The subscription model in ecommerce: unlock growth with stability
The subscription model, in which customers make recurring payments in exchange for services or products, has existed for a long time. The model's origins date back to the 1800s with magazine subscriptions. Since then, it has evolved to include a wide range of industries and subscription offers.
Offering subscriptions has been a primary business model for software as service companies (SaaS) and media organisations for a while. However, in the past decade, other industries have joined the bandwagon, and the subscription model has been experiencing steady growth, especially for e-commerce businesses. Nowadays, you can offer subscriptions for a wide array of products and services, from consumer packaged goods to clothing to personal care products.
The global subscription market is expected to reach 478 billion USD by 2025. The adoption of the subscription model is growing in popularity and with good reason. The model has many benefits that can foster growth, such as recurring income, strong customer relationships, and more. Read on to discover these benefits and explore if the model is right for your business.
Reliable, recurring revenue
Research conducted by McKinsey & Company suggests that businesses with a subscription model grow eight to ten times faster than traditional businesses. In contrast to the unstable nature of traditional commerce, the subscription model provides a predictable, recurring revenue stream for your business.
This reliable and consistent cash flow can be priceless in turbulent times when the ups and downs of the market threaten many businesses. A dependable revenue stream makes financial forecasting simpler and more accurate and allows you to make decisions to foster growth. A steady revenue also increases your company's value and makes it more attractive to investors.
Increased ROI for marketing efforts
According to Harvard Business Review, acquiring new customers is five to twenty-five times harder than retaining existing ones. Increasing retention rates by 5% can increase profits from 25% to 95%. The subscription model directly addresses this challenge of customer retention since repeat purchase is implied within the subscription.
According to research data compiled from nearly 2.000 subscription providers, customer retention was over 95% in 2019. This shows that newly acquired customers are likely to stay with you as long as they get the value they signed up for. By offering subscription options, focusing your marketing efforts on them, and optimising customer experience, you can increase your return on investment (ROI) and invest in other areas of growth for your business.
Frictionless inventory and order management
The expenses related to inventory and order management can escalate rapidly. By implementing a subscription model, you gain insight into the number of customers purchasing specific products within a designated time frame. This information enables you to assess your inventory more accurately, reducing the expenses associated with surplus or insufficient stock. Anticipating your sales allows you to streamline your inventory management, resulting in cost savings.
Prosperous and long-lasting customer relationships
The traditional model of one-off purchases does not afford many opportunities to establish a relationship with your customers. However, within the subscription model, there are more opportunities to cultivate a robust relationship with customers since they will be doing business with you multiple times over a long period. You will gather valuable insight into their wants and needs and deliver personalised experiences. This ongoing relationship and your discoveries about your customers' preferences will also give you upselling and cross-selling opportunities perfectly tailored for your audience.
No matter what products or services you offer, you can build a subscription model that provides customers with a personalised experience, convenience, ease, and support. In turn, the deeper and stronger customer relationships that the subscription model enables can have a great impact on improving customer loyalty, satisfaction, and retention rates.
Happy customers who feel seen and understood will stay with your business and can become brand evangelists, helping you acquire new customers. In fact, offering referral rewards to existing subscribers is a common practice to encourage word-of-mouth marketing.
Increased customer life-time-value
Another key benefit of the subscription model, closely related to cultivating strong customer relationships, is increasing your customers' lifetime value (CLV). In short, CLV represents the average value a customer brings to a company within the timeframe of their patronage.
It's a two-way street: the longer your customers stay with you, the higher their CLV will be, and the longer you can offer them great value, the longer they will remain.
The subscription model is a strong base for powerful CLV since the expected customer behaviour is retention, and the model offers an ideal environment for building relationships that will lead customers to stay with you for a long time.
Start offering subscriptions with Prestashop and Mollie
Managing subscriptions and connected processes such as inventory and payments can become complicated on the back-end. However, with the right tools, you can create a seamless process that offers more benefits than challenges. The Mollie Module on Prestashop allows you to easily manage subscriptions, offer popular payment methods, and access all transaction insights effortlessly.