3 Benefits of Subscription Based Ecommerce
Whether you’re looking for gourmet food samples, cosmetics, clothing or even toys for your pet, the odds are that there’s a subscription box out there for you.
Whether you’re looking for
gourmet food samples, cosmetics, clothing or even toys for your pet, the odds
are that there’s a subscription box out there for you. Nowadays, it seems that
everyone and their mother are signing up for subscription boxes, but have you
ever thought about why this model has become so popular?
1. Better ROI for Your Customer
Acquisition Efforts
Even if you operate in a specific niche or offer a unique
service, the success of every business directly relies on effective customer acquisition. As your business grows however, it
can become more difficult to find additional customers and at this stage the
focus must shift from acquisition to repeat business. In fact, 82% of companies
agree that retaining existing customers is cheaper than acquiring new ones.
Selling
your product or service the “standard” way is what’s known as a
conversion-based model and means you will have to work hard to first convert a
user to a buyer and then work harder to turn them into a repeat buyer. With
that in mind you can see how the subscription model addresses this need
directly. If your customer is subscribing to receive something on a monthly (or
even weekly) basis, their repeat business is implied right at the time of
purchase. A subscription model is a retention-based model, ensuring recurring
revenue from repeat customers (provided you can keep the customers happy).
2.
Better Revenue Predictions
Another
benefit of a subscription-based business is that it allows you to accurately
and reliably predict your business’ revenue stream. When a traditional business
looks to make revenue predictions, they come with a range of assumptions and
often require a considerable amount of analytics to get useful insight. A
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subscription
model on the other hand provides a much simpler way to evaluate revenue
streams, simply take your total subscribers, subtract cancellations, and
multiply by your subscription cost.
Subscription
models also make it considerably easier to identify things like a customer’s
lifetime value (LTV). As an example, imagine you offer a make-up sample kit
subscription box, if you offer a 3-month, 6-month, and year long subscriptions
but consistently most users opting out after 6-months, you now clearly know
that your average LTV is 6-months’ worth of subscription fees.
All
this information can help you as business owner to make better decisions and
understand how much capital is available to grow the business. One area where
it is particularly useful is in relation to setting an appropriate marketing budget. If you understand your average customer LTV, you
know exactly how much you can spend per acquisition and can identify which
channels provide the best return on your marketing investment.
3.
Better Inventory Management
In a
standard ecommerce business model, inventory management can lead to stressful
days and sleepless nights as business owner. In fact, poorly managed inventory
can cost businesses a lot of money very quickly. Maybe you’ve bought a product
upfront but it’s not selling as well as you imagined. Or on the flip side,
maybe one of your products goes viral and inventory sells out in a day leaving
you with thousands of customers but zero product to offer. The reality is that
in a traditional model knowing how much product to order to maximize profit and
minimize product waste is tricky.
With
a subscription model however, nearly all these problems disappear. As a
business owner you know exactly how many subscribers you have for every
subscription period and know exactly how much inventory you need. You know what
your “locked in” customers want and can ensure you have everything available to
meet those needs. The result is that you can plan your stock and inventory more
accurately and virtually eliminate waste.
