A subscription-based model in E-commerce refers to a service that is on a regular cadence by paying a recurring fee to receive products. Subscription commerce has become an internal part of how we shop today. Nothing is left behind, from streaming services to meal kits to gym memberships.
As a merchant, we are sure you might dream of having an E-commerce subscription business, but if you are still confused and unsure how to begin things, you are at the right place. This post will help you explore what the subscription E-commerce model exactly means and will give you a better understanding of the steps to start offering the subscriptions of your business. The subscription-based model is gaining constant growth in its market and is expected to reach around $2.64 trillion by 2028 and is in the position of not looking back again. Let’s dig into the detailed understanding.
Market Stats of Subscription-based E-commerce
- The global E-commerce market is growing day by day and reached US$ 9.09 trillion in 2019 and is expected to grow at a CAGR of 14.7% from 2020- 2027.
- The US is the second largest market for E-commerce, with a revenue of US $1010998.7 Million by 2023 and is projected to increase at a CAGR of 11.5%, resulting in a projected market volume of US $1,562,917.7 million by 2027.
- Then comes the global E-commerce subscription-based market, which was also valued at US $ 96.61 billion in 2022. The market is expected to grow to US $2419.69 billion by 2028
- Regarding revenue sales for subscription-based products, North America has a 65.5% market share.
Benefits of Subscription-Based E-commerce Business
Subscription-based E-commerce businesses are growing in popularity quickly and have many benefits to look forward to any business owner. Here are some of them mentioned below that can make you understand how it can be helpful.
|With the help of the subscription-based business model, you can easily predict your revenue more accurately as you have a constant amount of income coming in each month. This help in making a better decision for the future and planning the activities and strategies from before.
|Subscribers are often termed as more loyal than one-time customers as they have committed to receiving the product for a long time and regular basis. Giving extra benefits to these customers can also lead to the continuation of the subscription. This can also be beneficial for the brand value in the market.
|Increased Customer Lifetime Value
|Subscription-based businesses often have a higher customer lifetime value (CLV) because subscribers are more likely to stay with the company for extended periods. This results in increased revenue per customer over time, which can benefit the company’s financial performance.
|Reduced Customer Acquisition Costs
|Retaining existing customers is usually less costly than acquiring new ones. Subscription-based businesses can prioritize customer retention instead of constantly seeking new customers, which may lead to a reduction in customer acquisition expenses.
|Ability to Plan Inventory and Production
|Knowing the number of subscribers and the specific products or services they will receive enables a subscription-based business to plan inventory and production more efficiently. As a result, this can lead to waste reduction and better supply chain optimization.
|Upselling and Cross-Selling Opportunities
|Subscription-based businesses can leverage upselling and cross-selling opportunities with their subscribers. This may involve offering higher-priced subscription plans with added products or services or recommending complementary products or services that align with the customer’s existing subscription.
Types of Subscription-Based E-commerce Model
There are multiple types of E-commerce subscription models that businesses can use to sell their products or services. Here are some of the most common types:
1) Replenishment Model
This is a model in which customers sign up to get regular deliveries of a specific set of products. The subscriptions are automatically renewed until a customer decides to cancel. The delivery frequency also depends on the customer’s usage of the products. This offer is often used for the products that customers need or use regularly, like skincare products, pet foods, cleaning supplies, or toiletries.
2) Curation Model
The curation model refers to the subscription-based model that allows the customers to sign up to receive a selection of curated products by companies or third parties. The products are often selected by different categories and preferences. These products include beauty, food, fashion, and many more. By subscribing to this type of model, it allows the customers to discover new brands they need to be aware of while also providing convenience and a personalized experience.
3) Access Model
This subscription-based model allows customers to pay a recurring fee to access a specific product or service. This model is often used for digital products and services, such as online courses, streaming services, or software. By paying the subscription fees, customers can access exclusive content, features, or benefits unavailable to non-subscribers. The subscriptions are also varied according to the benefits and features provided.
4) Community Model
The community subscription-based model is where customers pay fees to participate in a community or membership program. The community is primarily centered around a specific interest, hobby, or industry, and members gain access to exclusive resources, content, events, and networking opportunities. This model also allows the customers to connect with like-minded individuals and gain access to valuable resources and expertise within their community.
5) Surprise Model
This is a fascinating model of E-commerce in which the customers gives fees for receiving a surprise selection of products on a regular basis. The company or a third party often selects the products from the categories like lifestyle, food, or beauty. The element of supply is the central aspect of the model, as the customer will know what product they will get once they are delivered to them. They are models renewed independently until one decides to unsubscribe from the service. Oftenly used for gift boxes, mystery boxes, or subscription boxes. This excites customers to receive the surprise package and also helps introduce new brands and products that most need to be made aware of.
