Four benefits of ecommerce subscription models

Ecommerce subscription models are one of the most exciting business opportunities for online (hybrid) businesses. Here is a quick guide to the main benefits of ecommerce subscription models and how to make the most of them.

Frictionless revenue

Subscription-based ecommerce obviously provides recurring revenue. It is entirely possible to build recurring revenue streams without using subscription-based ecommerce. For example, most people do their grocery shopping on a regular basis and often buy the same core items from the same merchants.

What makes ecommerce subscription models different is that the revenue is frictionless. You know in advance that customers are going to spend X amount on Y date in return for Z goods or services. 

The most obvious benefit is that you get very predictable revenue. A less obvious benefit is that it reduces the work involved in collecting payment. For example, you can have customers set up Direct Debit mandates and set up regular charge dates; these can be updated if necessary.

Easier inventory management

Subscription-based ecommerce takes a lot of the guesswork out of inventory management. The most obvious benefit is that it reduces your administrative burden. And you could leverage this to achieve further cost savings.

For example, if you have the confidence (and funds) to place larger orders, you may benefit from bulk discounts. These can be substantial enough to counterbalance additional storage costs. What’s more, knowing exactly when you need to have access to products can help to lower storage costs.

This particular benefit of ecommerce subscription models probably has the most relevance if you sell physical products. It also applies if you sell real-world services and digital products or services too. For example, if you sell real-world services, you need to order supplies for yourself. With digital products or services, you need to order and pay for hosting.

More potential for differentiation

Differentiation does not have to be on a large scale to be meaningful. Often the smallest changes make the biggest differences. For example, you may have data that shows your customers buying a large quantity of an item every two or three months. 

You survey your customers and determine that there is a significant difference in price between the large pack and the equivalent number of smaller ones. Your customers make you aware that they’d actually much prefer to have smaller packs regularly, taking up less of their valuable storage space.

So you work with your supplier to get a lower cost on the smaller packs in exchange for a committed bulk order. You then pass this discount onto your customers, in exchange for a committed repeat order. This benefits everyone and is only really possible with subscription-based ecommerce.

Opportunity to build customer relationships

Merchant–customer relationships come in two forms. One is transactional and the other is relational. In many cases, they are a bit of both. This essentially means that customers are price-/value-sensitive. They do still have a preference for certain merchants based on their relationship with them.

Even big-box merchants like major supermarkets are now focussing strongly on building their customer relationships. Most SMEs should be making customer relationships one of their highest priorities. This goes much further than ‘just’ customer service, although this is an excellent starting point.

Building customer relationships means earning and maintaining a customer’s trust, respect and engagement. This boils down to proving that you can reliably deliver what they want and need. The more precisely you can meet their requirements, the more likely they are to trust you. 

With subscription-based ecommerce, build up a lot of data about your customers’ needs, wants and preferences. Use this to create highly personalised offerings, giving you a great foundation for winning their trust. Then use this to help demonstrate how you deserve their respect and engagement.

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.