While the subscription model isn’t new to the world of retail, the possibilities around it are growing every day as consumers shift toward a more digital-first mentality. And companies using this approach are seeing major wins.
Take brands like Dollar Shave Club, for example. Launched in 2011 selling disposable razors on a subscription basis, this brand was able to achieve remarkable success with the subscription model. In fact, Retail Dive reported that Dollar Shave Club was not only able to sell products on a recurring basis, but was also able to retain an incredible amount of customers: They averaged a 40-50% retention rate six months after a subscription was initiated.
Thanks to their viral marketing (remember those funny commercials?), a solid product offering, and a business model that helped them build long-term relationships with customers, they quickly built a wildly successful company. It wasn’t long (only five years, in fact) before legacy consumer product brand Unilever swooped in and bought DSC for a whopping $1 billion.
But Dollar Shave Club isn’t the only brand seeing success with this approach. Sure, not every brand offering subscriptions is getting purchased for a cool billion. However, subscription models are helping many retailers and ecommerce merchants achieve incredible results around important metrics like lifetime value (LTV), retention rate, and churn reduction.
In this post, we’ll talk about how other ecommerce merchants can do the same.
What is the subscription model?
Before we get into the nuts and bolts of the subscription model, let’s go over the basics around what it is and how it works.
First: What is the subscription model, anyway?
The subscription model is one in which a buyer signs up for an ongoing product or service and pays a set price at regular intervals, usually once a month or once a year. First used by newspaper and book publishers in the 17th century, it’s now frequently deployed by online businesses as a way to establish an ongoing relationship with a customer rather than a one-off transaction.
We first saw the rise of subscription commerce in an online retail context with the introduction of businesses like BirchBox, which launched its monthly subscription boxes with sample-sized beauty products in 2010.
From there, more players entered the scene, either capitalizing on the ‘box of the month’ trend or simply offering subscriptions around products that often need refilled or replaced, like razors for shaving. By 2016, data showed there were more than 2,000 subscription box services available on the market.
In more recent years, consumer buy-in has increased rapidly around subscription-based commerce. Forbes reported that the subscription market has grown by more than 100% percent per year over the past five years (with some retailers producing more than $2 billion in sales), and noted that more than 15% of online shoppers have signed up for at least one subscription-based product.
Why does the subscription model matter for modern ecommerce merchants?
Aside from their increasing popularity, why should ecommerce merchants consider the subscription model? A big reason is that this particular approach to online business offers companies a few unique opportunities and advantages that traditional commerce often lacks.
1. Ability to build sustainability into the business
With the subscription model, brands get customers set up on ongoing payment plans, which means they have regular, recurring income flowing into the business on a set schedule. This creates a more stable and predictable business model, and although subscriptions may only be for short periods, it opens doors to repeat purchases in a way that traditional retail simply can’t. Reports show that people hold onto their subscriptions, too: BarkBox, a monthly subscription with products for pets, shared that they have a 17-month retention rate on average.
2. Helps with forecasting and projections
Because subscriptions are far more predictable based on the nature of the purchase arrangement, these offerings allow ecommerce merchants to more accurately forecast and to make earnings-related projections for the business. This adds stability and allows the business to make decisions based on reliable numbers rather than estimates and assumptions about what’s ahead. With a recurring revenue model, you can almost see the future.
3. Churn reduction and opportunity to develop long-term relationships with customers
Because subscriptions entail an ongoing relationship between brand and customer, this presents a unique opportunity for the retailer to build long-term buy-in from buyers who are happy with the product month after month. With ongoing communication and consistent value delivered, brands can dramatically reduce churn rates and retain loyal customers. Again, this means greater sustainability and overall brand equity.
4. Impact on Customer LTV
Subscriptions help get customers to buy into a membership of sorts, where they’re committing to buy on a longer-term basis, rather than making a one-off purchase. This is great news when it comes to customer LTV. Chathri Ali, COO at ReCharge Payments, explained that this also creates a unique opportunity for brands. “Subscriptions open doors to unique models similar to those of Amazon Prime,” she said. “Your customers are considered members, and therefore are more likely to have higher average order values and lifetime values as the customer journey gets tailored to their needs.” The bottom line: Subscriptions help get customers hooked on your business.
Subscription Service Options for Shopify Merchants
So what are the options available to Shopify merchants when it comes to subscription billing?
Let’s look at a few of the different tools that integrate with the platform.
ReCharge makes selling subscription products simple and highly customizable with configurable delivery and cut-off dates, inventory forecasting, order management, and much more thanks to its open API. It’s extremely robust and flexible, making it ideal for businesses looking to grow and scale quickly.
To get a sense of how powerful a subscription model can be, read our case study about Wild Deo, a sustainable deodorant brand. We designed and built their Shopify site, incorporating a subscription capability using ReCharge, and the results were astonishing.
Bold helps merchants sell subscriptions on single products or an entire cart order. Using this tool, customers can manage details around their subscriptions and can opt for one-time only purchases as well.
Cost: Plans begin at $29.99/month
With recurring orders and subscriptions by SpurIT, merchants can create and maintain subscriptions, payment plans, and invoicing. No customer login information is required, which makes for a quick subscription process, but this checkout flow will require emails sent with a payment link for recurring payments due. It has fewer bells and whistles and is a bit more limited in what it can do.
PayWhirl’s subscription billing offering is also fairly basic, but allows customers to use self-service options and manage their own information around subscriptions. With cloud-based storage, this no frills tool offers a low-cost option for merchants just wanting to test the waters with subscriptions.
Cost: Free plan available
The right solution will depend on your business’s needs and wants, so be sure to do your research and to experiment with free trial periods before committing to a single tool. You may find that one is ideal only once you get hands-on and experiment with it as a team.
How Eastside Co Can Help with Subscription Implementation
If you’re ready to start testing the waters with subscription commerce, it’s always a good idea to have a partner on board who can help lead the way and navigate the process with you.
After all, there are some important questions you’ll need to answer along the way. Things like:
- How do you know which subscription billing integration is the best option?
- How do you set one up so it doesn’t interrupt your existing checkout flow?
- What options should you consider for your customers that will lead to higher average order values?
Here at Eastside Co, we’ve developed partner relationships with the key subscription providers on Shopify and can help merchants find the ideal solution based on their needs. What’s more: We’re experienced with the whole process. We’ve built countless websites with integrated subscription-based functionality, and those merchants are already seeing success.
Laura Doxford, Client Director at Eastside Co, says
We're working with more businesses that utilise subscription-based models. Everyday household purchases can now be automated and conveniently delivered without the need for customers to think about the process. Some of our client subscription solutions to date include weekly food delivery, coconut water, luxury car magazines, high quality chocolate and pet food. It makes sense for the customer, as well as the retailer.
Start boosting customer lifetime value with subscription commerce
As you consider ways to increase customer lifetime value for your business, don’t forget to think about how adding subscription-based products into the mix might help accomplish that goal. With a good partner who understands your needs, you can build sustainability into your revenue model in no time at all.
Get in touch with us to find out how we can help you take your Shopify store to the next level with subscriptions today.