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By 2023, 75 percent of organizations selling D2C products will offer subscription services.
Today, life as a subscriber is integrated into every part of our lives, from home to work and beyond. From the Netflix Series, we are glued to, to the pre-delivered meal we prepare as a family from HelloFresh. As we push ourselves harder and further on our Peloton, the Spotify playlist helps us escape the world around us.
The subscription business model values the relationship with the subscriber. The flexibility, customization, access to content, the physical goods that are delivered are ever-changing. The Lifetime Value (LTV) of a subscriber truly depends on the brand's ability to adapt, recommend, utilize technology, and ultimately personalize their product or service to each subscriber.
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Let’s take a more in-depth look at what subscription business is, the growth trends around it, as well as some tools (apps) you can use to turn your Subscription Business into a Superpower.
1. What makes Customers Subscribe on your Shopify Store?
2. The Subscription Process for Shopify Store
3. Types of Subscription Offerings
4. How to Win the Subscription market: Secrets to Success?
5. What Metrics Matter the most for my Subscription Business?
One of the foundations of the subscription business model is convenience for both the business itself and its customers. Subscribing to a product means that the customer does not have to go through a fresh purchasing transaction each time they need it. You just have to deliver the right product to the right person at the right time. Furthermore, convenience can be in terms of product delivery and transactions that allow a business to identify sales opportunities. Customers only have to sign up once and do not have to do anything to repeat orders. Often this purchasing transaction is combined with a convenient form of delivery. Many subscription businesses provide home delivery to their customers making the overall customer experience super-convenient.
In 2004, the American psychologist Barry Schwartz wrote The Paradox of Choice: why less is more, a book describing the immense range of choices facing the modern consumer. No longer do you just buy a box of breakfast cereal – you must choose from a vast range of brands, flavors, and sizes. Some supermarkets have more than a hundred different breakfast-cereal products, and if you add that to the hundreds of other consumer choices you have to make each week, it will be no wonder if you start searching for ways to reduce this “tyranny of choice,” as Schwartz calls it.
Another perk of subscribing to a product or service is a way to reduce the complexity of choice for customers. For instance, when you subscribe for shirts and get new shirts delivered every second month, you do not need to worry about choosing between different brands, styles, and colors as you must on a high street shopping expedition. Similarly, when you subscribe to a mobile phone company, you do not need to worry about checking rates each time you make a call. As a subscriber, you, in effect, “take yourself off the market” for a while, and this reduction of complexity is very appealing to several consumers.
Another benefit of subscriptions that most people will think of is saving money. But as previously indicated money saved is not everything. Rather than buying the product or service sporadically, you will just have to subscribe to get a discount for subscription services.
A subscription business will often have lower production and sales costs, and some of these savings will feed through to the consumers at lower prices. To understand this you only need to compare the unit price of a newspaper or magazine sold on subscription with its cover price. Thus a financial saving is one of several potential advantages of subscription business to the consumer.
Becoming a subscriber sometimes means that you become part of a group or a member of a community. By subscribing, community members will become brand advocates of your product. They can discuss your products and also exchange opinions. It is a great way to send a strong signal and tap into the values of the community associated with the product or service. This creates a robust relationship between the customer and the product. You can connect to your customers, listen to their feedback, and respond accordingly.
Let us consider an example. I have paid for a premium version of one of the best music streaming services at home, and I have offered my wife unlimited access to this. Yet she prefers the free version of Spotify, with limited access and tons of commercials. Why? This is because Spotify offers a valuable community where she shares playlists with all her friends on Facebook. Subscribing to service is also about subscribing to the company’s values and community!
Great subscription services are not just about convenience or making life easier. It provides you with a great deal of inspiration and adds extra value to the product you subscribe to. It will even serve as your shopper, directing you to goods and services, which otherwise you would never have found for yourself. Thrive Global presents itself as one such brand.
