Running a subscription business is the new smart way to run your ecommerce store. We live in a world that is all about convenience. It’s normal these days to have your groceries delivered to your front door using an app like Instacart.
Most people would agree they are trying to avoid going to stores these days and would rather have their favorite brands ship products straight to their house. Subscription services offer convenience, low prices and the occasional surprise which makes it fun.
Almost everyone I know (including my 70 year old mother) has signed up to some sort of subscription service like Netflix, Doordash, or Birchbox.
Subscriptions are becoming the new trend for online shops. You can get anything you want these days from dog toys and shaving razors to snacks and makeup. If you’re thinking about adding subscriptions to your online store, you’ll want to read this article.
We will share how you can start your very own subscription business and how to choose the right subscription model that is right for you.
What’s a subscription?
A subscription lets a customer pay for a product or service they want on a recurring basis.
This can be a physical product like diaper delivery or it can be a service like streaming TV on Netflix.
What’s the best thing about transforming your online store into a subscription business? Subscriptions give store owners monthly recurring revenue which is known as MRR. Recurring revenue is reliable, predictable and can help a business scale up.
Subscription Business benefits
There are lots of benefits to running your own subscription business. From gaining repeat customers to automating your recurring billing, there are tons of perks to selling subscriptions. We’ll cover the top benefits below.
When your customers subscribe to a product, they are showing they have confidence in your brand. If customers trust and love your products, there is a higher likelihood they will buy other products from you.
Subscriptions offer deep insights into customer behavior, shopping trends and preferences. In fact, most shoppers are happy to answer questionnaires about their likes and dislikes.
These insights give you the knowledge to personalize their subscriptions for them even more to deliver that much needed “wow” factor. You can also learn a lot about your product from your power users who can give you feedback.
Subscriptions are a great way to earn predictable income with your Shopify store. Instead of making a one off sale, you can capture a customer for life!
So how does it work? When a customer subscribes to a product, they are agreeing to get charged a certain amount on a regular basis.
Their purchase will renew at the price and frequency they choose.
By having customers making repeat orders, this helps you earn more income than if you weren’t selling subscriptions.
Subscriptions convert shoppers into long-term customers who are buying from you every month on an automatic basis. With recurring revenue, you can more easily forecast your future earnings.
More Cash on Hand
Incoming subscription orders help you generate more cash. Especially with pre-paid subscriptions which offer a higher upfront cost. A subscription business typically has a higher revenue than an online store only offering one-time purchases.
Every business can benefit from having more cash on hand from a surge in sales. With more cash on hand, you can manage your inventory or do business planning a bit easier.
Spend Less on Ads
You can spend less money on advertisements if you have a subscription business because you can upsell to your current customers.
Subscriptions help you get more sales out of your current customers. Your current customers are more likely to buy another product from you since they already trust your brand.
No need to worry about chasing down late or missed payments because a subscription app like Ongoing takes care of this for you.
Subscription businesses have automatic payments for all subscription products. This means this part of your business is on autopilot so you can do other things.
Automatic recurring billing tracks and manages all of your customer payments for you, which helps simplify the whole process of selling subscriptions.
Wouldn’t it be nice to have a customer click a button and have them be charged for a product every week, or month? Well now you can do this with Ongoing. Your customers can sign up to receive repeat orders with one click. Repeat orders is one of the best ways to scale up your business and start earning more revenue.
Repeat orders is also great way to streamline your business and free up your time so you can concentrate on the products that are your most popular.
Subscription management software automates everything for you, including recurring payments, keeping track of earnings, and recovering failed payments.
Choosing the best subscription model
There are three main types of models for a subscription business. Exploration, replenishment, and access. One isn’t better than the other. You just need to figure out which subscription model works best for your business.
Replenishment subscription boxes lets customers refill on products they love. These are usually household and hygiene products such as: tampons, shaving razors, makeup and beauty items, toothbrush heads. Replenishment subscriptions have a high retention rate, meaning people are less likely to cancel.
Exploration subscriptions offers a more personalized approach with curated products which lets customers explore new products. The discovery or “surprise” factor is a reason for customers to renew their subscription.
