The value of the subscription economy is staggering. In 2020 alone, UK consumers spent almost £1.4 billion on subscription box purchases. The Covid-19 pandemic only accelerated this trend. Research from the bank N26 found that 31 percent of Europeans have more digital subscriptions than they had before the pandemic with nearly 25 percent currently paying for more than four each month.
The research goes on to report that the average monthly spend for European subscription customers is €39 per month. Entertainment services are the most popular, with 50 percent of respondents reporting that they have at least one streaming subscription. Music was next with 28 percent and in third place, fashion, beauty and shopping at 19 percent.
What is a subscription service?
A subscription is a recurring purchase for a product or service. Typically, subscription businesses renew on a weekly or monthly basis; some businesses allow their subscribers to customise their renewal timeline.
There are three main types of subscription services:
What is a curation subscription?
A curated subscription is a selection of goods sent to a customer on a recurring basis. The customer doesn’t pick the items (but typically has some input into what they would like to see) and doesn’t actually know what they’re receiving until the subscription is in their hands. If you’ve seen influencer unboxing videos promoting a subscription box business, those are likely curated subscriptions.
Curation subscriptions, especially popular for apparel and beauty products, are a fantastic way to engage and delight customers. Curation subscriptions also serve a couple of different purposes:
- They help consumers discover new products.
- They often yield a higher average order value (AOV) due to the ability to pair multiple low-priced items together.
What is a replenishment subscription?
Replenishment subscriptions typically focus on necessities, like pet food, toiletries, or household products, that customers order repeatedly. With a replenishment subscription, customers can “restock” by subscribing and automatically paying for it on a recurring basis.
The ideal product for a replenishment subscription is one that needs to be refilled due to the customer’s frequent use of it. If you have an item that customers regularly re-order, it’s likely a good fit for a replenishment subscription model.
What is an access subscription?
The last subscription business model does exactly what the name implies: They provide access to a service in exchange for a recurring payment. Access subscriptions are particularly popular for digital products like television shows, movies, music, and games.
Access subscriptions use the appeal of exclusivity to draw in new customers. Not only does the subscription provide access to content, but it can include perks such as free shipping or delivery or bonus content exclusive to subscribers.
Should I add subscriptions to my business?
Almost any business, regardless of industry, size, or product offerings, can take part in the ecommerce subscription market. Some businesses may have to think more creatively than others, but there should be some product or service your customers need regularly that can be easily adapted to a subscription rather than just waiting for them to order.
While you’re brainstorming, ask yourself the following questions:
- Do you have a product that is in need of replenishment on a regular basis?
- Will customers use your product repeatedly over time?
- Do other companies within your industry offer subscriptions for similar products or services to the ones you offer?
- If so, is there room within your industry for more subscription options?
- Is there a way to set your subscription apart from other similar services?
- How much time and manpower would it take to get a subscription service started? What resources do you have for subscription management?
Benefits of running a subscription service
There are a great many benefits to offering subscriptions. Let’s take a more in-depth look.
One of the most important benefits of a subscription model is the recurring revenue it provides. When you can rely on stable cash flow from month to month, you can make confident decisions when it comes to inventory planning, sales, and expansion.
Stability through seasonal fluctuations
If your business suffers from slow seasons, or periods of decreased sales, subscriptions are a great way to stabilise incoming cash. Rather than having to tough it out in the slow months, your business can rely on subscription income to cover necessary expenses and investments.
More opportunities to engage with customers
Building strong customer relationships is an excellent way to strengthen long-term sales and customer lifetime value. One-off purchases don’t provide insight or data into who your customers are and what they want. When you can see purchase history and feedback, then analyse which products are popular among subscribers and which ones aren’t, you get a wealth of information that can help you make decisions about your business.
Every time your customers receive their subscriptions, it’s an additional opportunity for you to exceed expectations, build brand strength, and strengthen your relationship with them.
Additional opportunities for cross- and up-selling
Due to the multiple touchpoints subscriptions provide, you have more opportunities to provide added value to your customers via upsells. Whether it’s the next tier of a subscription model or the ability to subscribe to additional perks or features, a subscriber that has an existing relationship with you is likely to be more receptive to new offers.
Steps to making a profitable subscription service business
#1 Decide if a subscription makes sense for your business
Think back to those questions mentioned earlier that will help you decide if a subscription is right for your business. If you’ve assessed your industry and decided that there is a need for a subscription model, whether that’s replenishment, curation, or access, it’s time to move on to the next step.
#2 Choose your subscription products or service
Decide what types of products to offer and what timeline subscribers can opt into to receive their subscription. Whether it’s weekly or monthly subscriptions, make sure the timeline makes sense for your products or services.
#3 Design a membership structure and determine subscription pricing
Create a pricing strategy for your subscription that includes the products or services you’ll offer and what it will cost you to obtain them. Once you have this information, you can create a membership structure with different levels and determine pricing for each subscription level. When you initially start your subscription service, it might be wise to offer lower introductory prices to entice new customers.
#4 Create terms and conditions
Your subscription needs clear language for customers that explains how it works, how auto-renewal works, and how to cancel if the customer desires. It’s never a good idea to try to disguise auto-renewals or make cancellations extra difficult.
#5 Build the website
You have your subscription products, membership structure, pricing, and terms and conditions. Now, it’s time to create an attractive website that shares information about the subscription and how to sign up. There are a few key points to pay attention to when you build your website:
- Prioritise website functionality to reduce your bounce rate.
- Ensure the terms and conditions are easily accessible.
- Provide a variety of payment options to appeal to a wider customer base.
- Make the checkout process as seamless as possible to increase conversion.
- Prepare inventory and supplies
If your subscription includes physical products, it’s time to ensure you have all the necessary supplies on hand. Work with external suppliers to build up your inventory with the quantity required for each product.
If you plan to create the products yourself, give yourself plenty of time to build up your inventory. Consider hiring additional help if possible to have a solid supply.
#6 Launch a marketing strategy
Spread the word about your new subscription with a thoughtfully-designed marketing campaign. You could start with loyal customers by sending out a drip campaign promoting an exclusive offer or a referral program.
Customer acquisition is one of the most important aspects of a successful subscription business and it’s worth investing time and money into acquiring a customer base large enough to make your business profitable.
#7 Monitor churn
Some level of voluntary churn, which is when customers cancel their subscriptions on their own accord, is normal when it comes to subscriptions. Sending a follow-up survey to find out why a customer chose to cancel their subscription can give you new ideas to improve your service.
However, involuntary churn, which occurs as a result of payment failure or system errors, can lead to a cancelled subscription. Working with a payment service provider can reduce involuntary churn by identifying and addressing potential revenue problems.
#8 Focus on customer retention
Once your subscription service is up and running, retention should be top of mind. Test our new business ideas to delight your customers. Whether it’s a bonus surprise in their next box or an exclusive promotion for an up-sell, rewarding customer loyalty can net significant returns when it comes to retention rates.
Improve your business processes with Mollie
Mollie is made for subscription businesses. Scalability and easy integration make subscriptions a breeze. Our pre-built processes for chargebacks, changes, and cancellations give you more time to focus on building relationships with customers and improving the overall customer experience. Let’s grow your business together.