6) Membership Model
The membership subscription model is a subscription-based business model in which customers pay a recurring fee to become members of a particular organization or program. Exclusive access to content, services, discounts, events, and other benefits are frequently included in the membership. Associations, clubs, and organizations that serve a specific industry, interest group, or cause frequently use this model. Memberships can be automatically renewed unless the customer cancels, and the company may offer various membership tiers with varying levels of access and benefits. This model encourages members’ sense of community and loyalty while providing valuable resources and opportunities.
7) Hybrid Model
The hybrid subscription model is a business model based on subscriptions that combine aspects of various subscription models. This model is often utilized by companies that provide a range of products or services and aim to give customers flexibility and options. For instance, a company may offer an essential subscription with restricted content or features and a premium subscription with additional content or features. Alternatively, a company might offer a subscription incorporating selected and replenishment products. This model can be adapted to fulfill the demands and tastes of different groups of customers, and the subscription is typically automatically renewed unless the customer cancels it.
Choosing the right subscription model for your E-commerce business will depend on your product or service, target audience, and business goals. It is crucial to consider the needs and preferences of your customers and design a subscription model that provides value and meets their needs.
Tips To Start A Subscription-Based E-commerce Business
Starting a subscription-based E-commerce business can be a great way to generate recurring revenue and build a loyal customer base. Here are some tips to help you get started:
1) Choose the Right Subscription Model
When selecting a subscription model for your product or service, choosing one that is aligned with your offerings and provides value to your target audience is essential. Pricing, delivery frequency, and customer preferences should be considered to determine the most suitable model.
2) Focus on Customer Experience
Subscription-based E-commerce businesses must prioritize the customer experience to succeed. To build customer trust and loyalty, providing personalized recommendations, flexible subscription options, and easy cancellation policies is crucial.
3) Create a Compelling Value Proposition
To differentiate your subscription business from competitors, it is essential to have a unique value proposition that sets you apart. By prioritizing delivering high-quality products, exclusive content, or exceptional customer service, you can create a compelling reason for customers to continue subscribing and returning for more.
4) Invest in Marketing and Advertising
To promote your subscription-based E-commerce business and attract new customers, investing in effective marketing and advertising strategies is essential. Some potential strategies include social media marketing, email marketing, and influencer partnerships. These tactics can help you reach your target audience and expand your customer base.
5) Optimize Pricing and Revenue
Subscription-based E-commerce businesses must carefully consider pricing, as it is a critical factor in success. To maximize revenue and increase customer retention, businesses should experiment with pricing strategies such as tiered pricing or annual subscriptions. This can help to identify the most effective pricing model for the target audience.
6) Streamline Operations and Logistics
Optimizing your operations and logistics is crucial for a smooth and seamless customer experience. This can be achieved by investing in reliable inventory management, shipping, and fulfillment solutions that ensure accurate orders and timely delivery.
7) Monitor and Analyze Key Metrics
Monitoring and analyzing key metrics are essential for tracking the performance of a subscription-based E-commerce business. Key metrics to track include MRR, CAC, churn rate, and customer satisfaction. Businesses can optimize their strategies by analyzing this data and making informed, data-driven decisions to improve overall performance.
Starting a subscription-based E-commerce business requires careful planning, execution, and ongoing optimization. By following these tips, you can create a successful and profitable subscription-based E-commerce business that meets the needs and expectations of your customers.
Key Metrics to Measure the ROI of a Subscription-Based E-commerce Business
Measuring a subscription-based E-commerce business’s return on investment (ROI) is crucial to understanding its financial performance and making data-driven decisions. Here are some key metrics to measure the ROI of a subscription-based E-commerce business:
1) Customer Acquisition Cost (CAC)
This measures the expenses of obtaining a new customer, covering marketing, advertising, and sales costs. To calculate the CAC, divide the total acquisition costs by the number of new customers obtained within a specific time frame.
2) Monthly Recurring Revenue (MRR)
MRR is a crucial metric for evaluating the financial well-being of your subscription-based business. It measures the total monthly revenue from your business’s subscription fees and recurring charges.
3) Customer Lifetime Value (CLV)
CLV is a metric that determines the total worth of a customer to your business during their lifetime. This value is calculated by multiplying the average revenue per customer by the average customer lifespan. CLV provides insight into the future profitability of your business by analyzing its long-term financial impact.
4) Churn Rate
The churn rate is a metric that indicates the percentage of subscribers who terminate their subscriptions within a specific period. A high churn rate implies that your customers are dissatisfied with your product or service, and you may need to implement changes to reduce the churn rate and retain more customers.
