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How eCommerce Brands Win in 2020 Part 1: Subscriptions

The name of the game for fast-growing eCommerce brands is no longer customer acquisition on its own, but a focus on repeat purchases from loyal customers. As the cost of customer acquisition rises, brands need to focus on retention and increasing customer lifetime value to sustain long-term growth. The most effective way to do this is through subscriptions. What most brands miss though is that subscriptions need to go beyond processing payments and order fulfillment to increase retention – they need to focus on the post-purchase experience.

Focusing on acquisition alone is no longer enough

Customer acquisition has been the focus of every eCommerce brand for nearly two decades. New customers have typically been the most important numbers for brands but solely focusing on new business ignores the importance of repeat sales from current customers for sustainable growth. According to Invest Consulting, acquiring a new customer is five times as expensive as retaining an existing customer. Point being, it’s way more expensive to acquire a customer and have them purchase once or a few times rather than acquiring a repeat, loyal customer.

This might seem obvious, but many brands have forgotten it. In the early days, Facebook and Google made online advertising cheap. That led to a lot of businesses misconstruing growth with acquiring new customers, without giving much thought to retention and churn. The rising cost of acquisition today means brands can no longer solely rely on it as a sustainable strategy long-term. Simply put, fast-growing eCommerce brands can’t afford to keep pouring money into a leaky bucket if they want to thrive in 2020.

Subscriptions are key for long-term growth

Spending money to acquire new customers only to have them drop off is a serious bottleneck to recurring revenue and long-term growth. So, how can eCommerce brands fix their leaky-buckets? By focusing on retention. According to studies from Harvard Business School, increasing customer retention by 5% can increase profits by 25-95%. A statistic like that will make any brand think twice about how they approach growing revenue.

Converting one-time customers into repeat loyal customers is how eCommerce brands win in 2020 and subscriptions are a critical piece of that puzzle. Brands like Netflix and Spotify have popularized and proven out just how lucrative subscriptions can be and DTC brands like Dollar Shave Club have followed suit. By making repeat purchases or replenishments easier through automating recurring orders, they can ensure consistent revenue and increase their customer lifetime value.

The problem with subscription software today

The issue for fast-growing eCommerce brands is that most subscription software solutions were built to only manage recurring payments and orders, with little focus on retention. According to McKinsey, 28% of subscribers say having an excellent personalized experience is the most important reason to continue their subscription.

Most important reason to continue the subscription, % of responses Source: McKinsey

Subscription churn rates are high and consumers quickly cancel subscriptions that don’t deliver excellent end-to-end experiences. In order to maximize the probability of repeat purchases from loyal customers, brands need a subscription solution that focuses on the post-purchase experience. Leveraging subscription solutions that don’t focus on retention is like buying a Ferrari to loop around your block – you’re not reaping the real value.

There hasn’t been much innovation in subscription software in the last five years to help eCommerce brands fully capture this value. Subscriptions aren’t just about discounts at the time of purchase. They need to focus on retention to increase customer lifetime value and decrease churn. Since eCommerce brands haven’t had access to a solution that focuses on retention, most have had to hack together haphazard solutions to try and solve for this on their own.

Rethinking the post-purchase experience

There’s no denying that acquisition is important, but without an adequate strategy, plan, and solution to increase retention, the power of subscriptions is diminished and a brand’s long-term growth is questionable. With rising acquisition costs, brands need to focus on subscriptions and the post-purchase experience to increase customer lifetime value and maintain sustainable growth.

Rethinking the post-purchase experience is twofold. First, brands need to understand customer expectations and figure out how to meet them – that part is non-negotiable. More importantly, fast-growing eCommerce brands that really want to win in 2020 need to understand how to delight their customers and exceed expectations if they want to decrease churn and optimize retention.