog post we’re going to see why.

What are eCommerce Subscriptions?

A subscription based eCommerce model automatically charges customers on a recurring basis for a repeated product or service. Rather than customers making a one-off purchase, the customer consents to a repeat subscription. You may be familiar with this kind of model from companies like Netflix; where a monthly payment ensures ongoing access to their streaming service. 

Subscriptions for physical products existed before the e-version; the well-known example of newspaper subscriptions being the obvious one here, but nowadays subscriptions go way beyond the weekly news. In fact, nowadays it’s possible to have a subscription for pretty much anything. Coffee, make-up, paper towels or clothes are all available in subscription packages, as long as the business can be creative; anything goes.

What are the benefits of Subscription Models?

Let’s take a look at why someone would consider a subscription model for their business at all.

Recurring Revenue

The most obvious benefit is the recurring revenue. Rather than a one-off purchase, the business is secured recurring payments from a customer. This means reliable cash flow and predictable income, which is great news for the business as it makes it easier to forecast future revenue and plan ahead.

Inventory Management

Knowing how much has been ordered in the future means that inventory management can be handled a lot easier. Having too high or too low stock can be a problem for businesses running on one-off payments, as what the sales might look like in the future can be unpredictable. A subscription model solves this problem.

Lifetime Customers

A subscription model fosters great potential for lifetime customers and developing deeper relationships with consumers in general. Since the customer will have multiple engagements with your business, you have more than one chance to show them the quality of your brand and what it can deliver. If executed well, this can ensure predictable revenue through lifetime value.

Offsets Customer Acquisition Cost

Since customers have higher lifetime value potential, the customer acquisition cost is offset. After just a few subscriptions being sent, they have covered their CAC which is one of the highest costs a business can face. Referral programs can also work well in this respect as loyal customers are most likely to spread the word.

Increased Investor Interest

Subscription services are attractive to investors as the financial predictability and strong customer growth potential means they can be more reassured about their investments. From 2012-2022, subscription model businesses grew 5 to 8 times faster than traditional businesses. This is certainly an attractive figure.

A Superior Customer Experience

On top of all of this, the subscription model can offer customers a better customer experience. Customers have power over their own purchases, flexibility, excitement, reliability and trust. These are harder to achieve through a one-off purchase model, and they are things customers value.



What are the types of Subscription Model?

So after the benefits you probably understand why subscription models are fast becoming so popular in the eCommerce world. If you’re beginning to think it could be an interesting addition to your business, the next step is to start considering which kind of subscription model would work best for you. 

Subscription First or Subscription Second?

Firstly there is the choice between a first or second subscription model. A subscription first business means that the main business model is centered around subscriptions. This may allow one-time purchases, but the business model is not based around that. The benefits of this model are the high lifetime value, predictable revenue and high profits. The downsides are the already saturated market and continuing to create a varied and engaging customer experience.

The subscription second business model means that the focus of the business remains mostly focussed on one-off purchases, but subscriptions are also presented as an offering. For example, this could apply to eCommerce businesses who have brick and mortar stores focussed on one-off purchases, but an online store with the option for subscription. The benefit of this is it can allow a smooth transition into a subscription model. The challenge is that a new business model will need to be considered for any kind of subscription service offered. 

Once you’ve figured out if you’re going Subscription First or Second, the next step is to choose exactly which subscription model works best for you.

Replenishment Model

The replenishment mode involves the regular recurring delivery of the same product at a discounted price. This would entail consumable products that need to be replenished such as toiletries, vitamins, groceries, pet foods. Since people can predict how long it will take them to finish their product, they know when the next one should be delivered.

The benefits of this is the high conversion rate; customers have a regular need for the product. It is not a complicated process; it’s easy to launch, uses already existing products and simply needs to arrive on time to the customer- they are not expecting any surprises. The challenge is that this is a stiff market- you certainly won’t have been the first with this idea. 

