A study by McKinsey shows that eCommerce spending for new customers is on average $24.50, compared to $52.50 for repeat customers. Bain & Company found that it costs 6-7 times more to acquire new customers than it does to retain existing customers.
The implications are obvious. Recurring customers are way more profitable than new ones. That’s the reason why the subscription business model has become so popular amongst eCommerce retailers recently. By offering subscriptions, rather than regular eCommerce, brands can lower costs and increase their customer lifetime value.
In today’s growth hack we’ll explore the subscription business model using case studies, and then map out how you can convert your eCommerce revenue into recurring revenue by implementing subscriptions on your store.
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What Is The Subscription Business Model?
A subscription business model, or a subscription box as it’s commonly known, is when customers sign up to buy your product on a recurring basis. They are subscribing to your product and you deliver it to them automatically every week or month, depending on how often the customer wants it.
Newspapers and magazines are the most common examples of subscriptions. You don’t go out and buy the newspaper every single day. Instead, you pay for it in bulk and then have it delivered to you each day.
Similarly, many eCommerce stores have successfully borrowed this model and adapted it to their businesses. You’d be surprised at how many products we consume on a regular basis. Food, clothes, toiletries, accessories, the list goes on. Instead of making the customer order the product every month, and risk losing them to another brand, capture that repeat business with subscriptions.
Let’s see how other brands are doing it.
Case Study #1: Dollar Shave Club
Shaving blades are typically not something one would buy online. I mean, it’s so much easier to just walk down to the nearest convenience store and pick up a pack instead of buying it online and waiting for it to come to you. If you’re an eCommerce retailer selling blades online, you’re competing against all those convenience stores.
That’s where the beauty of a subscription business model lies. Brands like Dollar Shave Club have eliminated their competition by offering subscriptions instead of selling one-off blades. Customers need only subscribe once on the site and never have to think about buying blades again. Every month, a new shipment of blades arrives at the customer’s doorstep and their card is automatically charged. It’s way more convenient than buying from a convenience store!
It seems like a simple switch, but it makes a huge difference. If you have a product that people buy regularly but doesn’t sell well online because it’s so easily available offline, then consider switching to a subscription business model.
Case Study #2: Hunt Club
Ok, so what if you sell products that people don’t usually buy every month? Does that mean the subscription model is not for you? It’s time to think outside the box!
Frank & Oak is a men’s fashion store from Montreal. They have something called the Hunt Club for $20 a year, which is kind of like a subscription component, though they insist it isn’t.
If you subscribe to the Hunt Club, you get a box of 5 items shipped to you each month. These items are selected for you by Frank & Oaks stylists based on your profile, though you have the option of selecting them yourself. When you receive the box, you can select the items you want to keep, if any, and return the rest. Shipping is free both ways, but you get charged for the items you keep.
Now, most people don’t buy a new wardrobe every month, so clothing is typically not a good fit for subscription boxes. The reason the Hunt Club works is because they’ve given customers the option to reject items for any month without penalty. At the same time, customers still see new styles from Frank & Oak every month without having to visit retail stores, and that means they’re more likely to purchase something.
Recurring revenue for Frank & Oak, and new clothes for customers without the effort. It’s a win-win situation! So even if customers don’t really need your products every month, you can still offer a pseudo subscription box like the Hunt Club, and grow revenues.
Case Study #3: Amazon
As always, you can bet that if it’s profitable, Amazon is doing it too. Amazon sells pretty much everything, and they’ve figured out which products are most likely to be purchased repeatedly. A few years ago, they implemented a ‘Subscribe and Save‘ program for some of their items.
Here’s how it works. On eligible product pages, you’ll see the option to subscribe and save up to 15%. You can select your subscription frequency (a week, a month, and so on) and hit the purchase button. After that, you’ll receive said product based on your schedule and you’ll automatically get charged when you receive it. Set it and forget it!
Amazon’s model is different from the others because they also allow you to make one-off purchases. However, we’ve already seen that existing customers are more profitable than new ones, so to get people to choose the subscription option, Amazon offers the discount incentive. If you find yourself shopping on Amazon for the same item every time, you can simply switch to a subscription and save money.
So, you don’t need to completely switch to a subscription business model. Instead, offer it as an alternative to customers, and give them a little discount to incentivize them.
How To Implement
Implementing subscriptions on your eCommerce store requires you to be able to collect credit card information once and then repeatedly charge it for every box. You also need a new order automatically generated each time the box is supposed to go out, and you need to allow customers to cancel a box or their subscription entirely. If you have a custom built store, you will need to ask your developers to build it for you.
On the other hand, if you’re on a platform like LemonStand, there’s already a built-in subscriptions feature that you can simply toggle on. Here’s how it works.
Before you add the subscription option to your store, you need to create some billing plans. This determines how often your customers get billed for the box. Head to the Settings > Billing Plans page to set this up.
Next, you need to add the subscription option to your site. You can either create a ‘Pricing page’ style design, like Dollar Shave Club, or you can do what Amazon does and add it to your product pages. You can also allow customers to subscribe on your cart page if they’ve added multiple products and want them all regularly.
In LemonStand, to set any of these options up, you’ll need to modify your theme code. The instructions are here and it’s just a matter of copying and pasting in the code. However, you can go nuts with it and modify it any way you like.
Finally, you’ll need to add an area where your customers can manage their subscriptions. To do that, you’ll need to follow the instructions here. As before, it’s a simple matter of copying and pasting code but you can modify as much as you want.
Time To Growth Hack
If you’re still unsure of whether to start selling subscriptions on your eCommerce store, or which products would work for a subscription box, then do some research. Reach out to your most valuable customers and get their feedback.
Better yet, create a landing page and let people know that you’re planning on starting a subscription box. Add an email collection option and allow people to sign up to get notified when it starts. If enough people sign up, you know you have demand.
And when you’re convinced, simply follow the steps laid out in this post and start growing your revenues!