Are you looking for a way to increase the profitability of your ecommerce business? Then consider adding (or switching to) a subscription model. Ecommerce has given the old “product-of-the-month club” tradition a new look, and companies such as Dollar Shave Club and BirchBox have become household names by catering to consumers who subscribe to receive products on a regular basis.
There are a variety of options for your subscription model. You can offer a monthly delivery of “surprise” items, like beauty company BirchBox or a beer-of-the-month club does. Consumers sign up for these services because of the excitement of getting to try new products. Or you can simply replenish supplies of a consumable product, like Dollar Shave Club does. Here, the benefit to consumers is primarily convenience.
Whichever option you choose, new data from Compass shows that the subscription model can help boost your sales by creating customers who have a higher lifetime value (LTV) than non-subscription customers. If your average transaction is $25 or less, the increase in LTV is especially notable: These companies’ subscribers have an LTV 1.78 times higher than non-subscription customers.
In addition to increasing sales, the subscription model has several other benefits for your business.
- It requires less selling. If you’re selling to non-subscription customers, you have to keep marketing to them over and over to get them to come back. With a subscription customer, however, once you’ve convinced them to make that first purchase, minimal marketing is needed–you just have to provide good service so they stay with you.
- It gives you a better handle on your financials. When you know how long customers have subscribed for, it’s far easier to predict future sales. This also helps you better plan for your marketing expenses, because you can assess exactly how much each customer is worth and how much you can afford to spend to acquire a customer.
- It simplifies your shipping process. The predictability of having regular subscription customers makes it easier to plan for shipping and staffing needs. And the actual process of packing and shipping is streamlined when you only have a few different package options to assemble and send out.
Is a subscription model right for you? Companies that sell food, beverages, and health and beauty products are most likely to benefit from a subscription model, Compass says, as are those with average transactions under $25. (Once your average transaction is $75 or more, the subscription model isn’t as beneficial.)
You also need to be able to deliver. Your service, packaging and products must truly “wow” your customers to keep them happy with the subscription and get them to spread the word about your products. If you can follow through, then a subscription model might just be worth a try.
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Karen Axelton is Chief Content Officer of GrowBiz Media, a media company that helps entrepreneurs start and grow their businesses. Visit her company’s blog at SmallBizDaily.com.