01 Oct
The concept of subscriptions isn’t new. The subscription business model has made its presence felt in our everyday lives. There’s a subscription for pretty much every occasion. In fact, if you wanted to, you could easily fill your entire day with subscriptions from start to finish.
Over the past decade, ecommerce subscription companies have doubled down on the subscription model to monetize their relationships with customers.
But starting an ecommerce subscription service isn’t an easy task. There’s a significant amount of infrastructure that needs to be in place for it to work. Customers won’t accept a sub-par experience. That’s why we’ve put together some challenges, strategies and tips you need to make subscriptions work for your company.
What is an ecommerce subscription?
So basically, ecommerce subscription is when companies collect recurring payments for products or services they offer on a set, repeating cadence, they’re providing a subscription service. When those products or services are sold online, they’re ecommerce subscription services.
Subscription services can encompass many different product categories, from the most popular (i.e. food and beverage subscription box services) to novelty items like hobby boxes and everything in between.
What are ecommerce subscription companies?
An ecommerce subscription company sells its products on a recurring basis online. Typically, it sells and ships products to customers on a monthly or quarterly basis. It leverages the power of these recurring customer relationships to provide everything from razors to computer software. Gaining popularity in the early 2000s, these subscription companies now occupy a significant portion of the ecommerce market that is only expected to grow.
What are the types of ecommerce subscription?
Ecommerce subscriptions generally fall into one of three categories: replenishment subscriptions, curation subscriptions (aka “subscribe-and-save”) and access subscriptions. Let’s take a closer look into each to explore their differences in product focus, as well as their benefits for both merchants and customers.
1. Replenishment subscriptions
Making up 32% of the overall subscription market, replenishment subscriptions refer to products that are used on a regular basis. Think deodorants, laundry detergents and protein shakes. These subscription boxes lean on the convenience of regular delivery for customers, providing them with their favorite products just as they’re just about to run out. Also referred to as “subscribe-and-save”, these subscriptions often give discounts to customers who elect to receive the product more than once on a regular basis.
2. Curation subscriptions
The most popular subscription type, coming in at 55% in popularity, curation subscriptions were some of the first to market in the recurring subscription world and they’ve only gained in popularity over the last decade. A curation subscription focuses on boxes of curated products shipped directly to consumers. Product types can vary within a box, or stick to a theme, such as international snacks, meal kits or skincare products.
3. Access subscriptions
Access is most commonly used to offer membership or availability to special benefits, content or discounts for example, streaming services like Netflix. As things like connected hardware and community growth become more popular, utilizing access subscription services is becoming more and more attractive to merchants.
Why are subscription services so popular?
Convenience is the main reason why the subscription based model for goods and services is popular among consumers. The ‘set it and forget it’ mentality that a subscription company offers its customers fits well with the fast-paced information overload culture of the 21st century.
Customers can select a subscription option when ordering high-use items like toilet paper, toothpaste, or dish soap. Capitalizing on the convenience that subscription payments can offer consumers. It’s not wrong to say , consumers really like convenience, and a subscription based pricing model is the easiest way to address that.
Benefits of running a subscription service
Now that you know the types of subscriptions you can offer, let’s explore what these offerings could mean for your business. Recurring revenue, increased acquisition and retention, easier and more accurate forecasting and building a community of brand advocates, all of these and more are possible with intentional subscription offerings.
1. Increase acquisition
Research shows that new customers are joining the subscription space at unprecedented rates. ReCharge’s latest State of Subscription Commerce report, which studied physical subscriptions, found that from 2019 to 2020 there was an average of 90% growth in subscribers across all verticals. By their very nature, ecommerce subscriptions have many value-drivers that attract new customers, including financial incentives, convenience and novelty or entertainment.
Due to their unique ability to foster customer relationships with the recurring nature of their offerings, ecommerce subscriptions have unique opportunities to increase their acquisitions. Those with strong subscriber communities can leverage positive reviews, engagement on social media and even influencer content to reach new customers and encourage signups. And because these companies are able to study their subscribers’ behavior over time through analytics and market research, they have the opportunity to more effectively target their acquisition efforts for potential customers.
