Advantages of the Subscription Commerce Model
Convenience for the Consumer
When a consumer subscribes to a service, they get the convenience of a regular supply of whatever product you are selling.
The provider enjoys a recurring revenue stream without needing to lead their customers through a checkout process again.
The provider can more easily predict the volume of orders they’ll need to despatch in a given time period. This makes inventory planning easier and can reduce wastage. This is particularly important for businesses with products that spoil quickly, for example H.Bloom‘s fresh flower subscription service.
Many subscription-based services are considered to be novel by their markets and hence can benefit from low cost publicity to drive initial sales.
Drivers of Profitability
A key driver to the profitability of any business operating the subscription commerce model is how successfully the service can retain customers and keep cancellations to a minimum. The longer the average subscription, the greater the average customer lifetime value (LTV) and hence the more the company can afford to pay to acquire each customer in the first place.
Some subscription commerce services personalise what they send to each customer to try to minimise churn in their customer base.
Cost of Customer Acquisition
As with any business, the cost of customer acquisition is a critical driver of profitability. In the case of subscription commerce, a few innovative marketing techniques have successfully driven cheap customer acquisition:
- Celebrity endorsement (e.g. BeachMint‘s Justin Timberlake, Honest Company‘s Jessica Alba)
- Style surveys (e.g. JustFab)
- Viral videos (e.g. Dollar Shave Club)
And, as we mentioned above, the novelty of offering a product by subscription can also be an effective way to gain publicity and cheaply acquire subscribers.
Gross Margin per Box
The profitability of each individual box depends on how much the company charges and their marginal costs.
Sample-based services can have an advantage here as they are often able to get products at very low cost or free.
Subscription commerce companies can have significant fixed labour costs for activities including: sourcing of samples, creation of products, customer service, editorial, community-building, PR, and other operational overhead.
Subscription Commerce Trends
More Services Launching
Subscription commerce services continue to arrive on the scene. There appears to be no shortage of new entrants.
Buoyed by the boom in the subscription commerce market, software developers have created a range of dedicated subscription commerce platforms purpose-built to help run subscription commerce services. These platforms are relatively cheap and increasingly easy to use.
Some Companies Dropping Subscription Model
Find Out More
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