The Beginner’s Guide to eCommerce Subscriptions

Benefits

• High conversion rate. Subscribe and Save has the highest conversion rate among the three subscription business models, according to McKinsey. Sixty-five percent of consumers who consider a replenishment service subscribe.
• High retention rate. Replenishment services also have a high long-term subscription rate: 45% of subscribers keep their subscription for at least one year.
• Less operational complexity: Subscribe and Save is easier to launch than other subscription models. With Subscribe and Save, you’re selling products you already have, meaning orders should be easier to fulfill. You’ll never have to hunt down new products, the same way you will need to with a curated subscription experience.

Challenge

Increased competition. Merchants of all sizes and across verticals are launching Subscribe and Save experiences, thanks primarily to the benefits highlighted above. To thrive in this space, you’ll need a top-notch acquisition and retention strategy. More on this later.

Subscribe and save examples:

THE HONEST COMPANY
The Honest Company entices customers to enroll in their subscription program on their Product Display Page and Shopping Cart.

PEET’S COFFEE

Coffees and teas are an excellent fit for Subscribe and Save. They’re consumable items that are part of many shoppers’ morning rituals. Peet’s subscription experience delivers coffee to shoppers every month.

TATA HARPER

Clean beauty brand Tata Harper lets shoppers sign up for a recurring order that matches their needs. For example, consumers can select a delivery frequency between 1 to 6 months.

Benefits

Highly profitable. When done right, curation can be extremely lucrative. On average, this business model has a higher average order value than other subscription experiences.

Challenges

• High churn rate. Curation relies on curiosity. Once a subscriber’s curiosity is met and they understand the type of products they’ll receive on a recurring basis, they’re more likely to churn. Merchants with successful curation experiences dedicate significant resources to personalizing their boxes to keep their subscribers engaged.
• Operational complexity. Curation requires that you source multiple different products for each box on an ongoing basis. Curation also requires that you consider your subscribers’ unboxing experience and spend resources on branding and packaging. As a result, Curation requires more resources to manage than Subscribe and Save.
• High level of competition. Curation is the most common subscription business model. Before launching your program, you’ll need to research your niche.

Curation examples:

BLUE APRON

One of the most well-known examples of Curation is Blue Apron. The meal-kit company sends subscribers all the ingredients they need to make a fast and delicious meal.

STITCH FIX

Stitch Fix is a personal styling service. Customers fill out a questionnaire about their style and then they receive a personalized box of clothing regularly.

CLAIRE’S

Claire’s curation experience is called Cdrop. Once a quarter subscribers receive a curated assortment of trendy jewelry and accessories. Claire’s offers three themed “drops” that target different audiences — earring lovers; older teens and younger adults; and children.

Benefits

Flexibility. Because you aren’t selling a specific product, you can personalize your membership offering based on your customers’ needs. This will drive loyalty and increase customer lifetime value.

Challenges

• Time-consuming. You’ll need to continually evaluate whether the services and access you offer meet your customers’ needs and adapt.

Membership examples:

Perhaps the best-known example of a membership subscription is Costco. A membership with the retailer comes with steep discounts on products.

Golf courses are another example of a traditional membership subscription. Members gain access to desirable experiences like the ability to play a round of golf.

Membership subscriptions, however, aren’t tied to a physical location. Wellness brand GNC runs myGNC PRO Access. For a low membership fee, subscribers receive deep discounts, expedited shipping, pre-sale access to products, and swag boxes that are delivered twice a year.

1. Reliable, recurring revenue

Subscriptions’ biggest benefit is that they create a reliable, recurring revenue stream.

2. Increase customer lifetime value (CLV)

Competition and acquisition cost in the eCommerce space is high. Subscriptions offset rising costs by extending CLV and improving ROI.

3. Improve inventory forecasting

With subscriptions, you know how many customers are going to buy which products in a given period. This helps better evaluate your inventory and limits the risk of overstocking.

4. Generate more customer insights

Subscriptions enable you to generate data about your customers and quickly act to meet their needs. This creates a virtuous cycle in which you can gather information, incrementally improve your buying experience, and then delight your customers.

5. More interest from investors

Investors love subscriptions. A predictable revenue model enables you to aggressively invest in growth. In fact, companies with recurring revenue models are valued 8X greater than companies with transaction-based business models.

4. Generate more customer insights

Subscriptions enable you to generate data about your customers and quickly act to meet their needs. This creates a virtuous cycle in which you can gather information, incrementally improve your buying experience, and then delight your customers.

1. What are your resources?

Building your own subscription experience requires significant resources. Not only will you need developers and eCommerce experts for the initial implementation, but you’ll also need a team to manage your subscription experience once it’s up and running.

With a homegrown subscription experience, you’ll need to determine subscription eligibility and inventory, create a workflow to manage subscription-related inquiries, and build an analytics tool to gauge the success of your experience.

You’ll also need to build an interface where subscribers can manage their subscriptions. Otherwise, you may risk subscriptions causing frustration rather than loyalty.
When deciding what’s right for your company, remember that there is also an opportunity cost associated with building your own subscription solution. Every hour your team spends on this initiative is one that can’t be spent on other projects.

If you do have abundant resources, a homegrown subscription solution comes with at least one advantage: a custom-built subscription experience is extremely flexible. Because you own the software, you can change it to meet your business needs.

