How to Run an E-commerce Subscription Service
2021 has been a big year for subscription-based services, and they’ve shown no signs of slowing down. According to a report from the Subscription Trade Association, they predict that 75 % of direct-to-consumer (DTC) services will run a subscription service by 2023. We’ve seen companies like Netflix and Spotify blossom with this type of business model, and one factor that influenced their success is the shift of customer behavior.
Nowadays, consumers lean towards convenience and consistency. People expect a reliable offering from their favorite brands without hassle, and you can achieve this with subscription services. The e-commerce space is constantly evolving, and offering a subscription service allows you to remain competitive and create a loyal brand following.
This article will cover the essential details regarding subscription services and how you can implement them with your business.
How does a subscription service work?
The concept of a subscription service is simple. After making a payment, the seller regularly provides the customer with a product/service. From there, the seller charges the customer on a schedule. The payment schedule varies depending on the agreed terms, whether weekly, bi-weekly, or monthly. A subscription service is different from membership since the latter is more diverse and offers more perks than the former.
In essence, a subscription service is about giving customers access to your brand’s offerings for a set period. The reason it’s so effective at generating revenue is that subscription services build brand loyalty. Your consumers interact with your product/services consistently, allowing you to create long-term relationships and generate recurring revenue.
You’ll find subscription-based services in a wide variety of industries. Blue Apron offers a meal kit service in the food industry where customers select fresh ingredients and cook their meals. Manscaped is a men’s grooming brand that delivers hygiene products right to their customer’s doors.
When it comes to a subscription service, it’s about finding the right customers that resonate with your products/services. When you address a need in a specific market, you can expect to succeed with subscription-based services.
What are the benefits of a subscription service?
There are plenty of advantages to running a subscription-based service. If you plan on implementing this type of business model, you’ll benefit from the following:
1. Constant stream of revenue
The first and most obvious benefit of a subscription service is the steady stream of revenue. You can easily forecast your sales and maintain a sustainable business model with a subscription service. Because of how subscription services work, customers are more than willing to pay for your offerings (as long as it satisfies their wants and needs). Some customers will even subscribe to your brand for up to a year, thus creating predictability with your revenue.
If you run a product-based subscription service, this predictability also improves inventory management. When you know the exact number of orders to fulfill, you don’t have to worry about overstocking or running out of stock. In return, you cut down on warehouse costs and improve your profit margins.
2. Better customer retention rate
Part of what makes subscription services so successful is their ability to retain customers. Every business knows that customer retention is just as necessary as customer acquisition, and subscription services allow you to continue transacting with your target audience.
Consumers love subscribing to brand offerings because of the value proposition. The longer a customer subscribes, the more value they get from the product/service. By offering a flat rate for a product/service, customers can stay within budget and continue to subscribe to your brand’s offerings. You can also strengthen the value proposition by giving discounts to loyal subscribers.
A subscription-based model also opens up opportunities to upsell or cross-sell relevant products. As the customer retention rate improves, so does the profitability of your business.
3. Automate the sales process
There are fewer complexities involved with subscription services compared to other business models. For one, you can outsource the management and distribution to third-party partners for a more efficient business operation. Another thing is that when a customer’s subscription expires, they can renew it with just a few steps.
By automating the sales process, you can focus on other aspects of your business like advertising, growth, and profitability.
4. Attract more customers
Subscription-based pricing is an attractive business model to consumers because of the low barrier of entry. Instead of charging them $500 for an annual service, you can break it down to a monthly plan where your customers can pay $6 per month. Sure, the customer may pay more over time, but they get immediate access to your brand’s offerings.
Digital-based subscription services are even better at attracting more customers because anyone can purchase your offerings anywhere! Companies like HubSpot and Webflow are great examples where people around the globe can access their services.
5. Amplifies brand awareness
With subscription-based services, customers are constantly exposed to your brand. They anticipate receiving your products/services regularly, which helps build brand awareness. Over time, their subscription becomes something they want to share with friends and family, and with this, you benefit from word-of-mouth.
Recommendations are quick when it comes to a subscription service. All a customer needs is to visit your website, choose a plan that works for them, and pay. Thanks to brand loyalty and recognition, landing a new subscriber has never been easier!
How to run a subscription service for your business
While a subscription service is simpler than other business models, careful planning and preparation are still required. By following these five steps, you’ll be able to implement a subscription service in your business successfully.
1. Identify a niche market
Before starting a subscription service, you need to identify a niche market to sell your products/services. You want to narrow down your niche as much as possible as this will enable you to stand out and be unique. Health, food, fitness, and hygiene are good places to start. You can break these down into sub-niches like supplements and snacks to find your ideal customers.
Once you’ve found the right niche for your brand, the next step is to create the subscription model.
2. Price your subscription model
When pricing your subscription model, you need to consider multiple factors. Things like shipping, marketing, advertising, and business costs all play a role in your subscription’s pricing. The most popular pricing method for a subscription service is the tier model, where customers can avail of your products/services monthly, quarterly, or annually.
To attract new customers, you can create limited-time discounts for the first few months of their subscription. After the promo ends, their subscription goes back to the normal rate.
3. Set the terms and conditions
It’s important that you state the terms and conditions early on so that subscribers will know how your service works. Be as clear and concise as possible with the payments, subscription renewals, and cancellations. Keep in mind that federal laws cover auto-renewals and cancellations, so make sure to read on those first.
Typically, a subscription service involves a clickwrap agreement before the customer can subscribe to your offerings. They must read the T&C first and check a box before their subscription becomes active.
4. Logistics and inventory
If you plan on selling product-based subscriptions, you need to keep logistics and inventory in mind. You can start with in-house fulfillment, where you process the products yourself. But as you gain more subscribers, you’ll need to outsource it to a third-party logistics provider.
While inventory management doesn’t pose as much of a challenge with subscription services, it’s a good idea to use inventory management software so that you can keep track of your deliveries.
To ensure a successful launch, you must create a marketing strategy for your subscription service. Building an email list and creating social media posts are examples of marketing your subscription service. Email marketing campaigns are best suited to this type of business model as they introduce your service directly to your subscribers.
Subscription-based services are taking over the e-commerce industry, and it’s a trend that will continue to grow in upcoming years. There’s no better time to run a subscription service than today, as many consumers have grown accustomed to digital transactions.
With a subscription service, you can generate a constant revenue stream, build your online presence, and create a loyal following of customers. Just make sure that your brand offerings are consistent, reliable, and meet the needs/expectations of your subscribers.
Recording transactions accurately is important to ensure the profitability of your business. With proper bookkeeping, you can measure your company’s financial performance and make strategic decisions from there. If you need any help with bookkeeping services, simply fill up the form below, and we’ll contact you shortly.