In the last several years, interest in eCommerce subscriptions has skyrocketed. From emerging D2C brands to established companies, it seems that everyone is rolling out a subscription offering. In fact, the subscription eCommerce market is projected to reach $478 billion by 2025.
A major driver of eCommerce subscriptions’ astronomical growth is the value they offer to both brands and their customers. Not only do they juice sales, they give shoppers back one of the most important resources of all — their time.
Benefits of Subscriptions for Brands
In a few words, an eCommerce subscriptions service is a business model that generates recurring revenue. In this model, a brand provides products or services on a recurring basis in exchange for payment.
Here are the benefits of subscriptions for brands:
1. Increased predictability
The No. 1 benefit is increased predictability. Subscription offerings create a reliable, recurring revenue stream, which is an important business KPI. They also help brands predict inventory needs, enabling them to optimize to meet consumer demand, while limiting risk of overstocking.
Another critical point: Companies that generate recurring revenue are more attractive to investors and shareholders, as they are more stable. One reason for this is that companies that utilize a recurring revenue model have a tighter relationship with their customers. This results in greater customer loyalty.
2. Helps maintain positive cash flow
Cash flow is the amount of money that moves in and out of your business on a regular basis. It flows in when consumers purchase a product or when investors inject funds. It flows out when an organization spends money on resources like employees, infrastructure, and supplies.
Subscription offerings help companies maintain positive cash flow because of the predictable revenue mentioned above. This allows them to settle debts, reinvest in themselves, and return money to shareholders.
3. Improved return on customer acquisition costs
Brands with a transactional business model have to constantly put money in marketing and sales to attract new customers. This is a huge investment. It’s also inefficient. Acquiring a new customer is 5x as expensive as retaining an existing customer.
With a subscription model, customers make payments on a regular basis, so businesses don’t have to focus on acquiring new customers to increase revenue. Instead, they have the freedom to concentrate on generating greater Customer Lifetime Value, which in turn, will improve their return on customer acquisition costs. We think of it as going deeper, not broader.
4. Improved customer insights
The final benefit is knowledge — specifically, customer insights. Through subscriptions, brands can better understand what their customers want and act fast to deliver. This creates a virtuous cycle: regular purchases offer insights into customers’ behavior patterns, which enables businesses to incrementally improve their subscription offering. This, in turn, delights customers and keeps them coming back for more.
A high-quality subscription program generates loyal, repeat customers. This is a boon for business — on average, repeat customers spend more than new customers. In apparel, for example, repeat customers spend 67% more.
Benefits of Subscriptions for Consumers
While subscription offerings are great for businesses, they also benefit consumers. This is one reason why subscription enrollment increased 48% in 2020, compared to 2019.
Below are the three main reasons why shoppers love subscriptions:
Modern consumers crave meaningful experiences and convenience. Subscriptions provide both of these by giving shoppers back time and brain space. When they use subscriptions, shoppers don’t have to hunt down the products they love, and neither do they need to remember when to restock. Everything just happens in the background, allowing them to focus on the experiences that matter.
2. Cost Savings
Over the long term, subscriptions are less expensive than one-off purchases. It’s common for brands to offer 10%, 15%, and even 20% off products purchased through subscriptions. This is on top of other benefits like reduced or free shipping. In other words, subscriptions help shoppers save money and stay within budget.
The final benefit is primarily associated with Membership Boxes — also known as Subscription Boxes. This type of subscription offering appeals to shoppers’ curiosity. In a very real sense, Membership Boxes add an entertainment component to subscriptions. StitchFix is a perfect example of this type of benefit. Every month, Stitch Fix members are sent a box of curated clothing. Shoppers can keep what they love and return items that don’t speak to them.
Subscription offerings are here to stay. By utilizing them, merchants create a win-win scenario for themselves and their customers. eCommerce subscriptions generate recurring revenue, which leads to more stable and predictable business performance. Meanwhile, shoppers gain back time and brain space to live a fuller life, while also saving money.
Ready to implement or enhance your subscription program? Contact us today to learn how Ordergroove can help you unlock your recurring revenue potential.