B2B subscription models can offer the same bottom line and loyalty benefits as their B2C counterparts, and enterprises are taking notice.
What is subscription commerce? Subscription commerce is a business model where customers pay a recurring fee to receive products or services at a regular cadence, and it’s booming.
From gym memberships to meal kits to streaming services, subscription commerce is an integral part of how we shop today. Over the past decade, it’s become even more prevalent, with COVID-19 prompting a huge surge of new subscribers to all types of businesses.
Even as shoppers return to pre-pandemic habits, subscriptions are still going strong – 23% of consumers who started new subscriptions during the pandemic plan on continuing them.
Let’s dig into this e-commerce trend and how brands can succeed in the subscription business.
Types of subscription commerce models and examples of subscription services work
As customers continue to expect simplicity and convenience with their purchases, it’s probably only natural that subscription commerce would rise in popularity. Have a product or service that you love and use on a regular basis? Why worry about restocking or paying a bill each month when it can automatically be done for you?
Following are the three main subscription commerce models, along with examples of subscription services, what they mean, and how they work:
- Access subscriptions (a.k.a. the membership model): Subscribers purchase access to content and perks, like gated content, discounts, and exclusive products. Think streaming services, magazine or news subscriptions, and gym memberships. For example: Netflix, Forbes, Fabletics
- Curation subscriptions (a.k.a. the box model): Subscribers purchase regularly scheduled, curated “boxes” of products, usually based around a specific vertical or theme like clothing, pet supplies, beauty products, or food. For example: FabFitFun, BarkBox, HelloFresh
- Replenishment subscriptions (a.k.a. the subscribe-and-save model): Subscribers sign up for regularly recurring deliveries of specific products that are used frequently, often at discounted rates. Think paper goods, vitamins, household supplies, laundry detergent, grocery staples, etc. For example: Amazon’s Subscribe and Save, or auto-replenishment through specific retailers and brands
Of course, which model you choose depends entirely on your product or service offering.
70% of organizations are deploying subscription business models to sell directly to consumers – thereby creating recurring revenue and customer loyalty.
Subscription commerce benefits: Happy customers, happy companies
So, why are we so keen to hit subscribe?
Subscription commerce is appealing to brands and shoppers alike because it offers a ton of benefits for both consumers and companies.
For businesses, subscription commerce benefits can include:
- Providing predictable, recurring revenue
- Enabling deeper relationships with customers and boosting loyalty
- Granting access to valuable customer data and customer insights
- Increasing average order value (AOV) and customer lifetime value (LTV)
- Reducing customer acquisition costs
- Making it easier to plan and manage inventory accurately
And for customers, subscription model benefits include:
- Ease and convenience (the feeling of something being “taken off their plate”)
- Perks like discounts, curated experiences, access to gated content
- The ability to try new, often elevated, products from a trusted brand
- Surprise and entertainment through “mystery box” subscriptions
- Opportunities for personalized shopping experiences
The future of shopping is entertainment. It's not enough to have an online storefront – brands must do more. Consumers today are looking for novel, immersive, and entertaining shopping experiences.
Get going: How to adopt a subscription-based business model
With so many benefits, more and more brands are exploring ways to implement a subscription commerce model.
Some products and services (such as streaming content, or cleaning supplies) are a natural fit.
In 2021, the Beauty & Personal Care and Food & Beverage industries accounted for 54% of total subscribers. And the Health & Wellness industry saw 138% growth in monthly recurring revenue.
Others aren’t a good fit. For example, high-price items like cars and luxury watches are bought infrequently and typically are a more involved purchase from the consumer perspective. Restaurants feel ill-suited for subscriptions as well, as a service-industry that’s already hyper-competitive.But even these types of businesses can find ways to embrace subscriptions if they want to:
- Luxury product brands could offer elevated service memberships, offering access to more extensive and regular cleaning, repairs and upkeep for a premium
- Restaurants could host monthly “members only” events to test new dishes, or sell exclusive kitchen staples (like David Chang’s Momofuku Goods)
- Automotive makers, suppliers, and OEMs could offer savings, benefits, and perks for those who subscribe to their offerings
To figure out what kind of subscription makes sense for your business, consider your customer. What can you offer them that would enhance their experience with your brand or products, and which they would use on at least a quarterly basis?
Subscription services offer brands a lot of benefits, but retaining customers can be hard. Here are three tips for reducing customer churn.
Glow up: 4 tips for successful subscription models
Once you’ve landed on your subscription offering, it’s time to hammer out the details.
Here are some tips to help you achieve subscription commerce success:
- Identify the core value of your subscription model, and infuse it into everything you do.
- Find your pricing and cadence sweet spot.
- Make it easy for customers to sign up, manage, and – yes – even cancel the subscription.
- Account for accounting complexities (deferred revenue)
Identify your core value, and infuse it into everything you do.
What is the No. 1 thing you’re providing customers via your subscription commerce offering?
Convenience? Discounts? Flexibility?
Identify the value you provide and make sure it comes through at every customer touchpoint.
Find your pricing and cadence sweet spot.
If you want customers to sign up for your subscription service, your pricing needs to be competitive. Too high, and they won’t want to commit. Too low, and you risk losing money.
Similarly, consider the frequency of both payments and deliveries. Is your offering suited for monthly or quarterly recurrence? Will you offer incentives for lump-sum payments, or keep the schedule simple?
For regularly used and lower-price items like personal care items or cleaning supplies, more frequent orders are likely appropriate. For more “indulgent” products, like personal shopping boxes, you will likely want to keep it seasonal. More frequent, and customers may wind up canceling.
Consumer products companies need to get ready for more change as consumer preferences continue to shift and the market becomes even more competitive.
Make it easy to sign up, manage, and – yes – even cancel.
Customers love subscriptions for their “set it and forget it” approach to shopping. But ease and flexibility are still key.
At this point, there’s hardly any learning curve for customers when it comes to subscriptions. Just make it easy to sign up, and make sure the terms of the subscription are clear.
Simple steps for skipping shipments, putting memberships on hold, or even cancelling them is also crucial for a good customer experience.
While making it easy for customers to not pay you may sound counterintuitive, it gives them a sense of control and builds trust. And on the other hand, not providing these options can cause them to cancel and leave negative reviews of your brand.
Deferred revenue: Account for accounting complexities.
With new business models come new financial complexities. When branching into subscription commerce, you need to keep track of your deferred revenue. Receiving payments in advance is great for cashflow, but it can’t be classified as revenue earned until the service is rendered.
This is standard, but it’s important to keep your financial records clear. It can help with prorating refunds/cancelations, and gives clear visibility to investors and stakeholders.
While subscriptions are great for automatic, recurring revenue, failed payments can throw a wrench in things. Failed payments cause merchants to lose 10% of their revenue on average, and are one of the main causes of passive churn (when customers leave without actively ending their subscription). Have a strategy in place to encourage subscribers to keep their information current, and re-engage them when necessary.