What Is an eCommerce Subscription Model and Why Your Shopify Store Needs to Consider It This Year
We have said it a million times before but we’ll say it again. Setting up an online store on Shopify has become easier than ever and taking your brand online is no longer a far fetched goal. But when it comes to establishing your brand online with a steady stream of sales every month, it’s only getting more challenging.
A typical consumer today, irrespective of what product they’re looking for, has at least ten brands to choose from. Each one offers a competitive set of features, variants, pricing, and discounts. So how do you battle these demons and make sure if someone has bought from you, comes back to you?
This is where subscriptions come in. One of the most underrated yet effective tactics that growing Shopify stores tend to miss.
Let’s start with the basics on subscription business model in ecommerce.
What is an ecommerce subscription model?
Think about 2 items that you tend to use every month.
Let’s say your toothpaste and a 500g of coffee that gets you going every morning.
Now you have the option to purchase these items every first week or last week of a month. Or you have the option of simply letting a store know that they’re to deliver these products after every 30 days. What would you choose?
Because in that case, even if you forget to place an order on the 30th of a month, you’re not going to wake up to an empty jar of coffee beans or no toothpaste to freshen up with!
Simply put, subscriptions are an eCommerce business model that allows customers to subscribe to a product or service they need on a recurring basis, without having to make a purchase over and over again. Similar to how you subscribe to Spotify without having to manually renew your subscription/ purchase one every month.
Subscriptions are the best example of ‘set it and forget it’.
Want to learn more about the subscription model and whether your Shopify store needs one? Contact our Shopify experts for a consultation.
Why should you consider adding subscriptions to your Shopify store?
As a consumer, there are a few products we tend to use on a regular basis. We end up purchasing these products at regular intervals too. In times when we’re actively seeking ease and convenience, a subscription model brings us that. But let’s dig a little deeper into this.
1. Consumers want hassle-free shopping experiences
A typical online shopper wants to be able to make purchases in minutes. They want their shopping experience to be hassle-free and at the same time, they want the shipping services to match the time of their need.
With a subscription model, you’re serving all those needs by offering them a low effort way of making their regular purchases. Even Entrepreneur states that subscription models are the way to go!
2. Subscriptions give you recurring and predictable revenue
The traditional eCommerce model focuses on the number of sales being made over a period of 30 days, calculated for a year to get the total revenue. But this is based on the ad hoc purchasing behavior of consumers, wherein a product may pick up on demand for a month and then suddenly see a dip.
You could make 10 sales in a month or 50 and there’s no way of knowing. That’s where a subscription model gives you stability. It is like ensuring you that an ‘x’ amount of sales worth ‘y’ revenue is fixed month on month.
3. Predictability lets you plan and manage inventory efficiently
Let’s go back to the ad hoc purchase behavior for a minute. It’s not just the revenue that you can’t map effectively, but also your inventory. With no way of knowing if there is a steady demand for a product, you might end up either over-stocking or under-stocking, which can both lead to losses.
With a subscription-based model, you can manage your inventory better throughout all seasons and trends.
4. Reduced churn rate in customer base
As more and more brands go online, a consumer obviously has a lot of options at hand. They’re even becoming more willing to explore and try new brands today. That’s one of the biggest reasons why most Shopify stores see a high churn rate in their customer base, an average being 7.05%.
Considering how you may have spent at least a few hundred on acquiring these customers, this is a direct loss for your business.
With a subscription model, you’re nudging the consumer to make a longer commitment to your brand. Unless of course, your products don’t deliver the promise they make or the overall customer experience is poor.
5. Subscription pricing is way simpler and uncomplicated
The pricing in a subscription-based model focuses on macro pricing with tiers. As compared to pricing individual products across all collections in your catalog, subscription pricing is far more straightforward in nature.
6. Helps increase repeat purchases
With a subscription model in place, you don’t have to “win” business every time you need to make a sale. Consumers who opt for subscriptions are as high-value as your loyal customers, who want to buy from you time and again.
This thereby increases your repeat purchases and at the same time, gives you an opportunity to sell more to this subscribed customer base as they are 60-70% more likely to convert on a promotion as compared to a new visitor.
7. Enables you to become data-driven across all operations to save costs
The subscription-based model brings predictability to your business. It lets you become data-driven about who your ideal customer is and how you want to acquire them. This enables you to save costs around inventory, marketing, engagement, and retention of customers.
With more insights into a consumer’s purchase pattern and needs, subscriptions also give you an enhanced opportunity to upsell and cross-sell fairly easily.
Don’t believe us? Here are some numbers that will convince you that subscription models are the way to go:
- The eCommerce subscription market is projected to be worth $246.6 billion by 2025
- Subscription businesses grow five times faster in terms of company revenue
In short, if your Shopify store has a subscription-based model to offer, here are the four key benefits you can expect:
- High customer lifetime value
- Predictable revenue
- Streamlined inventory management and shipping
- Happy customers and high customer retention rate
How to set up subscriptions on your Shopify store
Now, simply because subscriptions are profitable in many ways, you can’t just set up the model on every product you sell. Here are some of the steps we recommend taking to set up subscriptions on your Shopify store:
Step 1: Get the basics of a subscription in place
First things first, you need to figure out what you want to offer on a subscription-based model. Here are the core elements you need to identify:
- Content: Are you offering replenishment of the same product or will you be curating new products every time? Will you be offering customers to select a mix of products for the subscription?
