Subscription based E-Commerce: The future of Business
It all starts with a need. Over the years we have seen raise in subscription-based ecommerce models picking up. Just over the past 5 years, the space has grown to occupy 30% of the total ecommerce spend by customers. Businesses are understanding the need for subscription-based models and are catching up quickly. It is now more than ever the ground is all set for a subscription-based ecommerce model. Technology is at a mature stage allowing for subscription models to run from all major ecommerce platforms. Payment gateways are also capable of handling subscription-based payments. More importantly, customers are all the more ready to get into a subscription model purely for their convenience.
“15% of online shoppers have subscribed to an e-commerce service over the past year, with 46% of respondents subscribed to an online streaming-media service” – McKinsey
Growth potential
Major advantage of subscription model is that, you can forecast customer lifetime value (LTV). For example, if the average subscription price is $100 and the average frequency rate of subscription is one month for a period of 12 months, then the corresponding average customer value is 1200. If the customers are anticipated to subscribe for an average of 24 months the Customer lifetime value (LTV) will be (1200 X 2) which is $2400.
Helps in forecasting
As you are aware of the LTV and the number of customers you have on board, it is easy to forecast revenue.
“In 2018, subscription sales accounted for 86% of Adobe’s total revenue” – Inc Magazine
Understanding what the LTV is, will also help you in marketing and sales planning and budgeting. You can strategize more now with confidence knowing it is not a $100 conversion you are going after, but a $1,200 conversion (as per the previous example). This also builds confidence in the stake holders.
Easy shipping and payment options
With the technology available, payment gateways are equipped with handling subscription payments. Shipping is again going to be easy to manage. Even with shipping options that can take days to reach, it is still feasible to have the product delivered right on the day the customer has asked for by pre-planning the shipping days.
Make it simple
Users are already getting used to subscription-based models. Do not add any new steps to make the process any complex. Provide very little options and make it easy for the users to move on to place the order. If needed, you can upsell with subscription option on the checkout page, which is also seeing very good results. For your existing users, you can capture the card information, which they can use for a simple one-click payment.
Value Creation
If you can understand your users, it will be easy for you to take them to what they want, with improvements in ML based personalization techniques, your website can easily predict user needs and have them served. These same models will also help in cross and upselling to the same user, increasing the frequency rate of subscription and substantially increasing overall LTV of each customer. More work you do for your users to make their experience quick and hassle free, you are automatically going to see better conversation rates
Optimization benefits
For any last-minute push back or hesitations, always have FAQ’s, access to customer support or Chatbots available. This is also critical for improving conversion and extending the lifetime of a customer. Increasing the customer lifetime value will drastically reduce your Customer acquisition cost (CAC) which means the one additional dollar you spend to acquire a new customer.
What are you waiting for?
With all being said, adapting a subscription-based model is more of a business decision after understanding your customers and product/services you are taking to them. We hope the blog would have given you confidence to take a jump if this model will suite your business.
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