One of the most apparent vital benefits of the subscription business model is convenience for the customer. This convenience can be in terms of both transactions and product delivery. Subscribing to a product means that you do not have to go through a fresh purchasing transaction each time you need the product. You sign up once and do not have to do anything to repeat orders. Often this purchasing transaction is combined with a convenient form of delivery. Many subscription businesses use home delivery to their customers as an alternative to shops, making the total customer experience super-convenient.
The value proposition is what creates value for your customers, given the needs of the customer group. Which of your customers’ problems are you helping to solve? Which customer needs are you satisfying? These are the crucial questions that you need to answer to describe your subscription business's value proposition.
The five main consumer benefits are convenience, reduction of complexity, inspiration, community membership, and money saved. These benefits can be very helpful in defining your value proposition.
Having decided on your product or service and described the value proposition to your customers, you need to determine your subscription product's usage model.
How will your subscription product be used, and how does that affect your price model?
For most physical products, this is a no-brainer. You will deliver one or more product units to the consumer, and he will pay for the units received.
The next thing you need to do is define your pricing strategy.
How will you make yourself attractive in the market? Will you target different customer segments with different price ranges?
If you have a product or a service sold both on a one-off basis and as a subscription, you need to decide what the price relationship will be.
Pricing for Popular D2C CPG Subscription Services-
ipsy - $12/month
Bespoke Post - $45/month
Barkbox - $29/month
Allure Beauty Box - $15/month
Menlo Club - $60/month
Book of the Month - $14.99/month
BeautyFIX - $24.95/month
Stitch Fix - $20/month
Kiwi Co - $19.95/month
Winc - $13
Dollar Shave Club - Starts at $5
Home Chef - $9.95/serving
Trunk Club - $25
As a subscription business owner, you would like to have your subscribers sign up for an extended period. That means a more stable business and a better cash flow. But it might not be in the consumer’s best interest. Consumers increasingly demand flexibility and like the idea that they can cancel their subscription whenever they choose. Hence, many new and successful subscription businesses are offering great flexibility and short subscription periods.
So what is the best strategy for deciding your subscription periods, then? It is not easy to say, because the best mix of subscription periods is whatever will maximize the average lifetimes of your subscribers, which means that it has to be determined from experience. Again, the best advice is to keep it simple at the outset and add more subscription choices once you know your business better.
How and when are you going to bill your customers, and how will you go about dunning them if they fail to pay for your products or services? That might sound like one of the more tedious issues involved in building a subscription business. However, it is a matter of great importance, and setting up consistent procedures will undoubtedly make a substantial difference to your subscription business's performance. Then you need to set up your dunning procedure. What is to happen if the subscriber fails to pay? You need to establish when and how often you will remind the subscriber of his missing payment, and you need to determine what the consequences will be of a missing payment – how long before you will terminate the subscription.
Apps you can install for Subscription on Shopify: Recharge Apps.
The most popular services are Amazon Subscribe & Save (consumer packaged goods) and Dollar Shave Club (razors), which have nearly twice as many subscribers as the next services on the top ten list. Ipsy (beauty), Blue Apron (meal kits), and Birchbox (beauty) round out the top five. Both men and women, buying for themselves or others, use many of the leaders. Still, women are more likely to subscribe to beauty and apparel services, including Stitch Fix (apparel), AdoreMe (lingerie), and ShoeDazzle (shoes). Men, by contrast, are much more likely to drift to razors (Harry’s is the third-most-popular service for men but the seventh overall), video-gaming gear and collectibles (Loot Crate), and meal-kit or food-delivery services (Home Chef and Instacart’s subscription delivery option, in addition to Blue Apron and HelloFresh).
These brands fall into three subscriptions models:
a) Replenishment
b) Curation
c) Access
Replenishment Subscription:
Replenishment allows consumers to automate the purchase of commodity items, such as razors or diapers.
Top Value Proposition of Replenishment Subscriptions: Save Time and Money
Curation subscriptions seek to surprise and delight by providing new items or highly personalized experiences in categories such as apparel, beauty, and food.
Top Value Proposition of Curation Subscriptions: Be surprised by Product Variety.
Access Subscribers receive a curated selection of different items, with varying levels of consumer decision making required.
