The Basics of eCommerce Subscription Business Model

August 2, 2021
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Emmanuel Umukoro

We frequently buy any items and typically assume that it's an assignment we want to get out of the way. Nobody looks forward to returning to the same store to purchase the same thing. What a waste of time!

That is the logic behind the company model of subscription. We pay an advanced fee to receive or participate regularly.

So, what is the business model of subscription? And why in 2021 should you start your e-commerce subscription company? That's what this blog will talk about.

What is a Subscription Business Model?

Subscription is defined as a pre-payment to receive or participate in something on a regular basis. The idea is to sell products or services for the monthly or annual recurring subscription fees.

In our daily lives, we are surrounded by numerous business models based on subscriptions. Examples of subscription business models are common among companies like Netflix, Spotify, and Amazon Prime.

So what is so powerful about subscription business models? In the following points let's discus its advantages...

5 Reasons You Should Start a Subscription Business

Gartner, the leading analyst, predicted that 3-quarters of direct sales organizations would offer subscription services to consumers by 2023. Gartner also noted that 70% of companies have deployed subscription services, or are considering their future deployment.

Another survey by McKinsey also revealed that 46% of U.S. shopkeepers are already paying for online streaming and 15% have signed up for an eCommerce service within 1 year of the survey.

The main gain of subscription business models is that it is a win-win for both buyers and sellers. The value of the subscription for customers is "Comfort." And for companies, the value lies in the ability to ensure recurring sales income.

1. Convenience to shoppers

Imagine you go to the market or make a telephone call every time you buy your daily milk bottle! This may be a boring task that must be done daily, which in your already busy life increases stress.

The whole customer experience becomes more convenient when you subscribe. When a customer subscribes to a product, this means that every time a product or service is needed, they will not have to go through a new purchase transaction.

A product/service subscription is a perfect solution too in order for a consumer to reduce the complexity of their choice and not to worry about unstable prices. For instance, you don't have to worry about checking rates every time you make a call when signing up for a mobile phone company.

2. Enhanced Financial Predictability

It is extremely helpful to operate a subscription company to forecast sales, predict demand for your product, and plan an inventory that makes planning easier and cheaper.

You can forecast your sales up to a year ahead, depending on the number of subscribers, and often know exactly how much you sold before production begins.

3. Improved Customer Relationship

Good communication underpins perfect connections. It offers business owners so many opportunities for effective customer communication, which makes a subscription business model beautiful.

They can track the interaction of a subscriber with their products or services over time by receiving feedback after delivery. For example, you can track whether new subscribers join us and cancel us.

This gives a company owner more tools to identify successes and failures to alter and change their business in order to ensure customer satisfaction and limit the chances of unsubscribing.

4. Increased Customer Life and Frequency of Purchase

One of the key benefits of the subscription business model is that it makes subscribers spend more money on your business than non-subscribers. Customers don't always need to make a new decision, they need the product and it means that they buy from you more frequently than from your competitors.

Another key benefit is the increased subscriber lifetime. When a customer subscribes to a product/service, they guarantee that they will participate for a while in your company, making them much less likely to quit or turn to one of your competitors.

5. Help Customers Save Money and Increase your Cash-on-hand

The main thing that most customers are interested in is saving money whenever you offer subscription promotions.

When companies enable customers to pre-book or access a platform for their products and/or services, the subscribers regularly get this product/service and pay much less than if the product/service was bought in part or the sporadic form.

The subscription model is great for cash flow especially for startups as many subscription businesses ask for full payment upfront, of course, at a discounted price.

The 3 Popular Subscription Models

1. Membership Based Subscription Model

A website for membership model is a gated part of the site for which members pay a monthly or annual subscription fee so that their exclusive, high-quality content is immediately available.

Some of these sites look like online groups of people with shared goals whereas others offer online classes, training materials, or access to premium products for their members.

Magic stream ecommerce subscription
Magic Stream is a great illustration of how to create a membership website to enable subscribers to get immediate access to a wide range of topics.


2. Build-a-Box Subscription Model

The subscription box model is based on the direct delivery of a box of your products to the front door of your customer. It is popular with online retailers because it offers huge profitability and numerous creative and adaptive possibilities, depending on the needs of customers.

Kali female sanitary wear subscription box
An excellent example is Kali, the US online retail store for organic female hygiene products. Kali subscription service offers an individual, flexible and convenient experience to ensure that every woman has exactly what she needs during her monthly period.


Since everybody is different, Kali offers women the ability to design and choose the time they are required to receive their supplies, their own boxes of female hygiene products based on their requirements.


3. The Convertible Subscription Model

Surly, granting people free access to your content or software is a great way to attract people to your service, but you have to look for a way to generate revenue.

A fascinating and valuable introductory offer has probably turned you into a loyal subscriber of at least one service.

The approach used is called convertible subscriptions, and it's a great way to entice subscribers.

Netflix is the most widespread example. Their week-free introductory deal (which used to be a whole month!) is likely a major part of why they have millions of subscribers who pay. This deal gives individuals the little boost they need to go from thinking about signing up to becoming a member, but only after they enter their credit card details.

One of the greatest challenges to getting individuals to agree to a subscription is reluctance. That's why many businesses go convertible: as an opportunity to sign up, giving prospective customers introductory packages, free trials, reduced first orders, or starter kits.


In Conclusion…

There is one big question with more and more companies entering the subscription world — who will win and who will succeed? To have a subscription business model in the future is no guarantee of success alone.

Those companies which understand the dynamics of the subscription model and can understand how to include strong value proposals in their subscription offers and how to promote customer loyalty will therefore be the ones who win in this subscription era.

If you need help choosing which subscription model best suites your business, please write me on success@trychargezen.com

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