TIPS & KNOWLEDGE BASE

E-COMMERCE SPECIALISTS SINCE 1996

Retail Subscription Services

Subscription Services

In the last decade or so, subscription services have blossomed into a hugely profitable industry. Reaching a staggering $10 billion in 2019, and experiencing a compound annual growth rate of almost 60%, the subscription model is proving to be one that is here to stay. While about 25% of adults are already signed up for subscription services, another 32% plan on signing up before the year is out. That’s more than half of consumers looking to make recurring purchases on a regular basis via subscription. 

You may be stomping your foot, frustrated that you missed out on the subscription train with your retail business. But it doesn’t need to be an all-or-nothing situation. You can offer subscription services on your one-time-purchase style retail site. And there are some excellent reasons to look into it. There are also a few reasons that the new trend may not be for you.  

Top 5 Pros of Offering Subscription Services

As if the numbers above weren’t enough to convince you, we’ve put together a list of the top reasons to consider trying subscription services on your website.

1. Trendy

We’ve already mentioned one of the biggest reasons to hop on board the subscription box train: it’s picking up speed! 

Consumers are always looking for the hottest new fad, and that might turn some business owners off from the idea of implementing subscriptions. Not all trends are short-lived though. And even if they are, there’s a good chance they will be profitable enough to be worth making the investment. A projected 50% of the market wanting subscription services in the (very near) future is huge. 

2. Multiply Customer Value

Let’s say you’re spending $25 per shopper on customer acquisition. That means you’ve spent $25 in advertising costs to get that person to your store and through your checkout. Hopefully, that shopper then spends more than $25 in your store. Preferably, that customer spends at least $75 (a ratio of 3:1 is ideal). 

Now, if $50 of that purchase is a subscription that will re-bill once a month for the next 6 months, you’ve just skyrocketed that lifetime value up to 13:1.  That’s a killer return on investment, especially since you don’t have to keep convincing the customer to come back and whip out their credit card again and again.

3. Opportunity to Offer Customization

We’ve covered the growing demand for customized products before and this is another great example of how to capitalize on that. Depending on your products and the type of subscription you offer, you can provide your shoppers the opportunity to customize what’s involved in their subscription. 

Are you selling a box, basket, or kit? Put together a questionnaire or survey to collect information about what the shopper wants to see.  Not only will that help ensure your customer is happy with their monthly package (thus continuing the subscription), but it will provide you with some valuable market research about the type of products your customers are looking for. All while your shoppers feel their tastes are being catered too, and who doesn’t love that feeling?

4. Social Media Engagement

Are you a t-shirt company with a subscription that sends a design of the month to your purchasers? Or a makeup company sending out the top 5 products of the month? Send a postcard, sticker, or booklet that describes the item and also encourages people to share pictures on social media. Be sure to include a branded hashtag that they can post the photo with. Consider using those submissions as contest entries, or featuring them on your own social media pages!

The makeup subscription company Ipsy asks their purchasers to post a pic online, as well as review their products, and do unboxings. All of those activities can earn customers points that can be used towards bonuses, combining the subscription with loyalty rewards.

5. Makes Your Customer Happy

This might seem like a silly point. You may already know that shopping triggers the production of dopamine; it makes us happy!  But studies have found that it’s not the reward of a new product that gives us the good feelings. It’s actually the anticipation of the reward. Anxiously waiting for this month’s subscription to arrive makes your shoppers way happier than if they were to simply add the product to their cart and checkout every month. And happy customers are a good thing, leading to positive reviews and continued purchases!

Top 3 Cons of Offering Subscription Services

There are a LOT of pros to offering subscriptions. It might be hard to believe that there could be downsides to the sales model, but there are. We’ve outlined a few things you may want to consider before diving in. 