Top Value Proposition of Access Subscriptions: Exclusivity.
When picking the subscription model, consider these 2 aspects.
a) Cost structure- What are your variable costs of delivering the product or the service to your customers? This will guide your decision.
b) Competition- Do your competitors have usage models that you will have to match – or might you even gain a competitive advantage by choosing a different model.
The hack for happy customers is customer service. Customer service comes in different forms in today’s world, and with the help of technology, it’s not as time-consuming as you think.
Introduce tiered levels of customer service to your subscription model. Not every inquiry needs to go to a human. Consider introducing a chatbot to your customer service options to help people find the information they need.
Take your customer service a step further and introduce an omni-channel strategy. Not everyone has a Twitter account and wants to chat with a rep through DMs.
To strengthen customer engagement, gamify your subscription business and get customers to stay with you and engage with your brand more. Try introducing the point system program with scores that focus on customer loyalty.
Set challenges, micro-goals, and milestones to look forward to. Build a road map with token rewards and badges, so people have something to visualize. In this way, you’ll add an extra level for customers to continue using your subscription service.
You can integrate the Rewards system in the mobile app for your brand. Shop2app mobile app integrates with Smile.io, Yotpo, and many more.
It is essential to know what your customers expect. Feedback counts as an important factor to gather valuable insights that can be further used to refine experiences. People are happy to give feedback and support brands they love to grow. However, what you need to do is show that you’re acting on feedback. Find a feedback solution tool that works for your business and incorporate it into your communications strategy.
Having a mobile app for your brand comes handy here. Easy access to the brand on your customer’s fingertips is truly an advantage.
Once you’ve collected the feedback, put it out, and answer how you plan to act upon it. Send out personalized push notifications to your customers. Here the key is to provide a better customer experience and understanding your customer’s requirements. This feedback can help.
Most businesses use the referral marketing method of promoting products or services to new customers through referrals. It not only attracts new customers but also helps retain customers. Rewards like a discount, free product, voucher codes, coupons, or free shipping can attract new customers and build a strong customer base. You can encourage current customers to use and buy more with your subscription business.
With this approach, customers will feel responsible for continuing to use your product or service after their friend joins your subscription. Nobody refers something they don’t use.
Sometimes all customers need is a little reminder. Use email or in-app notifications to remind them of the benefits when using your product. If you’re in a position to collect data on their usage, then identify the services they’re not capitalizing on effectively. Amazon Prime does this well.
However, you also need to be careful with how you deliver this information. It is crucial to plan and be clear about how many messages your customers can expect to receive. If you deliver it too often or in a way that someone doesn’t see a benefit, your messaging can be a reminder for someone to cancel their subscription with you.
Therefore, do not go overboard with constantly sending the messages. Rather, follow and stick to the frequency of notifications.
Show that you’re always working towards a better experience for your customers and announce new features or services you’re launching.
These should not come at an extra cost for a current subscriber; they should be a bonus to their current subscription plan. New features can increase your customer base and help earn more from new subscribers, while keeping your current customer base happy.
The next thing you need to do is define your pricing strategy.
How will you make yourself attractive in the market? Will you target different customer segments with different price ranges?
If you have a product or a service sold both on a one-off basis and as a subscription, you need to decide what the price relationship will be.
Often community and customers are thought to be the same. But there is a difference between the two. A community is a collection of people, no matter how big or small, that comes together over a mutual interest of something. Whereas a collection of people that uses your product are your customers.
It is essential to be conscious of GDPR law when building a community. How you handle data is up to you, which is also under scrutiny, therefore, it becomes important to make sure you ask people if they would like to be part of a community before you put them together.
You can build a community on a social channel, a communication platform like Slack, or build an offline community— it all depends on your product and the type of people who enjoy it.
Brands should not be afraid of giving their community a platform because of the fear of growing complaints. One can easily achieve it with top-notch customer service. The inclination to belong is innate in us. Your customers would want to feel like they're part of your brand. Therefore, use a community platform to bring people together.
