How to Create a Successful Subscription Model in 3 Easy Steps
From the E-Commerce Experts at ShipHero – The Leader in Warehouse Management Software
We hope everyone had a wonderful Thanksgiving and are at least halfway through filtering your email inbox of the BFCM bombardment! Now, here’s a fun fact: around the same time the first Thanksgiving was held in the 17th century, the subscription business model was also first pioneered by publishers of books and periodicals, where travelling salespeople would go door-to-door to convince readers to sign up for continual editions! At the time, this was viewed as a wild derivation from the traditional business model that favored one-off transactions to instead emphasize recurring transactions and payments. Fast forward to today, as brands have progressively searched for ways to improve their holistic shopping experience and nurture relationships with their customers, it seems that they have figuratively taken a page out of these pioneer’s books and forged the rise of the new Subscription Economy.
The Subscription Economy is the term used to describe the trend of otherwise traditional businesses shifting to a subscription business model, where they offer recurring use or access of their product or service, whether monthly, yearly, seasonal or otherwise, rather than the traditional, one-time transaction. A myriad of prestigious companies have successfully employed this business model such as content streaming services like Netflix or Hulu, fitness centers and gyms, software companies like Dropbox, recurring subscription box companies like BirchBox, and more recently, traditional product companies that typically sell goods on a fixed cadence; for example, GNC for vitamins AKA “Subscribe and Save”.
With the recent introduction of Shopify’s Subscription APIs, online e-commerce brands using Shopify can now offer product subscriptions and completely transform how they engage with their customer base. This type of business model typically produces a long-term contract and relationship with a customer, allowing businesses to offer steep discounts for loyal customers that sign up for pre-determined and scheduled purchases.
Let’s briefly list the benefits of the subscription business model and then discuss how your business can make the shift to offer product or service subscriptions.
Benefits of Subscription Models
For reference, some examples of business models that have successfully employed the subscription model include:
- Netflix allowing access to content for a monthly fee
- ButcherBox sending customers a box of meat on a set cadence; customers can subscribe to receive the box every 4, 6 or 8 weeks
- GNC giving a 20% discount on vitamins when signing up for a monthly or 90 day recurring order
- Magazines offering monthly or yearly subscriptions
Brands and businesses that have utilized the subscription business model have reported better customer relationships, better aggregate data, and better diversity in product offerings.
1. Turn Customers in Subscribers
Most large companies report that brand new costumes only generate 15 to 25% percent of their revenues, which means that return customers generate the bulk of the revenue. Focusing on return customers and subscribers allows companies to lower the acquisition costs of targeting a new audience, while also cultivating brand loyalty.
2. Gather More Fruitful Customer Data
As reported by Shopify, modeling and storing subscription data allows merchants to offer benefits like recurring revenue reports on active subscribers, new subscribers, and churned subscribers. This allows your company to better engage with your audience and create targeted content along the customer journey.
Many large brands report developing separate marketing strategies for subscribers and non-subscribers, as well as strategies to convert non-subscribers to subscribers including email campaigns and targeted discounts for subscription and account creation.
3. Sell the Same Product in Multiple Ways
Utilizing the subscription model, a single product could be sold in multiple ways, such as selling the good as a one-time purchase as well as a subscription, including bundles or cross-selling. Bundling, cross-selling and subscriptions gives brands the creative freedom to understand how their customers would prefer to engage with their products and services.
3 Steps to Building a Successful Subscription Model
Once you have decided to build a subscription model for your business, here are three simple steps to get you on your way!
1. Develop a Pricing and Bundle Strategy
When shifting to a subscription business model, subscription pricing and incentives are the most important and complex aspect to consider, because it directly drives the three basic growth strategies: acquire new subscribers, increase engagement and revenue per existing customers, and reduce customer turnover. A fixed subscription price can often be counterproductive because it foregoes the plethora of opportunity for flexible and creative pricing strategies.
Many brands choose to develop pricing strategies according to the factors that matter most to their business. For example, if your business aims to optimize quantity of engagement, customize the pricing to incentivize more usage (e.g., unlimited usage deals). Alternatively, if you want to increase your average order quantity, set subscription pricing that pushes subscribers to order in bulk at a set schedule with discounted prices. Finally, if customer loyalty is your desired result, consider developing reward programs or additional “points” for those that choose to subscribe at checkout.
As you can see, the subscription model offers endless opportunities for flexibility and creativity in customer engagement. There are also freemium options, early bird offers, free trials, bundles and more. Consider your business goals and start with a simple pricing tier, then adjust as you learn from your subscribers what they want!
2. Provide a Way for Customers to Manage Subscriptions
Cultivating strong customer relationships are absolutely essential in the subscription business model. Of course getting new subscribers is important, but in the Subscription Economy the bulk of customer transactions are alterations to active subscriptions like subscription renewals, suspensions, add-ons, upgrades, terminations and more.
As such, brands must provide customers with an intuitive method to manage their accounts throughout the subscription lifecycle. For this reason, Shopify has released a suite of APIs with webhooks to link to your app, thereby giving your subscribers all they need to manage their active subscriptions.
3. Scale with Infrastructure
Successful subscription businesses must rely on their automated processes and enterprise-grade systems to scale their subscription models to provide around-the-clock customer support and business continuity. Subscription-based companies, or those that want to start offering subscriptions, absolutely need seamless integrations with commerce systems, payment gateways, as well as fulfillment and logistics companies.
For that reason, warehouse management software companies like ShipHero integrate directly with Shopify to allow your brand to get as creative as possible with your product and service offerings, all while ensuring the reliable fulfillment capabilities that your customers have come to expect.
Not to mention, creating and shipping customized bundles, kits or bulk orders can get complicated and expensive through traditional fulfillment methods. That’s why ShipHero offers BulkShip: an intuitive interface to design preassembled bundles of products, such as a makeup kit you’d buy at CVS, or a more complex bundle that would get assembled at fulfillment. A good example of this could be a clothing subscription, where the customer selects the sizes, and then the kit is assembled, as Nicholas shows in the video link here.
By offering a subscription service, your brand will most likely be selling a variety of items in a variety of ways, so BulkShip allows brand owners to group orders quickly and pick a lot of the same product at once, making the fulfillment process quick and efficient.
Happy holidays from all of us at ShipHero! And if you like our blogs, be sure to Like & Subscribe 😉