Recurring Revenue: Subscription Based Business Models in eCommerce

Recurring Revenue: Subscription Based Business Models in eCommerce

Subscription based business models may have taken a while to catch on outside of a few select industries, but they’re now spreading at high speed. This approach to sales has managed to reach sectors few might have anticipated, and growth is currently gaining momentum.

Due to pandemic pressures and complications, companies within the S&P 500 had a tough time throughout Q2 of 2020, dropping their annualized sales rate by 10%. Meanwhile, subscription businesses rose to the forefront, expanding at a rate of 12%. To make the most of this incredible growth in consumer interest and profitability, you may be thinking about trying out a subscription based business model for your own company. With a bit of foresight, you can craft a working subscription sales strategy for your physical products.

Choosing a subscription based business model

Value and cost determine whether or not your chosen subscription based business model will be successful. Choosing a model to mold your company around should come down to matching the most attractive value proposition with the most beneficial cost. Value is simple to grasp—it’s what you’re actually offering your customers. You should have a good idea of your primary value proposition, understand how a given subscription based business model enhances (or detracts from) it, and be able to convey it clearly to prospective buyers.

Right next to value is cost; the two are inextricably linked. Customers care about cost insofar as they expect it to match the value they’ll get from your product. When choosing the right model for your business, you should determine who your intended audience is and what pricing strategy might best suit their interests.

Subscription based business models for physical products

A physical product sold through a subscription based business model must be marketed to reflect the value of both the product itself and the subscription element of a customer’s purchase. The following business models pair well with physical products and can be especially successful for certain kinds of businesses.

Butcher Box

Monthly restocking

From publishing to prepared meals, offering your customers a subscription that helps them keep consumables stocked at all times with minimal fuss can prove to be highly profitable.

ButcherBox brings customers an assortment of high-quality meats each month. To make this unique offering work for as many customers as possible, they allow box contents to be customized and also offer curated samplings for those who are interested in exploring new cuts. ButcherBox subscriptions are designed to last customers an entire month and eliminate their need to shop for meat manually. This strategy emphasizes convenience for your customers; however, there are caveats to this approach.

To keep items flowing smoothly from your business to your customers without creating unnecessary churn, you’ll need to ensure you’re delivering the right amount at the right time—a factor that may vary for each of your customers. Where some customers become so-called “zombie” subscribers who continue paying for products they’re not using, many will back out of a subscription if they feel it’s a waste of their money. Constant communication is key to keeping customers satisfied and subscribed with this kind of approach.

Curated sampling

A curated subscription delivers specialty or niche products that have been selected by experts to customers for a consistent price.

Shaker Spoon

Shaker & Spoon prove that businesses looking to get into subscription sales do not necessarily need to restock consumables for their customers if they can maximize the curation value of their offer. This company offers a carefully designed sampling experience for anyone interested in making better cocktails. Each month, subscribers receive a box with full instructions for mixing up new drinks and all of the ingredients they need to do so. Their success hinges on the quality of their suggestions and recipes, all of which are provided by world-class bartenders. This approach depends on tailoring and expertise to differentiate it from manual product researching and purchasing.

Curated subscriptions tend to succeed when approached as a comprehensive “gift experience”. This means you should design your subscription as though it were a gift prepared for each of your customers, carefully matching product choices to fit their interests and needs.

Buy and subscribe

The Honest Company implements a strategy that closely aligns with this approach. Customers can choose to have essential childcare products delivered on a regular basis when they place an order. This makes moving customers from a traditional sales transaction to a subscription more of a natural process. Of course, you can also offer a subscription option upfront before any other purchase is made to capture buyers who are specifically interested in subscribing from the start.

The Honest Company

For this to work, your subscription needs to be more convenient to customers than making a purchase manually would be. Ideally, what you’re offering should be perfectly suited to your audience. Although customers might not expect a curated degree of customization from this type of product subscription, they still expect to receive enough of what you’re offering to suit their needs.

Membership perks

Offering your customers special purchasing perks for becoming subscribers to your brand can pay off if handled appropriately. Major retailers such as Amazon have already proven how effective simple benefits such as better shipping options and member’s only discounts can be for your bottom line.

Amazon Prime, in particular, uses fast and free shipping as one of its major customer draws. Additionally, Prime members are eligible to purchase certain items at discounted rates and enjoy other Amazon services (such as Prime Music) free of any additional charge. Adopting a similar policy can encourage people to subscribe even without offering any additional products.

Subscriptions work for eCommerce too

A subscription model can work perfectly for your eCommerce business if you take time to plan out its implementation and adapt to your customers’ needs. For more information on how you can do this and set up the systems needed to streamline your operations, reach out to our team here at VeryCreatives today.

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Feri Fekete

Feri Fekete

Co-founder of VeryCreatives

VeryCreatives

VeryCreatives

Digital Product Agency

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