The global e-commerce subscription market grew by $72.91 billion in 2021 to $120.04 billion in 2022. This is expected to reach $904.2 billion by 2026.
Adding a subscription model to e-commerce makes your brand reign in new customers, helps you make more sales per customer (and hence more revenue per customer), and increases profitability.
This is notwithstanding a healthy, positive, and predictable cash flow. Plus, there are even more benefits
Benefits of e-commerce subscriptions for businesses
This is on top of the already huge e-commerce market worldwide. For an e-commerce business, there are huge advantages when they add a subscription layer to their existing e-commerce brand or launch pure subscription-based products:
- Steady and predictable cash flows
- Higher degree of profitability
- Garner a higher-quality loyal base of customers (more repeat customers than new ones)
- Expand revenue streams
- More opportunities to upsell and cross-sell or sell more products
- Automatic boost in customer lifetime value
- Easier inventory management
You can consider launching new subscription products, subscription-based services added to products, or add a layer of subscriptions to your existing e-commerce business.
What are good use cases for subscriptions?
According to McKinsey and Chargebee, there are three broad categories for considering adding subscriptions to your e-commerce business: replenishment, curation, and access.
Ruling as possibly the simplest and most natural way to add subscriptions or launch new subscription-based products is the “replenishment” model of subscription.
Banking on the aspect of “convenience”, several product categories lead themselves to this subscription model such as household goods, consumer suppliers, consumables, office supplies, industrial supplies, toiletries, groceries, and many others.
While the replenishment model (for several of the common product categories) lends itself to relatively lower margins, these products also enjoy high conversion rates.
Pet supplies, collectibles, gaming accessories, apparel, beauty, fashion, perfumes, and several other product categories find themselves using the curation model. Curation -- as an e-commerce subscription model -- leans on the promise of “personalization, customization, and discovery”.
Stitch Fix, for instance, follows the curation model and promises to send in the right set of clothes (for men, women, and kids) once you fill up a questionnaire and send them some inputs. Shoes, clothes, tops, socks, jackets, and everything else that matches, sent straight to you.
Depending on how you position your products and services, there’s a likelihood that you might want to provide members-only access, exclusive access, “product access on invite only”, and so on. You can offer a wide range of products and services under the “access” model of e-commerce subscription which several hotel, travel, clubs, credit card services, beauty, customized experience companies use.
Every e-commerce business is a good case for subscription (unless it’s not).
Adding subscriptions to your e-commerce business model is a terrific way to kill several birds with one shot.
It’s also much easier to implement subscriptions than it ever was. If you use Shopify, for instance, there are several apps in the Shopify Apps marketplace that can help you get started with subscriptions for your e-commerce brand in no time.
Here’s when subscriptions make for a good case for your e-commerce business:
Customizable products & offers
If your e-commerce business finds itself in any of those categories or if your products allow for customization, memberships, and other offers, it’s a no-brainer to start subscriptions.
Customers can customize products and choose specific variants. Then, they can opt for a subscription that allows them to get their chosen products to be shipped regularly. That’s a simple set up.
Or, you could offer a discounted service element along with products. Or a software-based product as an add on.
For instance, Apple sells “Apple Care” along with every Macbook Pro or Macbook Air they ship.
Look For The subscription habit
Certain e-commerce businesses (such as those in the categories of food, gaming, clothes, accessories, fashion, apparel, perfumes, footwear, innerwear, and others) already have huge target audiences “used” to subscribing for products. Already some kind of subscription habit in the market
Note: otherwise, it's hard to create, even if not impossible you better not be the first one to fail, but you rather be the second one which will succeed
The subscription program you create has to provide you with enough runway to scale. In simple terms, it should give you potential to scale.
With the requisite infrastructure incurring fixed costs already in place (such as warehousing, shipping, and logistics), the subscription element should clearly show you more revenue, increased customer lifetime value, and eventually healthy profitability.
High Retention rate, Referral Program/Loyalty Programs
Subscriptions automatically add a layer of “stickiness”, as long as customers keep their subscriptions on. They are automatically a higher value transaction since subscriptions have a lot to do with regular payments at intervals. On top of that, you also get added benefits of launching referral programs and/or loyalty programs to the mix.
For subscriptions to qualify as worthy enough for your e-commerce business, the specific numbers such as increased revenue per transaction, designated cash flow boost from subscriptions, added revenue, and the ROI of loyalty programs or referral programs must be tracked.
Upsell Potential (with new products or existing addons)
Bringing in upsell opportunities (relevant products or add-on subscriptions to existing subscription offerings) give you further boost.
For instance, a single GoPro camera packaged as a “Creator Edition” comes with the camera itself, camera mounting gear, a mini-microphone for the camera, and also GoPro subscription (with unlimited bandwidth, editing software, and more).
If your e-commerce products qualify themselves for sequential upgrades, subscription offerings (one or more than one, stacked one on top of another), you have the potential to help launch profitable subscription offers that you profit from.