2. Increase retention
Acquiring a new customer is harder than retaining an existing one. However, the subscription commerce business model eliminates the need for acquiring a new customer in the first place. With a subscription commerce business model, you can retain a good number of customers and consequently increase your revenue by upselling or cross-selling relevant products.
Higher customer retention means better business stability and loyal customers.As subscriber growth increased in 2020, so did lifetime value. The State of Subscription Commerce report saw an average LTV growth of 11% in 2020. In other words, subscription customers are spending more over their use of the service before they cancel.
A major opportunity for online stores to increase loyalty and boost retention lies in their customization. According to a study, 28% of curation and access subscribers said that the most important reason for staying with a subscription was having a personalized experience.
This can include everything from customization of product choices (such as swapping out one product for another or adding a one-time add-on purchase to a subscription) to communication preferences (such as having the option to enable SMS notifications) to frequency of purchases (such as giving options for different frequencies of deliveries or allowing options to skip deliveries). Empowering subscribers to manage their own subscription and customize it to fit their lifestyle increases trust in the business and keeps those customers around longer.
3. Make forecasting easier
The recurring nature of subscription payments offers enormous benefits not only for customers, but also for merchants. Aspects of the subscription business model like vaulted payment information and scheduled orders create a predictable revenue stream. This has the potential to make forecasting easier and more accurate, and in turn benefits aspects of the business like inventory and supply chain management management.
This recurring nature also means that subscriptions are a valuable tool for tracking product performance and customer behavior over time. If subscription brands are intentional about their data and analytics, they can hone their KPIs over time to reach consumers even more effectively.
4. Build a stronger brand community
Due to their ability to track customer behavior and product performance over time and their variety of touchpoints to interact with their customers, subscription businesses are uniquely poised to create strong brand communities. This type of engagement offers many benefits for subscriptions that can ultimately help scale the brand. Brands can attract new customers through current community members who leave positive reviews and engage with the brand on social media. These not only foster brand loyalty and increasing lifetime value, but also create valuable feedback loops to improve subscription product offerings. And, when brands interact with community members who engage on social media, they send a signal that they are present and able to deliver a strong customer support experience.
5. Flexible choices
Consumers want greater subscription flexibility, and more options in general, when it comes to functionality. Real people who are thoroughly involved want subscription services and they want flexible options. Here’s how to deliver:
- Offer three different levels of subscription packages. This will provide flexibility in choice, as well as making it easy for customers to choose the middle ground.
- Allow users to customize their subscription. Letting your customers choose what they get every month and how often they get it will appease their desire for control.
6. It’s convenient for you and your customers
Think about this: All of your customers are now on monthly subscription services. Every month, all you have to do is make sure the right product is shipped to the right person at the right time. No more one-off orders. No more confusion as to which products need to be sent. Sounds convenient, right?
Well, it’s convenient for your customers, too. People don’t want to remember to reorder a product every month. We’re busy – that’s just another annoying thing on our to-do list that we might forget. In fact, here are a few ways to make your own subscription services as convenient as possible:
- Allow for a free trial.
- Offer free shipping.
- Provide excellent customer support.
Challenges to creating an ecommerce subscription service
What are some of the hurdles of running an ecommerce subscription service? For many businesses, the main pain point is shifting from a transactional business model to a relational commerce model. Offering an ecommerce subscription means recalibrating your business processes to embrace this shift.
1. Transitioning to relational commerce business processes
With a transactional ecommerce store, your main focus is attracting customers and getting a sale, then moving on to the next customer.
With a subscription model and relational commerce, you don’t focus on one and done conversions. Merchants retain subscribers by forming a bond and sense of community around their products, which boosts brand loyalty and drives repeat purchases.
Subscribers are more loyal to strong brands whose offerings align with their personal values. When you can build a brand community around your subscription offerings and create an engaged group of customers, that’s the sweet spot.
2. Lack of differentiation from other subscription services
Why should future customers sign up for your subscription plan? What differentiates you from your competitors or incentives consumers to become subscribers? These are the main things subscription merchants need to think about to have success.
