Why and How to Run a Subscription Based E-commerce Service
Subscription services have become all the rage in recent years. Artisan coffee, organic gin, Fairtrade chocolate, TV streaming, or eco-friendly laundry tabs. If you need a regular replen hit of it, you can get a subscription that delivers it to your door.
In our post-pandemic world, 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 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 ecommerce 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 ecommerce 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 Ecommerce Subscription Service?
An ecommerce 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 ecommerce 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.
Subscriptions are ideal for really niche markets. FreshPatch, for example, supplies patches of real grass for potty training puppies for dog owners with limited access to the outdoors and dog parks, like those living in highrise apartments.
In many ways, the more niche you can go, the better, as popular markets like gourmet coffee, books, snacks, beauty products, alcohol, and CBD products are quickly becoming saturated. Think about what people within your niche will want repeatedly over a long period of their lives. Eco-friendly household cleaning products are frequently repurchased by customers, and these are the kind of items you should be looking at! Your main aim is to provide a service or product that keeps your customers coming back for more each month.
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)
Curated subscription boxes can be very profitable if done well. They tend to be considered luxury items, so markups can be high. The right box, with eye-catching branding that delivers a personalized experience, can be easily backed up with a strong social media marketing campaign.
Churn can be high as boxes often have novelty value that wears off. As the contents are often considered non-essential, they sell well when times are good, but trimming subscriptions is usually the first move when people decide to start cutting back on spending.
Managing curated boxes can be complex and requires flexible supply chains to update content with new ideas constantly. There’s a risk of overstocking if subscriptions drop unexpectedly.
- Replenishment Subscriptions enable your customers to never run out of the product they purchased. (Think Athletic Greens)
Conversion and retention rates can be higher than other subscription models as they focus on essential items. People often try out replenishment businesses for at least a year
Margins are often small as businesses are competing with high street shops and must offer discounts to attract and retain customers. Consequently, operating costs must be kept low.
- 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).
The personalization of perks allows businesses to develop a stronger relationship with their customers and to build communities around sub-groups through social media. Groups of products can be bundled as a membership package, lowering the overheads on any single product.
Personalization can be expensive, reducing margins, and it takes time to create bundled packages, even if delivering digital products like access to an online service.
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.
Don’t forget the subscription business’s secret weapon, the reorder button. Much as you’d like them to, not every customer wants to sign up for a subscription. Having a reorder button embedded into your subscription management tool lets anyone that doesn’t want to be tied into a subscription reorder your products on an ad hoc basis. It makes it easier for them to pop back to your online store and place another order when it suits them.
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. Here are a few to start with:
Seamlessly integrating with Shopify, Upscribe can deliver the full merchant portal you need to add a subscription model to your successful business and increase your customer base. Easily track key metrics, including orders, subscriptions, churn, and cancellations.
Upscribe makes entering the subscriptions market less stressful with its rapid and simple integration with Shopify and its plethora of tools. For example, read about how Upscribe deploys that all-important reorder button to its full advantage.
Upscribe’s pricing is a flat $300 per month plus 1% of subscription transactions and includes full support and onboarding.
Recharge is a subscription and CRM tool in a single portal that can be integrated with third-party software, including Shopify.
The tool offers more in the way of customer communications and personalization with the subscription widget. Widgets come as templates, or a custom widget can be built from scratch. It can also offer customers alternatives to canceling their subscriptions as a way of reducing churn rates.
Pricing is by one of 3 plans from 1% + 10c per transaction but limited functionality to customized pricing depending on an enterprise scale.
Chargebee’s advantage is the number of portals it can integrate with in addition to Shopify. The downside to this is a complex onboarding process that requires an IT department – so it’s not ideal for startups or smaller organizations.
A customizable portal allows subscribers to do more themselves, including plan configurations, personal data management, and communications preferences.
Pricing is scaled based on subscription revenue and billed annually. It’s free up to $100k with the 100k to 1.2M plan touted as their most popular at $549 per month.
Step Five: Marketing your Subscription Business
There are several tried and tested marketing tactics you can use depending on the type of subscription service you’re offering. Your goal is to get your brand noticed and differentiate yourself from other subscription services.
Introductory free trials and freemium offers are a good way to get people to try out your brand’s subscription offers. These should be a taster only and not the full service to avoid signups that are going to drop you as soon as they’ve had one free delivery.
Post regularly and post often for as wide an exposure as possible and to build a community of followers wanting to see what’s coming next. Quirky, fun, and creative posts work really well to entertain your audience, and social media is a great place to show what happens behind-the-scenes. People like to understand who does what, where the products come from, and how box contents are chosen.
Social media is also the perfect place to reach out to communities that you think will like your products and to demonstrate the lifestyle your brand supports.
Best for curated subscriptions.
These can be a big part of your social media strategy. Influencers add social proof to a brand by demonstrating to their followers that they support you and genuinely like your products. Influencers are an opportunity to get user-generated content (UGC) from places your budget would otherwise not reach. Want to show your subscription box being opened in the mountains? Hire an influencer to do the unboxing.
Email and Text Marketing
This is a cost-effective way to market your new subscription service to your existing database of customers. The average email open rate is 21.5% according to Campaign Monitor, with a 2.3% clickthrough rate, so the larger your database the better. Writing catchy subject lines is the best way to improve open rates and click-through rates (CTR).
Text or SMS marketing is trickier as read rates are higher (42% according to Statista) but only 25% of smartphone users say they want to receive marketing texts.
Best for access subscriptions.
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.