2. How quickly do you want to launch?

Your answer is probably yesterday. Every day you don’t have subscriptions is another day of missed opportunity to convert one-time purchases into recurring revenue.

If you need to get up and running fast, opt for a subscription technology provider. A homegrown solution could take a year or more to develop and implement. And when your subscription experience does finally launch, it’s unlikely that your company will have the skillset to ensure it’s a hit from the get-go.

Plus, if you choose to build your own subscription solution, you’ll need to ensure it integrates with important eCommerce tech like your eCommerce platform, payment providers, and inventory management solutions, among others. Remember, every integration your team needs to build delays your launch.

1. Recurring billing solution

A recurring billing solution is a system that eliminates manual billing, which is often complex and time-consuming. In other words, with a recurring billing solution, you can easily invoice your subscribers on a regular basis.

Recurring billing solutions sometimes offer basic portals for customers to manage their subscriptions. They might also allow merchants to do simple promotions on subscription items, though this is not the norm.

If you sell a digital product, a recurring billing solution is a good option. However, recurring billing solutions are a poor fit for consumable goods.

2. Subscription platform

Unlike a recurring billing solution, a subscription platform helps you manage all aspects of your subscription experience, including acquisition and checkout, billing, subscriber management, and retention efforts. Subscription platforms are best for businesses that sell consumable goods and want to rapidly scale.

If there is a chance you might outgrow your exciting eCommerce platform, then be sure to look for a subscription platform that integrates with a variety of popular eCommerce platforms, like Shopify, Magento, Big Commerce, and Salesforce.

Why your subscription platform needs an integrated checkout

When evaluating a subscription platform, make sure that it fully integrates with your eCommerce platform and that it uses an integrated checkout.

Subscription platforms that don’t fully integrate with your eCommerce platform create operational pains and poor customer experiences.

For example, subscription solutions that don’t fully integrate with an eCommerce platform send shoppers to a separate checkout to complete their purchase. This is known as a hijacked checkout.

In addition to creating a poor buying experience and a potential loss of conversion, a hijacked checkout forces merchants to keep duplicate product catalogs and even discount codes, which is a huge time suck and diverts resources from larger, more important strategic initiatives.

A hijacked checkout also creates a data nightmare, as you lose tracking information when the shopper is sent off your site.

Promotional capabilities

One of the primary reasons consumers sign up for a subscription experience is to receive an additional benefit like a gift or discount. Here are some promotional capabilities you’ll need:

• Discounts: We’ve found that a 5% discount increases subscription enrollment by 104%.
• Free shipping: This is one of the most popular incentives in eCommerce. 85% of shoppers say that not having free shipping for online orders is a “deal-breaker.”
• Subscribe more, save more benefits: This incentive encourages customers to sign up for more subscriptions by offering greater incentives. For example, a beauty brand might offer 10% for one subscription, 15% off for two, and 20% for three or more.
• Cross-selling: This capability drives up average order value by letting subscribers add one-time purchases to their recurring orders.

Retention capabilities

Churn is subscriptions’ biggest challenge. You’ll need a subscription experience with churn-busting capabilities like these:

• Intuitive subscription management portal: Consumers love flexibility. Give them a subscription management portal that lets them skip, pause, or change their order frequency. Your portal should also allow subscribers to easily cancel. Cancelation blockers erode trust in your brand — don’t use them.
• Retention rewards: This incentive encourages subscribers to stay with their subscription longer. Typically, shoppers receive an incentive after a set number of orders.
• Operational tools: You’ll want to be able to swap out-of-stock items and proactively refresh credit card information.

Who are your competitors and what are they offering?

Your goal here is to determine what type of subscription experiences are in the market and the value they offer their subscribers. It’s unlikely that you’ll be the first subscription experience in your industry, and that’s fine. You can compete — and win — by offering subscribers better value.

In general, consumers sign up for subscriptions to save money, for convenience, and for a personalized experience. You’ll need to determine how and if your competitors are providing their subscribers with these values.

What is your unique selling proposition?

Once you’ve researched your competitors, you should have a good understanding of their strengths and weaknesses. This will help you determine how your subscription experience will stand out.

For example, if your competitor’s subscription experience is expensive, you can offer consumers a similar experience at a lower price. On the other hand, if your competitor’s subscription experience offers their customers great discounts, you can offer a more personalized experience.

Promote your subscription program across your entire site

Offer multiple enrollment locations

This tactic enables shoppers to enroll in your subscription experience at multiple points in their buying journey. It’s common for merchants to offer subscription enrollment on their Product Display Page, Shopping Cart, and through a Quick View.

Implement a guided selling experience

A guided selling experience makes shopping hassle-free. It reduces the amount of time a potential customer spends researching your product and ensures their expectations are met. For instance, Darwin’s Natural Pet Products uses a guided selling experience to ensure the products they recommend fit shoppers’ needs.

Offer retention rewards

Retention rewards are a way to reward subscribers for remaining in the program and receiving recurring orders. Typically, shoppers receive an incentive after a predetermined number of orders. The incentive could be a free order, a gift with purchase, or an increased discount.

You should also consider integrating your subscription experience with a loyalty program.

Some of our favorite subscription names:

Yankee Candle’s Fragrance Flight

Bodybuilding.com’s Subscribe and Gain

4ocean’s Clean Ocean Club