The subscription box business model has grown exponentially in recent years and looks set to keep getting bigger and bigger. Read our infographic guide for tips on how to build a subscription based business.
What is the Subscription Business Model?
Subscription ecommerce is when a customer signs up once to receive a product or service on a regular basis. Subscription box websites collect recurring payments from customers in exchange for the continuous replenishment, curation of, or access to a product or service. This service appeals to customers who will have a constant demand for a particular product or service. As a result, they are more than happy to pay a set fee at defined intervals for its continued delivery as this saves them from the hassle of having to make a purchase every single time they need to renew the product or service.
The Rise of the Online Subscription Economy
Between the years 2013 and 2016, there was a 3000% increase in visits to subscription box websites going from 722,000 to 21.4 million. In fact, research from McKinsey has revealed that 15% of online shoppers have signed up for at least one or more subscription services.
What Are the Different Types of Subscription Services?
- Curation: These services offer a personalised, hand-picked selection of items which cater to the customer’s unique tastes and interests. McKinsey estimate that 55% of all subscriptions are curation-based. Some examples of this include Birchbox and Blue Apron.
- Replenishment: These services conveniently automate the purchase of frequently-used commodity items such as razors, socks etc. One of the most well-known examples of this is The Dollar Shave Club.
- Access: Customers pay a monthly fee to receive access to member’s only discounts and perks. Perhaps the best known example of this is Amazon Prime.
The Benefits of the Subscription Box Business Model
1. Better ROI on Customer Acquisition Campaigns
Studies show that acquiring a new customer can cost up to seven times more than retaining an existing one. The subscription box business model is retention-based, so once you have won a customer you are guaranteed repeat revenue as long as you keep them satisfied. This will save you a substantial amount of money on expensive customer acquisition marketing campaigns.
Studies show that acquiring a new customer can cost up to seven times more than retaining an existing one. The subscription box business model is retention-based, so once you have won a customer you are guaranteed repeat revenue as long as you keep them satisfied. This will save you a substantial amount of money on expensive customer acquisition marketing campaigns.
2. More Accurate Revenue Predictions
Customers only go through a sales checkout process once. All future transactions are automated so they can buy from you every month without needing to go through the checkout each time.
Furthermore, by using the subscription box business model, you can get a more accurate picture of the revenue that you are likely to generate. To calculate your projected revenue figure, use this formula:
Customers only go through a sales checkout process once. All future transactions are automated so they can buy from you every month without needing to go through the checkout each time.
Furthermore, by using the subscription box business model, you can get a more accurate picture of the revenue that you are likely to generate. To calculate your projected revenue figure, use this formula:
Total Subscribers – Cancellations X Cost of Subscriptions
3. Simplified Stock Control
The use of a traditional model makes it difficult to accurately predict sales figures and required stock levels. The subscription model simplifies the process of predicting the volume of orders you’ll need to fulfil and distribute for a certain period, thus making stock planning much easier. This is because you’ll know how many subscribers you have for each subscription period, and how much stock you’ll need.. This makes it very easy to determine:
The use of a traditional model makes it difficult to accurately predict sales figures and required stock levels. The subscription model simplifies the process of predicting the volume of orders you’ll need to fulfil and distribute for a certain period, thus making stock planning much easier. This is because you’ll know how many subscribers you have for each subscription period, and how much stock you’ll need.. This makes it very easy to determine:
- the volume of stock required in advance,
- shipping costs,
- how widespread your deliveries will be,
- the number of staff needed at your warehouses.
The Challenges of the Subscription eCommerce
1. High Customer Turnover
Churn rates can be quite high as customers will quickly cancel services if they didn’t deliver a superior end-to-end experience.
2. Expensive Packaging Costs
A lot of time and money needs to be invested in producing branded packaging, and this is likely to decrease your margins.
3. An Oversaturated Market
There is greater competition from an increasing number of entrants to the market.
4. Customers’ Reluctance to Sign a Contract
Even though customers aren’t technically entering a contract and they can cancel any time, they might be put off by the sign-up element of a subscription box as they might perceive it as a contract.
5. Maintaining the “Wow” Factor
Subscription box providers need to consistently update their offering to keep customers interested and entice them to remain as customers.
Churn rates can be quite high as customers will quickly cancel services if they didn’t deliver a superior end-to-end experience.
2. Expensive Packaging Costs
A lot of time and money needs to be invested in producing branded packaging, and this is likely to decrease your margins.
3. An Oversaturated Market
There is greater competition from an increasing number of entrants to the market.
4. Customers’ Reluctance to Sign a Contract
Even though customers aren’t technically entering a contract and they can cancel any time, they might be put off by the sign-up element of a subscription box as they might perceive it as a contract.
5. Maintaining the “Wow” Factor
Subscription box providers need to consistently update their offering to keep customers interested and entice them to remain as customers.
How To Build A Subscription Based Business: Tips & Advice
- Personalisation is crucial. Don’t hesitate to ask for further information to help you deliver a more curated experience.
- Keep things fresh but offer replenishment sales and fan favourites.
- Know your audience. Discover a niche but try to avoid becoming stuck in it or else you won’t grow.
- Make social media central to the sharing of your message. Customers should find it easy to spread the word about your business.
- Think mobile first.
- Streamline your online checkout process, to ensure lower cart abandonment rates.
Read Our Infographic to Learn More about the Subscription Box Business Model
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