From Netflix to Spotify, the subscription model has come a long way in recent years as a worldwide trend to watch. According to research from PayPal, one in two Australian consumers regularly use subscription services, with this percentage trending upward over time. What is a subscription e-commerce business model, and are there benefits for your business? Here’s what to consider before launching your own subscription services.
What is a subscription e-commerce business model?
A subscription-based e-commerce business model enables customers to subscribe to a regular delivery of products or services. E-commerce businesses set up regular recurring payments in return. The payment frequency might be weekly, monthly, or annually. While this model was originally used for media like newspapers and magazines, it’s branched out into all facets of e-commerce. You can order physical products like beauty products and snacks delivered directly to your door each month. The subscription model also applies to streaming entertainment services and cloud-based software.
Types of subscription e-commerce business models
There are three main types of subscription models.
Replenishment subscriptions allow customers to automatically receive essential items they use regularly, like toiletries or infant formula. Amazon’s Subscribe and Save is one example of this model, offering a discount for committing to monthly deliveries of essentials.
Curated subscriptions focus on luxury or specialty items like beauty products, food, and clothing. This includes popular beauty boxes like Bellabox and recipe boxes like Hello Fresh.
Access subscriptions give users exclusive offers or access to members-only content. For example, JustFab is a women’s online fashion retailer. If you subscribe to their service as a VIP, you’ll receive a 30% discount off the retail price.
Benefits of a subscription-based e-commerce business model
Selling subscriptions, when done right, offers plentiful benefits both to e-commerce businesses and their customers.
It streamlines the checkout process with automatic, recurring payments.
Offering exclusive content and special offers increases customer loyalty.
Customers receive a more personalized shopping experience.
It’s easier for both business and customer to set a budget, with predictable expenses.
You switch from a conversion model to a retention model, for reduced churn rates.
Subscription models offer more predictable sales and revenue, with regular payments.
Is a subscription-based e-commerce business model right for you?
While e-commerce companies across multiple industries are jumping on the subscription bandwagon, does this mean it’s right for you? The first thing to keep in mind are the three different types of subscription models:
If you sell products like vitamins or services like software, your business could benefit from the replenishment model.
If you sell unique products with new, exclusive inventory coming onstream each month, your business might benefit from the curated subscription box model.
If you have a high volume of inventory that you need to sell or access to exclusive content, then an access model might work for you.
In all these cases, you’ll need to ensure not only that your services and products appeal to the right subscribers, but that they’re also priced attractively. Tiered models work for a wider variety of customers. You might also want to offer a freemium service, with the most basic model available free of charge. When customers want more, they’ll move up the tier to a higher price point.
A successful subscription e-commerce business model hinges on setting up recurring payments. GoCardless offers a Direct Debit solution, making it easy for subscription businesses to take recurring payments automatically on the day they are due. If a customer wants to switch to a different tier or plan, you can adjust the payment amount as needed. This ensures a streamlined, user-friendly payment experience for businesses and subscribers.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.