One of the hottest trends in the eCommerce world over the past decade has been the surge of businesses that are using the eCommerce subscription business model. Mom and pop shops, enterprises, and everyone in between has been embracing the business model for a variety of reasons, ranging from consistent revenue, the ability to better understand customer needs, offering customers more options, and more.
Ecommerce subscriptions originally started out in the enterprise space with companies such as Salesforce and Microsoft taking complex software suites and putting them in the cloud. Rather than worrying about maintenance costs, and expensive licenses, customers paid a monthly fee for the offerings.
Shifting the focus towards the consumer landscape, companies such as Barkbox, Birchbox, and Stitchfix, have made subscriptions fun, by surprising their customers each month with new goods, for a flat fee.
Considering how 41% of business revenue comes from repeat customers, you can’t afford to ignore the eCommerce subscription model for your business. Let’s take a look at the different types of subscriptions out there, and the benefits of the model as a whole.
Types Of Subscription Businesses
Subscriptions come in a variety of forms making them accessible to virtually all eCommerce store owners. Here’s a brief overview of the most effective subscription business models out there.
Something most consumers dislike, are long-term contracts. It used to be that subscriptions required long-term commitments, however today, it’s the norm to see service/product subscriptions offered on a month to month basis, with the option to cancel at any time.
In addition to these arrangements, many companies also offer long-term commitment plans, at a discounted rate.
Pay per use
Today, it’s common to see eCommerce companies bill subscribers only for the services that they use. For example Amazon Web Services (AWS) only bills customers based on the amount of computing power they use in a given time period.
Although this business model causes some revenue volatility, businesses benefit from the improved perception of acting in the best interest of their customers.
Anyone that has used Android or iOS apps likely has used micropayments to some extent within the past few years. Commonly found in digital services, these typically come into play when a customer purchases extra storage, in-app credits, or things along those lines.
Micropayments are extremely popular with merchants because the amounts are small, so customers often don’t give them much thought when charged.
The Benefits Of The Ecommerce Subscription Business Model
Now that you have an understanding of the types of businesses that can embrace the eCommerce business model, let’s take a look at the benefits you can get through changing your business operations.
A reliable and consistent revenue stream
In business, you can’t put yourself in a position where you’re constantly processing one-off transactions, because prospecting is expensive. it costs >five times as much to acquire a new customer than it does to retain an existing consultant.
On the other hand, to get repeat business from a customer, you just need to provide a quality experience. The main thing to remember is that aside from being cheaper to retain a customer, you’re in a better position to upsell your subscribers.
As you’re developing your subscription business, remember that you can’t rely on long-term agreements and proprietary technologies to prevent churn (i.e. when customers take their business elsewhere). That approach used to be common in the past, however today, even the largest companies are embracing open standards.
In order to encourage customers to purchase a long-term subscription (think 6 to 12 months), it’s best to offer a discount in exchange for the commitment. For example, offering three months free when a customer pays for a year in full.
Higher margins and lower acquisition costs
In the previous section, we touched on the point that it’s cheaper to keep a customer than it is to gain a new one. It’s easy to brush that off, but it can easily make or break your business. >Harvard Business Review reported that a 5% increase in customer retention can increase profit by 25% to 95%.
Subscriptions Help You Better Understand Your Customers
In addition to having lower acquisition costs, the subscription business model also enables you to rapidly adjust your offerings to fit customer preferences. For example, if you’re offering a software-based solution, you can monitor usage patterns to determine which features should be enhanced and developed, and which areas shouldn’t be prioritized.
If you’re running a physical product subscription service, that curates inventory options for customers, you could look at purchasing trends and deliver intelligent recommendations tailored to internal purchasing history.
Tiered Offerings Provide Customers With More Flexibility
One of the reasons subscriptions took off in the eCommerce world is how it makes purchasing services less overwhelming. Rather than having to pay hefty fees to purchase something they might not need, tiered offerings are more granular.
They make it possible for consumers and users to choose the options that best fit their needs and budget.
Although having multiple tiers for your offerings adds another layer to logistics management, it’s well worth the increased revenue and improved customer satisfaction.
Subscriptions Are Valuable For The Business And Consumer
Overall, the subscription business model is a win-win for the merchant and customer for a variety of reasons. On one hand, customers benefit from convenience. In the case of physical product sales, customers don’t have to worry about re-ordering. With digital goods, customers don’t have to worry about purchasing updates.
While the subscription business model clearly makes things easier for consumers/customers, businesses benefit from the ability to predict revenue and easily calculate the lifetime value of customers.
Making Sense Of It All
If you’re running an eCommerce business or are thinking of starting one, the subscription business model is for you. Subscriptions help you cut costs, by reducing the need for you to continuously work to attract new customers.
Additionally, by getting to know your customers, you can adjust your business to reflect customer behaviors as shifts occur.
You literally can’t afford to ignore the subscription business model. Doing so, is like leaving money on the table.