Scaling with Subscription Models: Lifetime Value, Repeat Business, Creatives, Retargeting, and more
Why You Should Consider Ecommerce Subscriptions for Your Online Business
At its basic form, a subscription business model is one that charges customers a recurring fee—usually monthly or yearly—for access to a product or service.
But on a deeper level, ecommerce subscriptions are about strong customer relationships. Subscriptions turn customers, who already see the value your company provides, into loyal followers who become reliable sources of recurring revenue. In fact, the longer a customer uses your product or service, the more valuable they become to you. Plus, higher customer retention rates mean lower acquisition costs in the long term.
The age of the ecommerce subscriptions has arrived in a big way.
It’s a primary business model for businesses like Netflix and Spotify, which offer a Software-as-a-Service, or SaaS model, and now subscriptions have begun to spread to other industries such as fashion and beauty. For example, Birchbox sends its subscribers a selection of cosmetics, skincare products, perfumes, and organic products monthly. And men’s lifestyle brand Manscaped sells grooming replenishments via subscription. Done right, ecommerce subscriptions can be a powerful driver of growth for your business.
By 2023, 75% of businesses that sell direct to consumers (DTC) are expected to offer subscriptions.
Growth rates are even more impressive outside the U.S. Subscription businesses in Europe, the Middle East, and Africa (EMEA) have grown 4% faster than their North American counterparts over the past three years.
And when we consider the benefits to consumers of the subscription model, it’s easy to understand why this segment is booming.
In many ways, it comes down to convenience. Gone are the days of running out of things and having to pop to the store last minute. Subscriptions are the ultimate example of “set it and forget it.” The customer makes the decision once when they sign up for the service, and then, like clockwork, they receive their goods or services without having to think about it again. And with the added benefit of low cost or free shipping, it removes the hassle of having to make a trip out to get something—which is of huge benefit now during pandemic lockdowns and restrictions.
The key to subscription businesses is customer retention and customer lifetime value (LTV). That’s why churn rate, rate of customer acquisition, and the cost of finding new customers are important metrics when you run a subscription business.
Nearly 40% of customers have cancelled an online subscription, with top-performing brands retaining more customers. Retention is especially crucial to subscription businesses that offer “cancel at any time” options, as they have to at least cover the cost of acquiring those subscribers. It’s 5–25% more expensive to acquire new customers than to retain existing ones.
This action-packed episode is brought to you by the performance marketing experts at Voy Media.