The Complete Guide to Running an E-Commerce Subscription Service
In this article, we’re going to start with the basics and dive deep into the common types of subscription, the benefits of starting an e-commerce subscription business, how to start yours, the challenges to anticipate and the best practices to help you scale.
What is an e-commerce subscription service?
The e-commerce subscription model is a business model in which a company offers ongoing services to customers in exchange for recurring payments.
The subscription concept isn't quite new; many historians believe it stretches back to Gutenberg and the printing press.
Subscription-based services like magazines, newspapers, and cable TV thrived throughout the twentieth century.
The subscription model, however, isn't just for these more "conventional" sectors, as we've seen in recent years. Companies in the food, entertainment, and even fashion industries are incorporating this strategy into their overall operations these days.
The recent success of several of these businesses has been nothing short of amazing. According to McKinsey data from 2018, the largest subscription-based enterprises made $2.6 billion in 2016 (up from $57 million in 2011).
The fact that roughly half of all consumers have joined the subscription service queue explains the dramatic increase:
“Subscription is now a common way to buy products and services online”
The 3 most prevalent types of subscription
Depending on their sector, target demographic, and other variables, different companies offer different "types" of subscription services. Below are the 3 common types:
1. Curation Subscription Service
Curation subscription services deliver product collections to individual recipients depending on their specific requirements and preferences.
Stitch Fix, for instance, delivers subscribers a monthly selection of apparel and fashion-related products, whereas Loot Crate caters to self-described "nerds" (Loot Crate's words, not ours).
On-demand entertainment services are often known as curation services because they provide users with collections of movies and TV series in one convenient location.
2. Replenishment Subscription Service
Consumers receive regular, recurrent deliveries of consumable products through replenishment subscription services.
Food or groceries, razors, and toiletries are examples of typical things sold in this manner. Harry's Shave set, Misfit Market, and Amazon Subscribe & Save are examples of replenishment-focused subscription services.
3. Access Subscription Service
Customers must purchase a membership to get access to the company's merchandise, much like Costco and other similar "warehouse clubs."
The things being sold are usually offered at a significant discount, making the membership worth the price of admission. An example of an access service is Thrive Market, which sells natural and organic food.
Again, several factors influence which strategy will be most effective for your firm. We'll return to this in a moment.
But first, let's go over the advantages of incorporating a subscription-based service into your overall business plan.
The advantages of offering a subscription service
The advantages of running a subscription service include:
1. Avenue for customer engagement
Customers that subscribe to your ongoing services will have numerous opportunities to interact with you throughout their subscription duration.
These engagement opportunities are clear for organizations that provide ongoing services throughout the month like Spotify.
Even companies that supply more isolated services (e.g., scheduled repeat delivery services) would be expected to engage with their clients in different ways during the subscription period.
2. Customer relationship management has never been easier
Getting your clients to sign up for a subscription means you won't have to worry about keeping them on board for the duration of the campaign as long as you continue to provide value to them.
Since you'll be spending less money on acquisition and retention in general, you'll have more money to invest in your company's overall growth.
3. Customer retention
To begin with, providing a great subscription service will help you retain clients over time.
Consumers subscribe to such services with the expectation that they will continue to obtain more and more valuable as time passes.
Stitch Fix, for example, sends apparel to subscribers based on the comments of each consumer.
The suggestions supplied grow even more customized to the customer's style as the organization learns more about them through continued interactions with them. As a result, each month a client stays on board, Stitch Fix can continue to improve the value of its offering.
4. Better financial forecasting
Operating a subscription business might also help you better predict future sales and revenue.
Customers that subscribe to your services months in advance (for example, buying a year's worth of service in advance) ensure that you'll have them on board for at least the agreed-upon period of time.
Second, while it's not guaranteed, you'll be able to forecast how long a certain subscriber will stay onboard better than you would when selling one-off products or services.
Additionally, you'll be able to create a more accurate inventory and fulfillment predictions.
Since many of your consumers are likely to sign up for months of your services in advance, you'll have a better understanding of how much stuff you'll need on hand at any given moment.
Not all of these advantages, on the other hand, come naturally when you integrate a subscription service into your e-commerce store. You'll need a solid and strategic approach to this new endeavor if you want to achieve the same degree of success as the organizations we've highlighted thus far.
