In the last decade, subscription-based e-commerce has exploded. According to McKinsey, 15% of online shoppers have signed up for at least one subscription service. Most often targeting young shoppers, frequently in cities, these services provide everything from meal prep kits to personalized shopping services to razors. Through 2016 the market had grown to more than $2.6 billion in sales and only continues to expand with almost any type of product you can imagine getting the treatment.
So, for a small business looking to build a steady, recurring base of revenue, it can be tempting to consider creating one yourself. Let’s take a closer look at what subscription-based e-commerce looks like, some of the considerations required in building such a business model, and what tools you’ll need to get started.
There are three general types of these businesses. Which you start will depend not only what your business can offer that’s unique in the marketplace, but what resources you have access to:
- Curation – These are boxes or collections of goods that you curate on behalf of the customer. Think of monthly wine clubs, Loot Crate’s pop culture offerings, or stylist boxes based on user preferences. Often they become more catered over time as the customer provides feedback.
- Replenishment – This is the simplest type of subscription, fulfilling the same items every month based on recurring needs. Monthly shave clubs, pet food, or luxury goods that rarely change like coffee all fall into this category.
- Access – If you have a product, service, or information offering that no one else can, it falls under this category. This can be a training course, a product or good you’ve created, or something comparably exclusive to your company.
A successful e-commerce subscription service is one in which your customers receive a high-quality product or service on a recurring basis and your company receives a guarantee of regular revenue. If quality doesn’t meet user expectations, churn rates can be too high and both parties will be unhappy.
Once you’ve decided it’s time to launch your service, there are a few things you should do in advance.
This is important in any business, but even more so for a subscription service. You don’t have the benefit of several products to support your efforts. While this simplifies inventory, targeting, and retention strategies, it also makes it imperative you get targeting right before you launch. Ask yourself what key pain points you are resolving for this person, why they would consider your subscription, and what happened in their life to move them there. Meal kits, for example, are frequently ordered by young professionals who don’t have time to cook, new parents, and single adults who want only enough food for themselves.
You can’t just pick an item off the department store shelf and start a subscription service around it. You need to be different. Meal kits often have professional chefs creating menus. Wine clubs have professional sommeliers selecting the best wine within certain budget ranges each month. Yours needs to be comparable. Know the niche, know the products, and have the ability to offer something no one else can in a subscription service.
At the same time, ask what your unique selling proposition is. Are you doing something that your customers won’t be able to find anywhere else? By default, you will have competition from non-subscription services, and if there are already subscription services in the same niche as you, it will be that much more difficult. How do you stand out?
You can create a new subscription service from scratch, or if you have an existing business, you can add one to your offerings. Several companies have gone this latter route, providing long-time customers with an option to subscribe to their favorite products for discounted pricing and bonus offerings. This is important for established brands especially – something extra that will allow your subscribers to feel special.
Actually building your subscription service will be relatively easy technically speaking. Depending on which platform you use, you’ll need to install a new plugin or additional module that supports recurring payments. New content will be needed on your website. And you’ll need a marketing campaign to promote your offer to your targeted personas as well as existing customers in your email database.
It’s best to do extensive research before you launch any new business or product offering. For subscription services, in particular, this is important, because you need to be ready for fulfillment on a large scale. Some common questions and issues include:
- Know your USP – Why would anyone choose your service over a myriad of other options? If the answer isn’t immediately clear, you’re not ready to launch.
- Unexpected Competition – Your biggest competition in a crowded subscription market is other, unrelated subscriptions. 49% of people with subscriptions have more than one. Many are wary to start more due to fatigue in the market. Your offering needs to overcome that.
- Logistics Change – Subscriptions are different from direct e-commerce. You’ll need to manage unhappy customers who forgot to unsubscribe, handle expired credit card warnings, and build a new approach to inventory management based on the results of your marketing efforts.
- How Much to Charge – Pricing will vary depending on the offer, the competition, and the market as a whole. You might also offer discounts based on multi-month commitments.
The most successful e-commerce subscription services work well both because they have a strong business model and because they are irresistible offerings to their customers. If you do it just right, this can become a strong, recurring source of revenue for your business.