Differentiation and diversification are key to standing out in a saturated market. Being smaller or just starting out allows you to be more agile and embrace innovation. Successful merchants are able to utilize their data to understand their customers, form a plan of action and meet customers where they are and where they’re going.
Tips for running the best ecommerce subscription service
No matter your industry or focus, there are few key themes for setting up your ecommerce subscription service for success. The bottom line: Get to know your customers as deeply as you possibly can, track your learnings over time and pivot your offerings to meet customers’ needs. The more seamless you can make your user experience, the happier and more loyal your customers will be.
1. Track KPIs and data
It’s easy to make assumptions about your customers and their spending habits, but if you’re not using data to back up those beliefs, you’re willfully stumbling around in the dark. Properly tracking the right data is often the lifeblood of thriving subscription ecommerce platforms. Important metrics to consider are customer churn rate, customer acquisition costs (CAC), average order value (AOV) and your customer lifetime value (LTV) or average customer value.
Due to their recurring nature, subscriptions grant merchants an incredible opportunity to collect data about their consumers, which can be harnessed for more in depth personalization (think personalized recommendations, offers or discounts).
2. Make sure you have the right ecommerce platform
BigCommerce. Shopify. Woocommerce Subscriptions. Different ecommerce platforms are better suited for different needs — but with so many different options to choose from, it can be hard to decipher which would best serve your subscription platform.
Are you looking to run a fairly basic monthly subscription box offering? Are you looking for a niche custom headless build? Or are you looking to implement an omnichannel business model, where customers are getting the same, high-quality brand experience whether they are purchasing off your website, social media or in a brick-and-mortar store? What will your pricing model be? or What payment gateways will you be using? What will your transaction fees be from your ecommerce platform? What does the subscription management experience look like?
These are important questions to answer when running a subscription-based business. You need to find the ecommerce solution that works best for you and various platforms are better suited for different needs. For example, for merchants who want to offer an omnichannel business model, BigCommerce is an ideal platform. Their documented four pillars of omnichannel success (sales channels, marketing and advertising, operations and fulfillment) allow you to meet your customers where they are.
Do your research before committing to a subscription ecommerce platform and find the one that best suits the needs of your business.
3. Incentivize autopayments and auto renewals
Subscriptions are ideal for businesses because of the predictive nature of their recurring payments. Making those repeat orders as frictionless as possible is beneficial to both merchants and subscribers, and ensuring customers can make repeat orders on-site benefits your engagement and SEO.
Incentivizing autopayments for your subscriptions provides the customer with convenience and allows the business to more accurately forecast future revenue. You can incentivize subscription products and autopayments over one-time purchases with discounts or bundle deals.
Auto renewals, on the other hand, can be a very valuable retention strategy. Losing a loyal customer because their credit card expired or because they forgot to renew their subscription products is a devastating outcome.
Letting customers know of the various payment options and incentivizing subscription plans that include auto renewals saves your business hardship down the road. Smart businesses also know to notify their customers before their subscription renews. If you want to keep customers in your subscription program and preserve a positive brand affinity (and avoid a headache for your customer support team), notify your customers in advance of any charges going on their account.
Including options to skip a delivery or swap a product is equally as important in these notification emails. Data shows that subscribers who take skip or swap actions stay around for more than twice as many subscription periods as unengaged customers.
4. Make sure the subscriptions align with business goals
Subscriptions in the ecommerce world are skyrocketing in popularity right now, and they aren’t showing signs of showing down. But starting a subscription business on a whim is no guarantee of success.
Make sure that your subscription offerings align with your business goals long term. Will you dedicate the services and tools necessary for your subscription business to thrive? Are your products optimized for subscriptions, or are they too niche to be ordered on a recurring basis?
In the right hands and supported with the right resources, subscription platforms are a revenue generating machine. Just make sure the business is providing the right services.
Conclusion
Setting up a subscription service is simple. You choose your package, enter your payment and shipping information, and get a package to your door every month. The simpler you can make this process, the higher your conversions will be and the more customers you’ll get.
Also, recurring payment means great things for your business. It increases your customer lifetime value, thereby increasing your profits and decreasing your costs. Hence, Subscription services are one of the best things you can do for your ecommerce site.