Getting Started on subscription
There are a few criteria for getting a subscription service up and running, whether you have already run a more traditional e-commerce firm or have yet to take the initial step.
1. Build a subscription focused on customer personas
Your first priority should be to identify your target consumer personas.
This is quite standard in any type of business: you have to know who you're going to do business with before you can properly engage and sell to them. This entails looking at the demographic, psychographic, and behavioral data of your target audience.
The following are some of the most important aspects of a thorough consumer persona:
- The terms "before" and "after" are used interchangeably. What adjustments or improvements do the customers want to make in their lives? How can your service assist them in achieving these goals?
- What is their mindset when it comes to the subject or problem at hand? Are they enthusiastic or apprehensive about finding a solution?
- What happens in their lives that makes them aware of the situation they're dealing with? What makes them want to find a solution?
Create a persona for your e-commerce membership service based on their psychographic profile.
You want to learn more about their desire for a subscription-based service, as well as their likelihood of becoming long-term members of your high-quality service.
If that's the case, you'll need to answer these questions:
- Does my target audience currently subscribe to any such services?
- How much do they spend each month on subscription services?
- What percentage of their spending budget is allocated to subscription services?
In other words, you want to know that the folks you're targeting not only need your subscription services but are also likely to take advantage of your offer.
Defining and refining your customer personas requires that you dig into a variety of data sources.
Your current client data should provide sufficient information that can assist you to improve your subscription services if you're an established company.
If you're just getting started with your e-commerce subscription business, you should look for consumer-related data from inside your industry as well as from companies that offer the same "kind" of subscription service as yours.
2. Find out what's missing
To be successful in any industry, you must first understand what the industry is all about.
This is especially true when starting a subscription service business on the internet.
Consider the following scenario:
There's no way Stitch Fix's crew could make high-quality recommendations for their consumers if they didn't have extensive expertise in the fashion business.
Similarly, Thrive Market wouldn't be able to charge a premium for its accessibility fees if it didn't offer high-quality food products that are hard to come by elsewhere.
So, while having an in-depth knowledge of your niche is important regardless of how your business operates, such knowledge is imperative to your ability to generate — and keep — a following of paid subscribers over time.
Furthermore, comprehending your market entails comprehending what is missing from it. Rest assured, customers will always be left wanting in some way, even if they aren't aware of it.
That said, it's important that you figure out what your competitors aren't doing that your target audience wants — and then get laser-focused on delivering that value to them.
3. Identify what sets you apart.
In addition, you must have a clear understanding of your subscription service's unique value proposition is.
Meaning you must understand what distinguishes your organization from all others in your field.
Is your actual product or service groundbreaking or one-of-a-kind in some way? Do you have a better delivery or return policy than your competitors? Is your organization dedicated to a charity cause that your target audience cares about?
Your brand will have little chance of generating buzz among your target audience if you don't have a clear USP in mind from the start.
You must have a clear rationale for creating a subscription model in the first place, which is more relevant to our goals. What benefits do your consumers stand to gain from this method vs a more traditional approach?
Note: You should only consider building a subscription-based business when you have a clear answer to this question.
This underlying value varies depending on the type of service you propose to provide, according to McKinsey's report:
- Curation services offer laser-targeted product suggestions and provide variety to customers with each new shipment
- Replenishment services offer the convenience of regularly scheduled deliveries and allow customers to save money on each order
- Access services provide products that are difficult (or nearly impossible) for consumers to find elsewhere
In your niche, you'll almost certainly face competition from other subscription-based services as well as traditional businesses.
With that in mind, you'll need to consider how you'll distinguish yourself from the competitors. As previously said, this means developing new services and experiences for your members to enjoy throughout their time with your company.
For example, Thrive Market donates a portion of its annual subscription fees to feeding low-income individuals and families.
While going above and beyond your competition in some way is essential for dominating your business, you must also understand how to communicate this value to your clients.
In any business, the difference between the top-performing company and its lesser-known competitors is often because the top-performer knows how to offer its services more effectively.
You'll be well on your way to building a successful eCommerce subscription business if you can deliver something of value that no other service in your area can—and communicate that value to your audience.
