Why and How to Run a Subscription Based E-commerce Service
Subscription businesses are on the rise. The COVID-19 pandemic saw the industry grow by an estimated 41%, and there are no signs of it slowing down any time soon.
UBS Financial Services predicts that the subscription services will double by 2025, accounting for over $1.5 trillion. Additionally, the most adamant supporters of the subscription model come from younger generations.
Millennials and Gen Z account for the two highest contributors to this section of the e-commerce world. Its emphasis on convenience and efficiency makes a subscription-based business a natural choice for digital natives who prioritize a seamless customer experience.
With so much growth around the industry, many e-commerce brands are evaluating their business model to see how subscription services fit in. We’ve put together this guide to help you understand both the advantages and the challenges that subscription businesses face as well as give you a framework for how to get started.
What is an E-commerce Subscription Service?
An e-commerce subscription business is a model where customers pay a scheduled, repeatable fee for ongoing services or repeat orders. Instead of selling stand-alone, one-time purchases, you market your products to a base of loyal customers who continue to receive your goods or services on a recurring basis.
This not only adds a new channel for profits; it produces recurring revenue, which comes with additional benefits. Companies can better predict and measure profitability. They build a strong relationship with their customer base.
Companies like Dollar Shave Club paved the way for this business model, offering a recurring subscription box full of grooming products. Other companies like Hello Fresh or the Honest Company followed, delivering subscription boxes full of cooking ingredients or baby care packages to their customers’ doors.
At this point, the model has evolved beyond those early adopters. Coffee brands, beauty supply companies, and even home decoration and improvement products have found success with subscriptions. The trick is finding out whether they’ll work for your brand, too.
Who Needs a Subscription Management Solution?
Different kinds of companies offer different kinds of subscriptions, but anyone looking to enter the subscription e-commerce market will need a tool that enables them to access subscriptions and monitor key analytics.
We’ll analyze some of the key goals subscriptions can help brands achieve to give you a sense of whether your company should consider bringing in a subscription management solution.
Improving Customer Experience
Modern customers value positive experiences. A variety of research indicates that improving customer experiences can lead to a host of other benefits including:
- increased revenue
- higher average sale prices
- greater customer lifetime value
- more retained customers
- reduced spending on customer acquisition
But what makes a good customer experience?
It all comes down to predicting customers’ needs so they can seamlessly work through their buyer journey, and subscriptions are a great way to do this.
Take replenishment subscriptions for example. These companies time their product deliveries based on how often people run out of their previous orders.
Customers automatically receive a new order at their doorstep right around the time they need it. Such a seamless experience helps show that you know your customers and can easily meet their needs without them even having to think about it, especially with a user-friendly subscription management solution.
Building Customer Loyalty
Customer experiences are intimately connected with customer loyalty. Qualtrics found that 80% of customers who switched brands did so because of poor customer experience.
The opportunity offered by subscriptions to provide better experiences makes it easier for brands to retain their customers, but there are other ways this business model brings in a more steady customer base, too.
Global consultancy firm ICF says that subscriptions can build customer loyalty by:
- Offering new and interesting products customers love
- Removing friction from the ordering process
- Building trust with their customers by continually impressing them with products and efficiency
- Rewarding customers for longevity by offering members-only perks or other incentives to stay
The increased engagement made possible by the subscription model gives these brands a leg up on each of these outlets for building loyalty with customers.
The subscription business model always works great for companies looking to scale. As you build your core customer base of subscribers, you also create opportunities to upsell and cross-sell other products.
Consider how Beekeeper’s Naturals was able to send targeted email campaigns to their existing customers with additional products they might enjoy. Not only did this carry on positive customer experiences by staying ahead of shoppers’ needs, but it also gave the brand an opportunity to reduce its churn rate by setting up cancellation email flows that keep customers engaged with the brand.
Launching a New Product or Brand
The subscription business model offers incredible opportunities for revenue and added profits. More companies are looking for ways to capitalize.
In Recharge’s recent “State of Subscription Commerce Report,” the company noted that in 2020 “more subscription stores joined the market than ever before, and subscribers grew over 90% year-over-year.”
That shift began all the way back in 2019 but is obviously not slowing down, especially since traditional stores that switched to a subscription model saw their average order value grow by 6%. It’s clearly a great time to jump in and launch a subscription business.
How to Get Your Subscription Business Started
The time is right for subscription businesses, but that doesn’t mean it will be easy. More companies and entrepreneurs will see the opportunity before them and look for ways to get ahead of their competition.
There are a few key steps to think about as you consider embracing the subscription business model that we will outline below.
Step One: Counting the Cost
In theory, adding subscriptions to your business plan seems simple enough. There are a variety of wonderful tools on the market that make it seem like a simple plug-and-play method, but that’s not really the case.
While these tools do simplify the legwork and operations, they’re not magic. You still need to plan accordingly.
Embracing subscriptions really means a whole new approach to your business. It necessitates a new business plan and strategy. To evaluate if you’re ready to embrace the subscription business model, ask yourself these questions:
- Do you have inventory management procedures in place to handle recurring orders?
- Will you have the team in place to manage the monthly workflow of packaging and shipping?
- Would your target audience be interested in recurring orders?
- Can you sustain recurring interest in your product for an extended period of time?
Answering questions like these can help you determine if you are in a place to kick off subscriptions.
Step Two: Understanding Your Place in the Market
Just like any industry, jumping into the subscription market requires you to have a clear definition of what sets your company apart. In such a competitive field, you have to be aware of the qualities that make your brand special.
- What will be your unique value proposition?
- How will you continually delight your subscribers month after month?
- Is there a large enough audience for your product?
- What’s going to make people come to you as opposed to a competitor?
The extreme growth of the market shows that there are plenty of opportunities, but you won’t be the only one trying to take advantage. Having a clear idea of how you’re going to stick out from the others is key before you get started.
Step Three: Identifying Your Specific Subscription Business Model
Brands looking to get in on the subscription model should also consider what kind of subscriptions they want to offer. Different products will more naturally fit specific approaches.
There are three main kinds of subscription models.
- Curation Subscriptions focus on sending target customers curated subscription boxes on a recurring basis. The goal is to get them to trust your selections and to surprise them with each box. (Think Stitch Fix)
- Replenishment Subscriptions enable your customers to never run out of the product they purchased. (Think Athletic Greens)
- Access Subscriptions give special member-only perks like early access to deals, special discounts, or other benefits to customers who pay a premium to join a community of some kind. (Think Amazon Prime).
According to Shopify, curation subscriptions make up 55% of the market while replenishment and access account for 32% and 13% respectively. Each one can be successful. The trick is finding which one is right for your brand.
Step Four: Selecting a Subscription Management Tool that Works for You
Brands interested in the subscription market today have a unique upside: the technology has caught up to the growth, and having the right tools in place can make it much easier to launch.
As mentioned earlier, these aren’t magic solutions. A good tech stack won’t run your business for you, but it sure will make it easier for you to do it.
When you get to a place when you start evaluating software, you’ll want to look for a tool that…
- Easily links up to your Shopify Page
- Is user-friendly both for the merchant and the customer
- Gives you access to the necessary analytics
- Reduces administrative burdens from your team.
There are a ton of options out there, but only a few meet each of these criteria. Picking the right one will make your job much, much easier.
There’s never been a better time to launch a subscription business. Research shows that subscriptions are tied to higher revenue, happier customers, and a more loyal base of followers.
The growth of the industry shows no sign of slowing down, as younger generations embrace this type of online shopping. With the right planning, the right product, and the right tools in place, you can have great success in this growing market.