Curation Model

The curation model involves sending the customer something different, new and exciting every month. Based on the customers’ needs and tastes (the customer and shop can both have input into the products), a tailored delivery of something such as coffee, apparel, shoes or films is delivered. This can be regular, monthly or quarterly. 

The benefits of this is that when done right, this can be very lucrative, as tiered subscriptions can be offered to customers with different incomes. The main challenge is that it requires a lot of labor to keep offering new and exciting products, the presentation needs to look good and if not done well, there will be a high churn rate. Personalization is key in order to succeed in this model.

Access Model

The access model is more of a membership subscription, such as that with Netflix. Customers pay each month and have access to the services offered. There is no need for fresh products or services, as long as the offerings are up to date and still attractive to the customers. Customers should be made to continue to feel special, and there should be perks for long time subscribers.

Choosing the subscription model that works for you depends on a few things:

1. Customers: their demographic, problems they face and your solution
2. Target Niche: what itch are you trying to scratch?
3. Existing Players: who are you up against, and how can you top that?



Subscription Model Best Practices

The biggest challenge that subscriptions models face is retaining customers. Nearly 40% of customers have at some time canceled an online subscription. Having a ‘cancel any time’ button is important to let customers know that they have the choice to leave if they are unsatisfied- they aren’t locked in for life. But the ultimate goal is to retain customers. Let’s take a look at some best practices to help achieve this.

Convenience

People sign up to subscription models, particularly in the case of the replenishment model, for convenience. The moment when anything about the transaction stops being convenient to them, you’ve started to fail. The first element of this is that the product needs to arrive on time, to the right place, with the right product. 

The second element of this means that customers have easy control over their subscriptions. If people want to skip an order, swap a product, or edit their subscription; this should be easy for them. If this feels inconvenient in any way, your subscription model can seem more like a ‘trap’ than a help, and this will result in lost subscribers. 

Rewards

Customers that stick around should be celebrated for this. Offering higher discounts after a set number of orders can help retention, or offering a big discount every X number of orders. Shoppers do not want to feel taken for granted or forgotten about, so making sure they remain a happy part of your brand family is key.

Personalization

The importance of personalization in the eCommerce world is no secret, and this remains true for subscription commerce. Optimizing the tech stack means that data can be collected about subscribers which can then be used to improve their experience through personalized recommendations, offers, and discounts. Particularly in a curation model, each delivery needs to be unique to the customer at hand.

Some might like the surprise, but some may want to take an active part in choosing what they receive. Using quizzes or questionnaires to find out what the shopper is interested in receiving from your company is a great way to ensure satisfaction. On the other hand, some customers might just like to be surprised completely- which is fine too. Each customer should be receiving the ideal experience for them. 

Tech Savvy

It is a good idea to partner with a subscription platform that creates a smooth technology experience for the customers and the merchants. The payment provider needs to handle automatic renewals and protect the customers’ information, so a real time software inventory management system is necessary. Issues such as expired cards or outdated contacts are a higher risk with subscription models, so using a payment service that specializes in recurring payments is important. 

Stand Out

In an already saturated market, make sure your business does what is necessary to stand out. The more specific your niche, the more chance you have of standing out. Use creative advertising and marketing to prove how your service can add value to the customer’s life. Make sure the presentation of your subscriptions are exciting- this includes, packaging, website, social media and anything else that people engage with. Offer taster packages so people can know what to expect. Anything that gives people a flavor of what you’re offering is a great idea.



Build Community

Since so many subscription customers are connected to the brand long-term, this is a great opportunity to build a community of those who engage with your business. This can help build lifetime customers, brand image and overall satisfaction. Making social media groups is a way to achieve this, including user-generated content, ‘challenges’ related to your products or so on. Alternatively supplementary content can be shared with just the loyal customers. All of this will help people feel valued and involved, and boost your business appeal.

Any product can be a subscription service. Ecommerce continues to move and grow, and subscription commerce is a part of this. You have the license to be inventive, your product doesn’t have to be a certain type to benefit from this. With a bit of creativity and dedication, subscription commerce can bring great results to your business.