Over the last few years, subscription eCommerce services have become a popular part of the online retail space. Few of the largest eCommerce retailers have subscriptions as a core revenue generator, but many smaller and mid-sized online stores have been created to capitalize on the trend for recurring payments and regular deliveries.
If you’re a podcast listener, you’ll have heard no end of ads for subscription food boxes, clothing, toiletries, toys, candy, and more. Apparently there are enough Japanese candy subscription services to merit an article called The Ten Best Japanese Candy Subscription Services.
The big success story here is Dollar Shave Club. Founded in 2011, backed by venture capitalists, and propelled to fame by a clever marketing campaign, Dollar Shave Club sold to Unilever for $1 billion in cash. Dollar Shave Club is an outlier, but it’s interesting as an example of how subscription services are attempting to disrupt more traditional eCommerce and why subscription is such a popular model.
What makes the subscription model so enticing to retailers? In two words: recurring revenue. A big chunk of the average eCommerce business’ income is spent on marketing. Before an eCommerce store sells anything, it has to get people to click on a link to its store. That means search advertising, social media marketing, content marketing, and a host of other promotional strategies.
Marketing is expensive. Sometimes it costs more to get a shopper to a store than they spend, a situation that’s obviously not viable for any business. But most of the time, the marketing budget comes right out of the eCommerce business’ profit.
And that’s why subscription eCommerce is becoming so popular. There’s still a big spend on marketing to get people to sign-up, but when they do, they signal an interest in spending money over the long term. Subscribers churn, but a subscription service is still more stable and consistent than a more traditional eCommerce store.
As a result, the ratio of marketing spend to customer value changes to favor the retailer. Each successful conversion is likely to generate more revenue over a longer period than a single purchase, and the likelihood of the customer going elsewhere next time they want to buy Japanese candy is substantially reduced.
There are many excellent subscription extensions for Magento, making it straightforward to create a subscription eCommerce experience. The Subscription And Recurring Payments extension from AheadWorks allows retailers to offer free trials, modify the subscription period to suit their products, and to charge both an initial fee and an iteration fee.
If your eCommerce store is based on WordPress, WooCommerce Subscriptions offers a complete subscription eCommerce solution that includes multiple billing schedules, automatic payments with a wide range of payment gateways, built-in renewal notifications, and detailed reports.
Subscriptions aren’t suitable for every eCommerce retailer, but if your store sells a product that is frequently consumed and replenished or that fits the subscription box model, subscription-based eCommerce offers an effective path to increasing the value of conversions.