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Subscription models in E-Commerce companies have recently gained increasing recognition.
Many renowned businesses such as Netflix, Spotify and Amazon Prime use subscription models to generate steady income streams - however, this strategy can also be employed by eCommerce businesses outside the media/entertainment industries to build ongoing revenue streams and make profits more consistently. Amazon, as one example, has taken to adopting a subscription-based business strategy and offering their customers "Subscribe and Save."
This service delivers monthly automated delivery of household products such as laundry detergent and medical supplies - offering 15% discounts when customers subscribe to monthly plans of five products or more.
Subscription models provide steady revenue streams that eCommerce companies can capitalize upon. We will explore their advantages here in this blog post.
What Is An ECommerce Subscription Model?
Shorthand, the E-Commerce subscription model refers to an approach in the business where clients pay regular costs such as weekly, monthly, or yearly subscription fees in exchange for accessing goods or services offered by an organization.
Customers can conveniently receive exclusive items or services through subscription business models, while enterprises receive a steady source of revenue.
Customers using this business model can convert one-time purchases into ongoing subscription payments; alternatively, they may opt-out and cancel at any time they please.
Let's say consumers enlist the assistance of a skincare company with an ongoing subscription service plan for skin care goods, giving consumers access to a personalized selection of skincare items each month at their door.
They may opt-out at any point if they no longer require these items in their routine. Subscription-based business models bring numerous advantages for eCommerce company owners as well as customers alike.
Read more: eCommerce: The Ultimate Guide to Types, Costs & Starting Your Business!
Which Types Of Subscription Models Are There For E-Commerce Businesses?
While there are many various types of eCommerce business models, the following are some of the most well-liked subscription model types:
Curated Box Subscription
Under this subscription model, retailers put together monthly, weekly, or daily boxes filled with essential products for clients that arrive right at their door.
As illustrated above, one such model for skincare product subscription is provided by FabFitFun; with over 200 million customers served each year by this subscription concept they provide carefully chosen product boxes about wellness, beauty and fashion at retail pricing so customers can subscribe regularly at retail pricing to gain even further savings.
Digital Content Subscriptions
Netflix is among the leading companies driving digital subscription models with their digital subscription model, making content creators, authors, and publishers particularly fond of this arrangement.
They produce their material and then launch subscription programs so their audiences can pay for content access.
Software-as-a-Service (SaaS) Subscription
Software-as-a-service providers give their clients access to software or services via subscription fees. Salesforce stands as one of the finest examples of a SaaS subscription model.
Companies subscribed to Salesforce can access CRM software.
Beauty and Fashion Subscription
Businesses operating within the beauty and fashion industries may employ this model of subscription sales for an affordable monthly charge; giving clients access to their desired clothing, accessories, and cosmetics.
AdoreMe, Birchbox, and Ipsy are three firms that have made use of subscription models as their business strategy.
Meal Kit Subscriptions
The goal of this subscription model is to simplify and improve the convenience of cooking at home. Customers who subscribe to this plan can have the pre-portioned ingredients and recipes delivered right to their door.
Several well-known brands that use meal-kit subscription models are Plated HelloFresh and Blue Apron.
What Advantages Does the E-Commerce Subscription Model Offer?
Why would an online retailer choose to use a subscription-based income model? The following advantages have been listed to assist you in determining whether your company should select it or not:
Predictable Revenue and Inventory Management
Subscription models provide eCommerce companies with a steady, predictable revenue stream; more accurate revenue forecasting can be performed if subscribers' numbers and payments are tracked closely by businesses.
Consider FitFlix, an imaginary fashion retailer. They provide fitness video streaming subscription services. Currently, they have around 1,000 subscribers who pay $20 monthly to view these movies; with everyone contributing equal payments of $20 monthly, they would make $20,000 every month in revenue!
eCommerce companies that utilize the subscription model benefit from having a consistent stream of customers driving demand, which allows businesses to accurately predict how much inventory will be needed to meet customer demands and eliminates common inventory management problems such as overstock and out-of-stock inventory issues.
Furthermore, this approach gives firms insights into customer preferences so that they may maintain appropriate stocks of inventory.
Reduce Customer Acquisition Costs (CAC)
Businesses invest heavily in marketing, advertising, and lead generation to acquire new clients. ChatterBuzz reports the average expense incurred when acquiring new customers via Google Paid Search Campaigns is $45.27; further, five times greater expenses are involved with gaining new clients versus maintaining current ones.
An E-commerce business that uses the subscription model tends to spend less on marketing, advertising, and lead creation as they focus more on retention than acquisition.
Let's use FitFlix as an example: with an estimated CAC of $40 and an advertising and marketing investment of $2000 designed to add 50 new users for its video streaming services, let's consider that they would invest $2000 into marketing and acquiring these users through marketing efforts.
Now, FitFlix will no longer need to incur CAC expenses by maintaining consumer retention - providing them with a consistent cash stream.
Improved Customer Lifetime Value (CLV)
Customer Lifetime Value (CLV) measures how much a company earns from each customer over time, according to WebEngage's research.
CLV can increase most significantly through subscription models; consumers nowadays often favor convenient purchasing experiences like hassle-free purchasing and delivery as well as quick gamification so eCommerce businesses may better meet expectations by adopting one themselves.
Positive Cash Flows
Positive cash flow refers to any surplus remaining after all expenses have been met by a business, while subscription-based models provide firms with more consistent cash flows than one-time purchases.
Companies with positive cash flows are better able to budget spending, investments, and tactics with precision. Furthermore, since most subscription-based business models require upfront payments at the start of subscription periods, businesses with positive cash flows have enough funds to cover operating costs as well as enhance offerings that appeal to and keep clients.
Enhanced Customer Experience
Subscribing to an E-commerce business model provides another advantage - an enhanced customer experience. By accessing client data, you may enhance this element of customer care by offering subscribers tailored suggestions or access to exclusive content - among many other advantages.
Reward your loyal subscribers for their continued business with special offerings such as early access to new goods and services and exclusive discounts through your subscription model, providing customers with a hassle-free shopping experience and increasing customer happiness along the way.
Conclusion
Subscription-based e-commerce models have recently seen unprecedented popularity and are beneficial to both companies and customers.
Businesses reap benefits such as consistent revenue generation from loyal customers. At the same time, consumers appreciate automatic product delivery and testing out new offerings without hassles or surprises.
To make such models sustainable, however, firms must analyze fulfillment policies closely; all things considered, businesses and consumers alike should recognize the unique opportunities provided by this model of commerce.