4. Decide on a subscription model for your business
The first phase in the preparation process is to determine the type of subscription service to give your audience, taking into account your client personas, niche, and USP.
It's worth noting that you won't have to "select" which type to concentrate on at this point. Rather, the decision will have already been made for you based on everything we've talked about thus far.
If you sell consumable products that your consumers need on a regular basis, for example, a replenishment-focused service is an obvious choice.
However, when identifying the above variables, the word "option" comes into play. In other words, if you've already decided what kind of service to offer before pushing forward with the project, you've probably done it with a defined target audience, niche, and unique selling proposition in mind.
In that situation, your goal will be to evaluate the validity of your strategy objectively, which will inform you whether your business idea is viable in the first place.
5. Integrate subscription to an existing business
You may be considering adding a subscription service to your overall operations if you currently run a successful eCommerce business utilizing the traditional model.
This is unquestionably achievable.
Many companies, including Gillette, have started offering subscription services in addition to their regular offers.
When it comes to making this decision, follow the same steps as before, but be extremely explicit and ruthlessly honest about your overall ambitions.
Above all, it's crucial that your major motivation for launching a subscription service is to provide value to your customers' overall experience.
To put it another way, you don't want to take the plunge just because other businesses in your industry are doing so, or because subscription services are now causing a stir in the eCommerce world.
To be fair, all of this contributes to your final decision...but it's not the only reason you'd think about starting a subscription business.
You'll also want to make sure that introducing a subscription-based service to your business doesn't distract from the value you already provide to your current consumers.
Essentially, your "primary" offering should be preserved (as long as it has shown to be effective), with subscription services acting as an extra value proposition for those customers who choose to use them.
Finally, the added value you're delivering to your present customers, as well as your new target audience members, must be clear as crystal. You must not only give this extra value, but you must also express it in a way that is meaningful to your customers.
The last thing you want is for your consumers to believe you joined the subscription train solely to extract more money from them without giving any further value.
When it comes to introducing a subscription business to your existing operations, follow these steps:
- Download, install and configure the subscription-focused plugins that your e-commerce platform offers, Chargezen for instance.
- Make specific pages for your website and other on-site content about your subscription service.
- Develop and distribute pre-launch offers to your existing customers, enticing them to not only subscribe to your service but also to encourage others in their network to do so as well.
- Once your subscription service is up and running, it's time to get back to basics: As needed, test, tweak and improve your offerings and client experience.
Major obstacles to anticipate when creating an e-commerce subscription
When it comes to building an eCommerce subscription service, there are a few challenges to keep in mind.
Knowing what these difficulties are and how they could manifest in your situation is the first step toward dealing with them productively and successfully.
1. Subscription fatigue
By today's standards, subscription services are all the rage, with 49% of consumers utilizing at least one subscription service at any given time.
Contrary to popular belief, the more subscription services a consumer has, the less likely they are to try out a new one. It's a matter of "so many subscription services, such little time," as the saying goes (or so little money, as the case may be).
Furthermore, you may have situations where long-time consumers unsubscribe from your service merely because they have decided to reduce the number of services they subscribe to.
It's not so much that the client doesn't want to subscribe to your services in either instance; it's that they don't want to subscribe to your services at all.
The trouble is, it isn't likely to be the case. It's perhaps more realistic to state that the subscription services they've utilized in the past no longer deliver the same value.
You must ensure that your service is appealing to your target audience, to the point where subscription weariness has no bearing on their decision to buy
Demonstrate that your service is worth the price of admission, and even the most jaded customers will stick around to see what else you have planned.
2. No difference from other subscription businesses
As we covered in the last section, if your subscription service doesn't differentiate itself from your competitors' products in a meaningful and valuable way, it's unlikely to succeed.
And, as subscription services become increasingly widespread in a variety of industries, simply providing a subscription service will not be enough to set you apart from the competition.
As a result, the question becomes:
How can you build an eCommerce subscription service whose value is demonstrably superior to that of other businesses in your industry?
The obvious first step is to make sure that your subscription-related products and services are of the highest quality. This is, of course, non-negotiable: no matter how many "extras" you offer your clients, they won't care if your core offer isn't worth their time.
After you've mastered your foundational offering, think about how you might improve your customer's experience in a variety of ways.
