Everyone agrees that sometimes we are so tired or so busy going to the store. We postpone the purchases until notice that our shampoo/milk/pet food is out at the worst possible time. How would be great if all needed things appear at our home regularly and automatically! A lot of people think so, and an ecommerce marketplace can give them what they want: this is how the idea of starting a subscription business came about.
We can see in the McKinsey survey of ecommerce that more and more Americans subscribe to various services to get products permanently. According to the forecasts, by the 2025 year, the ecommerce subscription market will reach about $473 billion (let’s compare it with $15 billion in 2019). This can be a good reason to think about starting a subscription business if you are a beginner in ecommerce and are searching for interesting ideas. Also, a lot of already existing stores add subscriptions to their services.
So, if you want to try this kind of business or combine it with your Shopify store, our post is for you.
Why is the subscription business so attractive?
Subscription services help online customers get needed goods regularly and make this process personalized, simple, and convenient. On the other side, companies that offer these services also have their benefits:
- Companies get predictable monthly revenue
Companies know what will be their volume of sales, what income they will receive. With this information, they can effectively manage their budget without risks: what part of the income they can spend on investments, how much is needed for resupply, etc.
- Сompanies immediately receive a significant amount of money
It’s a common practice for this kind of business to ask for full payment upfront in exchange for a discount. It helps beginners in ecommerce to feel more confident and get money quickly.
- Such kind of companies don’t depend on attracting new customers
In the first place, companies focus on loyal customers that make their orders regularly and it is enough for shoring up the business. In case the company invests a lot of money for attracting the new customers, and income depends on their number it can be a risky moment for newcomers.
- Companies get a more deep understanding of the customers’ behavior
The ongoing nature of the customers’ orders and perfect fulfillment of them by the company help to increase the connection between the store and the client. You can analyze the orders, and make personalized offers to your customers, and they will stay with you.
If loyal customers are satisfied with the product’s quality and level of services, they buy more than new clients.
- It helps companies to implement cross-selling
The subscription business model simplifies the process of introducing new products to the market. Your loyal customers trust your brand, so it would be easy to offer them new items or services according to their usual orders.
As you see, subscription services can be a successful idea for beginners in ecommerce, but before you start a subscription business, choose the most suitable business model.
What can be the subscription business models?
There are three the most popular subscription business models, based on three types of subscriptions:
Also, you can always add a subscription service to your store or business. It’s named an additional subscription model: you can test and explore a subscription’s strong and weak points, and don’t need to change your business model.
Let’s consider the pros and cons to find something that meets your requirements.
Curation business model
This kind of business model also is known as subscription boxes, and works in the sphere of food, beauty products, apparel, and this listing is growing. It means that the company offers the customer personalized box filling, something that customer will like: new products of the favorite brand, limited editions, and so on.
Subscription boxes are quite good if you plan to work with new products. They have high-profit potential and this model can be scalable monthly. As a rule, the cost of the box ranges from $15-$100, so you can find your niche and set the proper price range.
- There are risks of high churn in an unsustainable economic situation. If the subscription boxes consist of products that are not a prime necessity, it would be difficult to find customers.
- Subscription boxes require high packaging costs: you should take into account packaging, branding, and shipping.
Replenishment business model
This model is about customers’ convenience, saving time, and resources. Such kind of subscription allows people to automatize their usual purchases, for example, pet food, vitamins, diapers, etc. Also, a company can offer to clients a discount on their orders.
The most important thing in the usage of this business model is to properly choose the products and find something relevant to the replenishment category.
It gives high conversion and retention indicators: customers subscribe to it with pleasure and for a long time.
Companies work in a highly competitive environment, they need to track their competitors’ prices, offer discounts to attract the customers, and sell a lot of products to get a profit.
Access business model
Access subscription offers customers certain benefits, low prices, discounts, early access, and more, which allows them to feel their exclusivity and privilege.
Companies can build deep connections with clients and make personalized offers that will highlight customers’ privileges. Such kind of subscription also can include communication in frames of special community or groups in social networks.
Companies should carefully consider what they can offer and be sure that it is still valuable for clients. This process requires time for analytics and permanent maintenance.
What do you need to do to start a subscription business with Shopify?
Shopify is a proper platform for starting a subscription business or adding this service to your already existing online store. Shopify stays in touch with all current trends in ecommerce and offers its clients several software solutions for their goals: you can set up one of the out-of-the-box Shopify applications or create your solution based on Shopify API tools, Shopify Checkout.
If you are looking for ready apps, choose something from this list:
- PayWhirl Recurring Payments
- Bold Subscriptions.
- Subscriptions by ReCharge
- Ordergroove (just for Shopify Plus users).
All these applications allow Shopify store owners to create, plan, and customize subscriptions and are easy to use for customers.
What can help you to avoid risks when you are starting a subscription business?
Although subscription is very popular among customers and they quite easily prolong this service if it meets their expectations, risks can be everywhere. The worst thing that can happen to a subscription business is a client’s churn. So, what should you do to avoid churn, and prevent your customers’ disappointment? We prepared several tips that help you to start your successful subscription business.
- Make sure that your product idea is viable
At the beginning of any business, you need to evaluate and test your idea to be sure that it will be in demand. So, check your niche, explore the market, and competitors ‘ offers. If many companies serve a certain category, it’s hard to maintain the balance between beneficial prices for customers and needed product value to get a profit for the company.
- Figure out what is your business goal
Your business goal should be clear and permanent. For example, it can be getting a certain monthly income, selling a fixed amount of goods per month, attracting a specific number of new customers, etc. This business goal plays a crucial role when you choose the business model, so stay focused and attentive.
- Take pricing responsibly
You should attentively calculate the cost of your products to be sure that their value is competitive, attractive, and profitable. Don’t overdo it with free samples and discounts: there is a risk of customers’ churn when the free trial period ends. Your free samples should pay off.
- Think about personalization beforehand
Customers that use subscription services expect and appreciate personalization. You should process and analyze the orders to figure out what products or factors are the most suitable for a specific buyer. Individual approach and flexibility are especially necessary for the curation business model and can be a reason to continue a subscription. So, think about how you can process the data, and what budget you need to make this process scalable.
- Focus on retention strategy
Of course, at first, you need to attract customers to start your work, but don’t forget that the main feature of the subscription business model is the connection with loyal customers. So, when you get customers, put your efforts into their retention. It would be the most effective way of growth for your company. Besides, this strategy is cheaper than attracting new clients.
- Use various sales channels
Figure out what sales channels you can use for searching for clients, communicating with them, and encouraging them to make purchases. Target emails, social networks, influencer, and affiliate marketing: you can use them all to achieve your goal. Figure out where you can find your possible customers and indicate your presence there. Also, don’t leave your clients alone for a long time.
- Distinguish kinds of churn
You should monitor customers’ churn and analyze it to make your services better and reduce the number of clients who cancel the subscription. Try to understand their behavior and ask for feedback. Such churn is called a voluntary one, but also in the work of a subscription company involuntary churn can happen. It’s about system bags, change of email address, phone number, or credit card, and there’s nothing you can do about it.
We hope that our tips will help you start a subscription business and develop it successfully.