- Frequency: What is the duration of subscription you want to offer - a weekly, bi-weekly, monthly, or bi-monthly? Would you also let customers decide the frequency at which they want to set their subscription? Also, decide what you’d like as the minimum commitment period.
- Payments: Will you be charging your customers for a subscription upfront or would you offer them recurring billing? Does this period include a free trial and will you enable them to gift subscriptions?
Note: Having these answers beforehand will help you launch a successful subscription-model on your Shopify store. But you can always test different contents, frequencies, and payment options based on the response you get.
Step 2: Install a subscription app on your Shopify store
Let’s get one doubt out of the way - whether you have a Shopify or a Shopify Plus store, you cannot save the payment information. To be able to handle recurring orders and payments, you need an app.
With a Shopify subscription app, you can add the subscription functionality on your product pages easily and redirect those purchases to the subscription checkout. This app will help you store payments and subscription information to generate recurring orders easily.
Some of the best Shopify apps we recommend for setting up a subscription model on your store are:
- Bold Subscriptions: The app lets you set up custom subscriptions, gift subscriptions, multiple payment gateways, and comprehensive analytics to map the performance of your subscription model.
- ReCharge: This subscription app offers dunning management for preventing and managing failed payments, automations such as free trials/ samples, discounts, etc, and the set up of custom subscriptions.
- PayWhirl: The subscription app enables you to set up custom subscription-based models for select products, offer customer instalment plans, layaway options, and pre-orders as well.
- Appstle Subscriptions: Another ecommerce subscriptions app for Shopify stores that is making waves, is Appstle. They enable you to set up customized subscription models including build a box, across different industries.
- Seal Subscriptions: Seal too is one of the best Shopify subscriptions app that lets you experiment with different types of subscription models for your ecommerce business; they also offer detailed analytics on the same.
- Yotpo Subscriptions: The popular product reviews app now also offers merchants the ability to set up a subscription model on your storefront. It also helps create an integrated set up with the review requests for a more engaging experience.
Not sure which subscription app suits your need the best? Talk to our Shopify experts to get a consultation.
Step 3: Set up the subscription fulfilment
The success of a subscription-based model actually depends on how timely you can deliver the products. It is of utmost importance if you want to retain customers who are paying you up-front for products.
While the subscription app on your Shopify store will re-generate the orders for you automatically, it is your fulfilment partner that has to ship them in a timely manner. To tackle this crucial point, we recommend:
- Directly integrating your fulfilment partner with your Shopify store so that the orders get processed as soon as they are re-generated
- Provide customers with a branded tracking page to keep a tab on their subscriptions
- Send out automated email and SMS notifications on subscription status to customers
- Ship items with a buffer of 2 days or less in the time period that the customer has opted for, for their subscriptions
Step 4: Market your subscriptions and promote the value it offers
The next step is to nudge your customers to subscribe to products. Building a long-term commitment with an online store does not come naturally to everyone and hence requires you to work on promoting your subscriptions more. You need to address consumer concerns upfront, show the value your subscriptions can offer to them, and how flexible the subscriptions are to match the consumer’s current needs.
Some of the tactics we recommend to the Shopify stores we work with include:
- Adding the option to subscribe on the product page and highlighting how much a shopper saves on choosing subscriptions
- Displaying social proof on the website as well as social media and other digital platforms to showcase how the subscriptions make it easier for the consumer
- Using risk reversals, referral schemes, and discount codes to reduce what the consumers believe is the risk of subscribing to your products
- Offering a lower-commitment subscription for a trial period to let consumers experience things first-hand
- Adding value by offering free shipping, trial subscriptions, discounts, freebies, and other incentives to make consumers see the value in subscriptions
- Paid promotions across social media and the search engine to showcase your subscription products
- Offering the subscription model on the cart page along with a deal/ discount to nudge the visitor to consider subscribing
Should you consider adding a subscription model to your Shopify store?
Well, the subscription model is not for everyone. But at the same time, we see no reason in not trying it out as well.
The best way to know whether or not to add a subscription model to your store is to look into your product analytics. Identify the products that tend to be bought more frequently than the others and at what intervals to understand the consumer purchase behavior.
Based on your data, start by experimenting to offer subscriptions on a limited range of products. See how your consumers respond to subscriptions and survey them to understand what they’d like to change or want subscriptions on.
But in general, we have seen subscription models work really well across food businesses, packaged food items, beauty and cosmetics, and wellness products.
Let your customers be your guiding light and your product analytics be what validates your decision.
Not sure if your Shopify store needs a subscription model or need help setting one up? Contact us today!