5) Gross Margin
This metric measures your profit after deducting the cost of goods sold (COGS). Gross margin helps you understand how much profit you are making on each subscription, and it is a critical metric for determining pricing and profitability.
6) Customer Satisfaction
Gross margin is a metric that measures the profit earned from each subscription after subtracting the cost of goods sold (COGS). It is a crucial metric for assessing pricing and profitability, providing insight into each subscription’s profit.
By monitoring these key metrics, you can understand your subscription-based E-commerce business’s financial health, identify improvement areas, and make data-driven decisions to optimize performance and maximize ROI.
How To Market Subscription-Based E-commerce Store?
Marketing your subscription-based E-commerce store is critical to attracting new customers, retaining existing ones, and increasing revenue. Here are some effective marketing strategies for promoting your subscription-based E-commerce store:
1. Social Media Advertising
Social media is a vast platform to market your E-commerce business. You can reach the highest number of audiences and promote your E-commerce subscription-based E-commerce store. You can run targeted ads on platforms like Facebook, Instagram, and Twitter to reach people most likely interested in your products or services.
2. Email Marketing Campaigns
It is also one of the most effective ways to connect with several audiences and show how valuable each is for your business. It helps in keeping your customers engaged. You can send targeted newsletters, product updates, and special offers to increase sign-up and retention.
3. Referral Programs
Referral program encourages the customers to be a part of your business for a more extended period of time. You can provide many referral bonuses, coupons, and benefits. This can help the business to grow with the help of happy customers and also welcoming new customers.
4. Influencer Marketing
This marketing focuses on partnering with social media influencers to promote your E-commerce store to their followers. This can help build trust with the new customers with the help of the influencers they often follow.
To effectively market your E-commerce store that operates on a subscription-based model, it is crucial to establish relationships with your customers and offer them valuable content. You can achieve this through various techniques, such as social media advertising, email marketing initiatives, referral programs, and influencer marketing. These methods can help you attract new customers, keep your existing ones, and ultimately increase the growth of your E-commerce business.
Cost to Develop Subscription-based E-commerce Store
The cost of developing a subscription-based e-commerce store can vary depending on several factors, such as the complexity of the website, the number of features required, the platform used, the development team’s location and experience, and other related expenses. However, the estimated cost can range from a few thousand to tens of thousands of dollars. A primary subscription-based e-commerce store with standard features may cost around $5,000, while a more complex store with advanced features can cost upwards of $50,000 or more.
Start Your E-commerce Subscription Business With EmizenTech
Starting an E-commerce subscription business with Emizentech involves a few steps that can help you get the best results. Here are the steps you can follow:
|Define Your Business Model
|First, you must determine what type of subscription business you want to create. This could be a product or service-based business, or a combination of both. Our expert team can also help you by suggesting some of the best and most unique ideas you can consider for further development.
|E-commerce Platform Development
|We are a full-service E-commerce development company that can help you build your subscription business on any platform. We have experience working with popular E-commerce platforms like Shopify, Magento, WooCommerce, and many more. You can choose web and app platform that suits your needs and budget.
|Once you have chosen your platform, it’s time to create your website. Our team can help you design and develop a website optimized for conversions and provides a great user experience for your customers.
|Set Up Your Payment Gateway
|We can help you set up your payment gateway, so your customers can easily make payments. Also ensures to make all the things are well secured and protected from online theft.
|Once your website is up and running, it’s time to create your subscription model. We can help you manage your subscription-based business, by setting up subscription plans, managing recurring payments.
|Launch Your Business
|With everything in place, it’s time to launch your subscription business. We can help you with marketing and advertising to attract new customers and grow your business.
Starting an E-commerce subscription business with us involves working with a team of experts who can guide you through every step of the process. With their help, you can build a successful subscription business with recurring revenue and long-term growth opportunities.
Starting a subscription-based E-commerce business can be a lucrative opportunity for entrepreneurs looking to enter the world of online commerce. Following the steps outlined in this guide, including conducting market research, selecting the right platform, creating a unique value proposition, setting competitive pricing, and promoting your brand through various channels, you can set your business up for success. Remember to stay agile, iterate on your business model, and continuously improve your customer experience to keep your subscribers engaged and satisfied. With dedication and hard work, your subscription-based E-commerce business can thrive and grow in today’s digital landscape.
For any further queries, you can feel free to reach us. Our team is here to help you out 24*7 with a free consultation.
Frequently Asked Questions (FAQs)
Consider expenses such as goods, shipping, and marketing when determining the price for your subscription-based E-commerce business. It is also helpful to research the pricing of similar products or services and experiment with different pricing strategies to find the best price.
To retain customers for your subscription-based E-commerce business, focus on delivering exceptional customer service, personalizing their experience, providing incentives for referrals and renewals, and continually improving your product or service.