A little kindness goes a long way— especially when it comes to positive brand affinity. Kindness acts run in Cialdini’s six principles of persuasion: Reciprocity.
Just a random gift, a message with a note of thanks, or a benefit with your product as a complete surprise will do wonders for how they perceive and feel about your brand.
You can also deliver your random acts of kindness in a personalized way, and thank them for being part of your business’s journey. This can make them feel a special and important part of your brand.
If you want to reduce churn in your online business, don’t only focus on your product to retain customers. Look at the other aspects of your business and offer a niche market. Focus on such areas can help provide value and knowledge.
Later.com does a fantastic job of this as a social media management tool. They’re not only providing customers with a product that they’re continually adding new features to, but they also provide their customers with insights— delivered in a brief newsletter. Consider doing the same with your business model.
If a person wants to unsubscribe from your online business, you still get one chance at getting them to stay.
Now is not the moment to play with an empathy that you can achieve using the already mentioned strategies. If you have examined everything you could do then an exit is because of two reasons:
1. Someone can no longer afford your product
2. Someone no longer uses your product
Try to prevent churn by solving point number one and offer a discounted rate on your product or service to let them stay for a certain period. If that does not work, you need to learn why that person who initially used your product no longer does. You can track that with a short survey to discover what changed and why someone no longer needed your online subscription.
Learn from the answers you get, some you may be able to work on, some you may not, but the data will be valuable nonetheless
Churn is defined as the moment when a subscription ends and renewal does not happen, or when a customer cancels. Churn is a direct reflection of the value of the product and the features offered to the customers. If the churn rate is high, the product offerings need to be re-evaluated.
Calculating your customer churn rate requires counting customers. The total number of customers for a given time period isn’t easily defined because the number is subject to change due to new sign-on and cancellations.
Steps to calculate Churn Rate:
a) Determine a time period.
b) Determine the number of customers acquired in this time period.
c) Determine the number of customers lost or churned in this time period.
d) Divide the number of lost customers by the number of acquired customers.
e) Multiply that number by 100%.
As an example, let's say your software company acquired 500 customers last quarter. However, you also lost 50 customers due to expired contracts and a few due to poor customer service interactions.
This would mean your quarter's customer churn rate would be the 50 churned customers divided by the 500 acquired customers, and 50 divided by 500 is 0.10.
Multiplied by 100%, this gives you a customer churn rate of 10%.
Here's how it looks when you do the math out:
Customer Churn Rate = (Lost Customers ÷ Acquired Customers) x 100%
Customer Churn Rate = (50 ÷ 500) x 100%
Customer Churn Rate = (0.10) x 100%
Customer Churn Rate = 10%
Customer acquisition cost is the $ amount you spend to acquire a new customer. You’re often able to “target” these costs in marketing campaigns, but the best way to determine your overall CAC is to determine your entire spend on advertising, including press boxes and giveaways, and divide that by the number of new customers.
For example, if you spend a total of $500 on advertising and acquire a total of 35 new customers, your CAC would be about $14.28.
Fundamentally, if your CAC is higher than the profit you’re receiving from your customer (that is, revenue – cost of goods) in the first month, then you’re either losing money if they immediately churn, or you’re forced to eat the cost in hopes they stick around month after month. However, if you have a high lifetime value (covered below), it may be justified to have a CAC that doesn’t net you any profit till 2-3 months down the road.
MRR measures the total amount of predictable revenue that a company expects on a monthly basis. It’s an important figure for tracking monthly revenue figures and understanding the month-to-month differences in your subscription service. MRR is crucial for financial forecasting/planning and measuring growth/momentum.
This metric provides a quick glimpse into the current worth of your customers and can be an indicator of overall growth when increases are seen. Keep in mind that a few very large customers can greatly impact the average, so it’s also useful to look at the range of revenue contributed by each customer. Your ARPU helps to answer questions such as:
Customer lifetime value is an incredibly important metric as it represents the upper limit on how much you should spend to acquire new customers. It helps businesses make key business decisions related to sales, marketing, product development, and other important investments. It helps to answer questions such as:
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