1. High-Risk

High-risk is a term that payment processors and banks use to describe businesses in certain industries. Typically, it has to do with one of two things: 

  • Health and legalities (ie. Tobacco, CBD, gambling, adult content)
  • Risk of fraud (ie. Chargebacks, fraudulent returns, credit card theft)

Unfortunately, businesses that rely mainly on subscription services also fall under the high-risk umbrella. Subscription services typically use a payment known as negative option billing, which allows for scheduled reauthorization of payments without having the get the customer to confirm every time. That’s one of the main benefits of a subscription. It’s the service of having an automatically recurring purchase on a regular basis. However, it can also lead to a higher frequency of chargebacks (customers calling their banks to dispute a charge instead of just canceling or pausing the subscription service). You can help curb chargebacks, however, by sending out a reminder email before the next subscription is processed. It gives your customers time to edit their service, pause, or cancel it instead of waiting until the payment is processed.

This all sounds scary, however if you already have an established relationship with your payment processor, and you don’t plan on having subscriptions become your main source of revenue, you’ll likely be fine. Talk to your payment processor account representative for more information on your chances of being labeled high-risk, and what that might mean for your terms. 

2. Additional Resources and Initial Investment

You know what they say: You have to spend money to make money. The spending is the hard bit, though. There may be a few new costs when it comes to putting together a subscription, depending on how you plan to assemble it. You may need to account for special packaging like a box, filler material, and promotional material like a postcard or a booklet to go inside. You may need to order in extra stock specifically in anticipation for the subscription orders. Not to mention any developer costs that go into adding the feature to your site, and marketing costs for advertising the new service. Make sure you do the math and do your research while sourcing for materials for the first run to make sure you turn a profit. 

3. A Failure to Plan is a Plan for Failure

There is such a thing as too much of a good thing. Subscription box companies often run into trouble when they receive more orders than they can handle. Because the industry is growing at such a rapid rate, if a new subscription catches on, it can get out of control very easily. It leads to shipping errors, shortage of stock, missed orders, and unhappy customers. 

Try having a limited edition run for the first few cycles until you can be sure you’ve worked out the kinks. That will also give you a better idea of how in-demand your subscription offer might be, and you can plan accordingly for the future. 

Subscription Service Ideas

Maybe you’ve always liked the idea of a subscription service but aren’t sure how it would work with your products. Here are some ideas that might help you decide if your products work in the subscription model:

  • Seasonal: Do you sell seasonal or holiday products? Subscriptions don’t have to be monthly. They are often quarterly, which works perfectly for seasonal or holiday-themed subscriptions.
  • Of The Month: Do you get new designs, scents, or flavors on a regular basis?  Try an “of the month” style service, offering your customer something to look forward to once a month. Schedule them to coordinate with the main theme of the month.
  • This Just In: Similar to “of the month”, if new product lines are a regular thing, offer them the chance to stay on top of what’s new every month.
  • Sample Packs: Giving several little teasers of different products is a great way to whet your customer’s palette. It can open them up to new options that may be outside of their typical preferences. 

In general, subscriptions work great for anything: 

  • Consumable (ie. bath/body products, food, beverages, cosmetics, books, craft supplies)
  • With new designs (ie. graphic t-shirts, socks, stickers, art) 
  • That has a good enough profit margin to keep the box low-cost. Subscription prices vary widely depending on the items, but in general, customers love a good deal.

Implementing Subscription Services

So you’ve weighed the pros and cons and have decided that subscriptions are just the thing to help boost your revenue, multiply your customer lifetime value, and broaden your client base. Once you’ve tackled what you’re going to offer, and how, you’ll need a way to implement it into your site. 

The most important thing will be considering payment options. You need a way to capture and store payment information in a completely secure way. If you have a site on Miva, then you should be looking at MivaPay. By storing the card information in encrypted secure payment vaults, your shoppers can manage their own payment options, and you can reprocess payments automatically. It also lets you set any item up as a subscription item. For instance, you can create a product called Monthly Subscription Box, add attributes to customize the service, and set it as a subscription. If you have a store in Shopify or WordPress, you’ve got options for subscription services there as well.

Subscriptions are an excellent way to earn some recurring revenue, try out new products, gain some important customer data, and make your shoppers happy. If you’re interested in getting started with these services and need a hand setting things up, contact us and we’ll be happy to help.

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