Here are a few examples:
- A food and produce-based company might include recipes involving the products being delivered
- A hobbyist subscription service might include guides on how to get the most use out of the included products
- A fashion-focused brand might provide guides for creating outfits and accessorizing
You can also distinguish your brand by pioneering a cause that may or may not relate directly to your niche. Loot Crate for instance donates portions of their earnings to the Arnold Palmer Children’s Hospital.
It's crucial to understand why your target audience will choose to do business with your company rather than one of your competitors. If you can figure this out, you'll have no issue attracting a large number of loyal subscribers.
3. Managing business process
When it comes to the operations that go into running an eCommerce subscription business, there's no denying that a lot may go wrong at any given time.
- An unhappy customer may forget to unsubscribe before their membership automatically renews for the month
- Inventory levels may not match up with an influx of subscriptions
- A loyal customer might forget to change their payment info after receiving a new credit card
While automation, artificial intelligence, and machine learning have allowed businesses to take a more "hands-off" approach to many of these concerns, the technology is far from flawless, not yet, at least.
While employing these and other similar tools is an important part of getting your business up and operating like a well-oiled machine, relying on them too much can lead to severe problems.
Running your e-commerce subscription service
We've discussed how to get your e-commerce subscription business up and running, as well as how to avoid some of the frequent issues that subscription businesses face.
Now let's look at some of the more specific strategies you may use to ensure your company thrives well into the future.
1. Attach pricing and model to your business goal
We talked about how important it is to choose the correct type of subscription business to offer based on your target demographic and value proposition.
However, you must ensure that the subscription model you choose will create a significant amount of cash for your company.
Have in mind that you aren't just starting a subscription-based business because it appears to be profitable. instead, you want to know exactly how it will aid your company's growth, both now and in the future.
There are a few things to think about here, such as pricing your offers to ensure long-term viability and profitability or creating service levels to boost retention and LTV.
You'll be able to raise the number of subscribers you get—and optimize the amount of cash you receive from them—by offering several tiers of service and pricing and aligning these price points to your ultimate business goals.
2. Advance payments and auto-renewals should be encouraged by offering incentives.
Come to think of it, is it easier to persuade a customer to sign up for a one-month membership to your service or a six-month subscription?
Naturally, not all of your potential consumers will be prepared to sign up for a long-term subscription unless they have a compelling incentive to do so.
That's where incentives come into play.
Customers who sign up for a six- or twelve-month membership with Birchbox, for example, receive various savings. According to some calculations, subscribing to the year-long plan saves members $24, which translates to over two months of free service.
In other words, Birchbox spends an extra $24 to produce a one-year subscription but saves a lot of money in terms of acquisition and retention expenditures over the course of that year.
Needless to say, it's a tiny price to pay to guarantee a customer's loyalty for at least the next year.
3. Adopt an omnichannel strategy.
The other benefit of keeping subscribers for a long time is that they've kept your services for the same amount of time.
That said, it's crucial that you offer value to your clients in a variety of ways throughout their subscription duration. Adopting an omnichannel approach to marketing to and engaging with your customers is the key to being able to do so.
We've already discussed omnichannel marketing best practices. While we don't have space to go into detail in this post, the basic lesson is this:
Find out where your clients spend their time online and offline and then concentrate on creating a strong, branded presence on these channels. The goal is to inject your brand into your subscribers’ lives whenever and wherever you have value to provide them.
“The customers’ journey is more complicated than ever because customers have the opportunity to interact with brands offline and online before even considering purchase”
In order words, the more enjoyable experiences you deliver to your subscribers, the more likely they are to stay on board. They'll have every reason to do business with you month after month if you can "wow" them at every opportunity.
4. Look out for customer data and KPIs
There are some KPIs that you must keep watch of at all times if your business is subscription-based.
However, the following are the most important KPIs to remember:
- Customer Lifetime Value
- Churn Rate
- Monthly Recurring Revenue
- Customer Acquisition Costs and Acquisition Recovery Time
These measures, when analyzed in conjunction with your business goals and pricing tiers, can show you whether you're on the right track...or if changes need to be made.
You should also collect qualitative data on your subscribers' experiences with your brand over time in addition to the quantitative data.