Replenishment Subscription Business
A replenishment subscription model is all about giving your customers convenience. This is a great way to go if you have a product you think your customers would use often. Doesn’t really matter what the product is, as long as you are certain once it runs out, your customers will want to re-order it automatically and have it shipped to their door.
- Great value proposition – Offering your customers convenience is one of the best ways to show your value.
- Inventory consolidation – If you have a product people want to receive all the time, you can focus in on these products instead of spreading yourself thin with large inventory.
- Less Ups and Downs – You can do well even during an economic downturn if you have a product people can’t live without (example: tampons, mop heads, toothbrushes, diapers, etc)
- Cost Sensitive – Need to pay close attention to your cost and overhead to make sure you can maximize profit
- Need to sell more volume – Usually need to offer a higher discount to stand up to competition
- Customers demand timely shipments – Need to have a super savvy shipping system to make sure orders delivered on time quickly!
Swifter Sweeper is a great example of a replenishment subscription business. They figure you’ll need to re-fill on the sweeping cloths. Since this is a household product used by predominantly women who are trying to clean their house, time is of the essence. Women are usually busy with tending to children and work, so having a subscription service that can deliver more mop heads is a great time saver. Their slogan is never run out on a refill again!
Curation Subscription Business
The best example of a curation subscription business is the iconic subscription box. Subscription boxes are parcels you receive in the mail usually once a month filled with goodies. The reason this is called a curation model is because the owner of the company (you) will be the one who decides what type of products goes in the box. Subscription boxes are often times be highly personalized so customers feel like you made the box just for them.
- Highly Creative Process – Lots of creativity needed to make this business because every order is a different mix of products
- Lower Costs – It’s possible to get free samples or sponsorships from other companies to include in your box
- Interesting Angle – Keeps customers interested by switching it up on a regular basis (never gets old)
- Managing Inventory – Your inventory will change all the time so you can cater to your customers needs
- Churn Rate Higher – People can cancel their subscription if you don’t maintain a constant level of novelty and surprise. Since most subscription boxes are a luxury, this can be higher during recessions
- Highly competitive Market – Lots of subscription box companies out there already so you’ll need to make yours truly unique
Curation Subscription Example
Birch Box is a beauty and makeup subscription box that personalizes each box for their customer. Their team of experts hand pick full size beauty products to go into the subscription box. The attractive part is that the products change every single month so the subscription never gets old. Their website does a good job at conveying the value they offer and entices customers to opt for a 3, 6, or 12 month plan to save more money on their subscription.
Access Subscription Business
What is an access subscription business? This is a fully online membership that gives you access to special perks and deals. A popular access website you might already use is Netflix. Netflix gives you access to streaming movies and tv shows for a monthly fee. With your subscription membership to Netflix, you are able to view any movie or tv show they stream and they charge you automatically.
- Easy digital Inventory – Can be set up to sell digital products so no physical inventory
- Perfect for Digital products – If you have a yoga website, or offer learning courses, or downloadable digital files, this is a great way to go
- Create a community – Your online store can easily offer a community space for all of your customers (perfect place to pick their brain, get feedback, and promote other products)
- Higher time investment – Need to be able to offer new content all the time to keep customers engaged. If you offer physical products, need to offer new products regularly.
- Paywall keeps content safe – If you are selling digital products, having an access subscription website helps create a paywall to protect your content. If you sell products, this offers a element of mystery which makes shoppers want to sign up to see what’s in store.
- Continuous revenue – When customers sign up for your access membership site, their subscription will be automatically renewed
Access Subscription Example
Thrive Market is an American membership-based website offering natural and organic food products. For a monthly or annual price you can gain access to thousands of healthy products offered at a discounted rate. The allure of this membership site is you can only shop on their site if you buy their membership. Like other access membership sites, the subscription renews automatically unless you cancel it.
Make your own Subscription Business
If you can think of a subscription company you’d like to create, chances are you can make it happen!
All you need is a good idea, a passion, and some grit to turn your dream into a real life subscription business.
We recommend checking out our guide How to Start a Subscription Business for tips on how to make your own curated box for devoted customers in a niche.
If you’re looking for more reasons why you should start your own subscription business, check out our full in-depth guide on why subscriptions can help grow your ecommerce store.
If you have a Shopify store, make sure to check the app Ongoing Subscriptions to get started!