Imagine if you could keep customers coming back every month, without fail, and generate regular revenue from them. It would make predicting profit a breeze and secure customer loyalty and retention in the long run. This is totally possible with eCommerce subscription models.
In fact, 50% of all online shoppers have some sort of subscription - and we’re not talking about the obvious subscriptions like Netflix and Spotify here. We’re talking physical product subscriptions, with 15% of consumers buying into a regular subscription of their favorite items.
What is a subscription business?
ECommerce businesses that use the subscription model essentially provide recurring services or recurring product deliveries in exchange for regular (usually monthly) payments from the customer. It’s often a win-win situation for the merchant and the consumer since the consumer avoids running out of a necessary item while the merchant gets regular, predictable revenue.
Subscription models, whether it’s a subscription box company or recurring payment on a single item, are a great way to retain recurring buyers, who happen to be the most profitable kind of customers.
There’s a reason brands measure things like customer lifetime value to track how much customers spend over time, and the consistency of subscriptions makes it easy to determine cash flow moving forward while also identifying how much each customer is worth.
Is Shopify good for a subscription based company?
Shopify is essentially a shopfront for your store, but it also has a collection of apps that make it easy to run different kinds of subscriptions.
The biggest problem with creating subscriptions in Shopify is that it doesn’t store customer payment information. This means you have to get customers to resubmit their details to order again, which creates additional steps in the process (and provides plenty more opportunities for buyers to drop off). Anything could happen: customers might forget to renew or their card information might expire, which means you lose a customer even if they weren’t actually planning on leaving.
You might not be able to store customer information through Shopify, but you can store it through an app. There are plenty of subscription-focused apps out there that do what Shopify doesn’t: store customer payment information so you can easily charge them on a regular basis. This avoids churn and keeps customers sticking around when life gets busy. Some of the most popular options include Recharge, Bold, and Smartrr.
3 common revenue models for subscription businesses
The most common type of subscription model you’ll see is related to software. Consumers sign up to use an app or a piece of software that they pay for on a monthly basis, but with regards to eCommerce, what are the options? The model you choose will depend entirely on the type of product you sell, the industry you’re in, and the customers you’re selling to.
Here are some of the three most popular subscription models for eCommerce brands.
1. Replenishment subscriptions
These types of subscriptions allow customers to get automated deliveries of necessary items, like razors, coffee, toilet roll, or nappies. Customers pay a monthly fee to the brand and get their products delivered at the same time each month. Examples of replenishment subscriptions include toilet roll, coffee, snacks, and anything that runs out over a certain period of time.
Replenishment subscriptions are great for:
- Predictable recurring revenue
- Forecast the inventory you’ll need
- Increased customer lifetime value
- Sell more products
- Secure customer loyalty
Dollar Shave Club is one of the most well-known subscription company examples. The brand thrives on replenishment subscriptions, where customers receive a regular delivery of razor blades straight to their doorstep.
2. Curation subscriptions
Customers can get personalized experiences geared towards their unique wants and needs with curation subscriptions. This model still provides a regular delivery of products, but subscriptions are often customizable so customers can choose which products they want included based on things like their skin type, coffee preference, or clothing size. Examples of curation subscriptions include art boxes, personalized clothing packs, and “make your own” beauty sets.
Curation subscriptions can:
- Secure long-term customer loyalty
- Increase product visibility
- Increase customer lifetime value
- Generate regular revenue
This type of subscription is a great way to expose shoppers to new product lines, but it can be tricky to predict inventory and how much stock you need on a monthly basis.
Verve Coffee runs a curated subscription that lets customers choose their coffee, the type of bean they want, and how much coffee they want to receive each month.
3. Access subscriptions
Access subscriptions are slightly different from the other two eCommerce business models because they’re essentially an extra layer on top of a regular store. Shoppers can unlock extra rewards, freebies, and discounts when they pay a monthly subscription. They are particularly common in the online world, especially in the education industry, but can still be relevant and popular for eCommerce brands. Examples of access subscriptions include premium memberships for loyal customers, discounts and rewards, and additional content for customers who pay more.
Access subscriptions are great for:
- Rewarding loyal customers
- Securing customer loyalty
- Increasing monthly recurring revenue
- Increasing customer lifetime value
CakeFlix gives premium members more access options that regular members who pay the baseline monthly fee.
How to start a subscription business
Wondering how to start a subscription company? ECommerce subscription businesses are a great way to attract and secure new customers. In an age where consumers are on the hunt for personalized experiences and convenience, they’re the perfect way to secure long-term loyalty and provide an excellent experience for shoppers every single month. But how do you get started?
Build out customer personas
Every brand should have a strict set of customer personas they tap into when creating product bundles or messaging. This will help determine what products to include in a subscription service and understand why customers are eager to buy into such a subscription.
Uncover the gaps
There are a ton of subscription eCommerce brands already out there, so it’s important to identify what makes yours different. Explore your unique selling point (USP) and pinpoint the features and benefits that will make your product appealing to new customers.
Choose a subscription model
Use the guide above to choose the right subscription model for your business. If you want to provide a personalized experience, a curation subscription might be the best bet, but if you’d rather offer loyal customers an extra special reward, you might choose an access model instead.
Add your subscription service to your store
Subscription models work well alongside regular eCommerce operations. Some shoppers might want to buy deodorant on a one-off purchase, but others might want to get a new tube every month. Providing both of these options gives customers the chance to build their own unique experience and caters to different shopping styles.
How to price a subscription service
Pricing is always tricky, but when it comes to subscription models you need to take a lot more into account than how much it costs to make and ship a product. You also need to consider how much your ideal customers are willing to pay each month and how long they’re likely to stick around. The longer the subscription lasts, the higher the lifetime value is.
What is subscription pricing?
As we’ve mentioned before, subscription pricing is usually paid monthly. However, there’s a lot more that goes into it that plucking a number out of thin air to charge customers each month. In fact, the average customer lifetime plays a huge role in how you price your products.
For example, charging £99 a month for a subscription box with an average customer lifetime of 12 months will reap the same amount of revenue as a subscription box that costs £49 a month with an average lifetime of two years. Over time, the costs will even out, but the monthly payments don’t seem so high for the customer.
So, when considering the price tag for your subscription, think about:
- Your ideal customer persona and how much they would be comfortable spending each month
- The cost of manufacturing and shipping your products
- The average customer lifetime with your brand or subscription
- The ideal customer lifetime value you’d like to get out of buyers
Because you can’t run subscriptions through Shopify (because they don’t store customer information), you’ll need to use a subscription billing company to automate payments or a Shopify app that’s dedicated to setting up and running subscriptions.
Get started with an eCommerce subscription model
For eCommerce brands looking to expand their product offerings and cater to the changing needs of consumers, susbcription company ideas are a good place to start. There’s a lot to think about when it comes to how to start a subscription box company (or any other kind of ecommerce subscription model, for that matter), but the benefits can really pay off. Not only do they increase customer retention by locking customers into a monthly recurring payment, but they secure loyalty and drive up customer lifetime value.
Start by researching the different kinds of subscription pricing models out there and determine which one might be the best fit for your audience. Then, when you’ve determined who you’ll be targeting, you can put together a service that automatically delivers key products or services on a regular basis.
Blueprint integrates with leading eCommerce subscription platforms - including Recharge, Bold and Smartrr - to enable subscribers to flexibility manage their orders via SMS. Book a demo today to see it in action.