You'll be able to cater to your particular consumers in a more targeted and effective manner as a result of this, which is the purpose of offering subscription services anyway.
Second, it will allow you to link changes in customer satisfaction to the previously listed indicators.
You'll be able to see what needs to be done to better serve your subscribers as a result.
5. Select the appropriate e-commerce platform for your business
To establish a subscription service, you'll need a fully functional eCommerce platform.
Fortunately, there are several such platforms on the market today, each with its own set of advantages and disadvantages. This is why to circumvent the limits of most e-commerce platforms, we recommend Shopify and Shopify Plus to our customers.
Shopify is an easy-to-use online store builder trusted by over 1,700,000 stores. It's a fully hosted Cloud-Based solution with drop Shipping Integration and 100+ Professional Themes amongst other things.
Here’s why we recommend Shopify:
- Trusted by over 1,700,000 businesses worldwide
Over 1,700,000 businesses in 175 countries around the world have made over USD 200 billion in sales using Shopify.
- Beautiful themes that are responsive and customizable
With Shopify, no design skills are needed; anyone can design with ease. You have complete control over the look and feel of your website, from its layout to content and colors.
- Pricing as low as $29/month
Whether you sell online, on social media, in-store, or out of the trunk of your car, Shopify has you covered. You can start selling anywhere for just $29/month.
- Sell everywhere
Use one platform to sell products to anyone, anywhere—in person with Point of Sale and online through your website, social media, and online marketplaces.
- Manage everything
Gain the insights you need to grow—use a single dashboard to manage orders, shipping, and payments anywhere you go.
- Shopify App Store
Add features and functionality to your business with 6,000+ apps that integrate directly with Shopify.
- Shopify support
Contact support 24/7, whether you’re troubleshooting issues or looking for business advice.
- Shopify Experts Marketplace
Hire a Shopify expert to help you with everything from store setup to SEO and everything in between.
6. Adopt an easy-to-use Shopify Subscription App - Chargezen
Shopify subscription apps can ensure that you have the payments coming in from your customers so you’re not chasing them.
Shopify subscription apps should also make it easier for customers to manage their monthly orders. They might be able to add products, remove products or cancel without speaking to you. This can be a huge time saver.
While there are a couple of options from ReCharge to Bold among others, my first recommendation is Chargezen for a variety of reasons besides being the most comprehensive and economical subscription management solution in the market.
Chargezen is a Shopify subscription app that enables brands to sell recurring products, build custom subscription boxes, gain insights into their data, and more to create an incredible experience for their customers! It is the most advanced vertically integrated cloud-based platform for managing subscriptions.
Chargezen's homegrown marketing suite was built from the ground up to meet the unique marketing needs of the subscription economy. It was designed to launch referrals, build loyalty and campaigns without wasting the developer's time or plumbing several 3rd-party apps!
- Simple & effective with WYSIWYG builder
- Enterprise-ready with granular data insights
- Build brand loyalty with rewards & loyalty tools
- Take social proof to the next level
So, whether you’re starting a subscription-based business or seeking to upscale an existing one, Chargezen is a one-stop solution. From CRMs, automation, accounting tools, invoicing to tax management; Chargezen integrates with most of the apps you’re already using and constantly adds support for more. It is now even better with dedicated Kubernetes server clusters that handle unexpected load spikes without ruffling a feather!
And unlike its competitors who charge as much as $49/month and 1%+ per subscription product, Chargezen offers its solution for free at the beginning and charges less than 1% per subscription product. Switching to Chargezen can save your business on average 50% in third-party app spend and overage charges.
The best part is, with or without your PC, you can keep tabs on your business on the go with the Chargezen mobile app. It's available on iOS App & Google play store to help you get a quick snapshot of your business 24/7; send invoices; respond to customer queries or get alerts.
I'm hopeful that you now have a good idea of what goes into running a subscription-based e-commerce business. To bring closure to this:
- Identifying your audience
- Dive deep into your niche
- Defining your value proposition
- Determining which subscription model to use
- Detertime what e-commerce platform to use
- Choose a subscription App
And bring it all together to provide a solid customer experience. But hey, this won’t happen all in one day, and it doesn’t have to. But you can take the first step by reaching out to the Chargezen support team to help you get started or write me at email@example.com for assistance.
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