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How is the E-Commerce Business Subscription Model Beneficial?

July 26, 2023

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    The E-Commerce business subscription model has become increasingly popular in recent years. Some of the leading companies like Netflix, Spotify, Amazon Prime–and the list goes on are using subscription models to create consistent revenue streams. It’s not just limited to media and entertainment, numerous eCommerce businesses are embracing this model to build recurring revenue sources.

    For example, Amazon, the leading eCommerce platform is embracing a subscription-based model to offer customer’s opportunity to “Subscribe and Save”. This service offers customers recurring delivery of household items, grooming products, and healthcare products automatically to the doorstep of customers every month. When customers subscribe to 5 or more products for a month, they receive 15% discounts on those products.

    This is just one example of how the subscription model can provide constant revenue streams. Here in this blog, we’re going to talk about the benefits of the subscription model for eCommerce businesses.

    What is an E-Commerce Subscription Model?

    Put simply, the E-Commerce subscription model refers to the business strategy in which customers pay a recurring fee weekly, monthly, or yearly to access the products or services offered by a business.

    what is e-commerce subscription model

    Business model subscription offers customers the convenience of delivering exclusive products or services while offering businesses a predictable revenue stream. This business model aids customers in making a one-time purchase to a recurring purchase. Also, they have the flexibility to discontinue the subscription whenever they wish and opt out of recurring payments.

    Let’s take the help of a skincare brand that offers a subscription service. Customers can sign-up for their monthly subscription plan, in which they will receive a personalized collection of skincare products at their door every month. Whenever they want to stop using those products, they can sign out from the subscription model.

    This is how the subscription model works to create benefits for both customers and eCommerce business owners alike.

    Understanding the Rise of the E-Commerce Subscription Model

    The E-Commerce subscription model has gained popularity in recent years to become one of the most adopted eCommerce models.

    According to a report from McKinsey published in 2020, the subscription model has been expanding by over 100% for the past years and is envisioned to persist in the growth.

    The report also compares the 1% of eCommerce shoppers a decade ago who chose a single subscription vs. over 15% of customers in 2020.

    Another report from Insider Intelligence, the sales from the eCommerce subscriptions model have grown by 41% in 2020.

    The global eCommerce market size was estimated at $120.04 billion in 2022, by 2026, this market is expected to reach $904.2 billion by 2026. (Source: Forbes)

    ECommerce businesses grew their customer base by 31% in 2021, a strong identification of more and more customers who are admiring the subscription model. (Source: Forbes)

    Millennials (born between the early 1980s and the early 2000s) are the biggest advocate for the subscription-based eCommerce subscription model.

    What are the Different Types of E-Commerce Business Subscription Models?

    There are different types of eCommerce business models, here we have mentioned a few of the most popular types of subscription models:

    types of subscription models e-commerce business

    1. Curated Box Subscription

    Under this subscription model merchants create a curated box of the products customers need on a daily, weekly, and monthly basis. This curated box is delivered to customers at their doorstep.

    The above example of a skincare brand subscription model falls under this category. The real brand using this subscription model is FabFitFun. The company has more than 200 million customers and it offers curated boxes of products related to fashion, beauty, wellness, and more. It offers customers to subscribe to receive personalized boxes quarterly at retail cost empowering customers to save more.

    2. Digital Content Subscriptions

    Netflix is one of the leading brands that lead the digital subscription model. This model is particularly favored among publishers, authors, and content creators. They create content and introduce subscription plans to enable their audience to make payments for accessing the content.

    3. Software-as-a-Service (SaaS) Subscription

    Software-as-a-Service organizations provide customers with access to software or services through recurring subscriptions.

    Salesforce is one of the best examples of a Software-as-a-Service Subscription model. It offers businesses access to CRM software on a subscription basis.

    4. Beauty and Fashion Subscription

    Beauty and fashion brands can embrace this subscription model. This model provides customers access to their favorite beauty products, clothes, or any other accessories for a fixed monthly fee.

    Some of the most popular brands embracing this subscription model include Ipsy, Birchbox, and AdoreMe.

    5. Meal Kit Subscriptions

    This subscription model is meant to make home cooking an easier and more convenient experience. Under this subscription model, customers can receive the pre-portioned ingredients and recipes at their doorstep.

    Some of the most popular examples of brands using meal-kit subscription models include Blue Apron, HelloFresh, and Plated.

    What are the Benefits of the E-Commerce Subscription Model?

    Why should an E-Commerce business adopt a subscription-based revenue model? Here we have mentioned the benefits to help you decide whether your business should choose it or not:

    benefits of ecommerce business subscription model

    1. Predictable Revenue and Inventory Management

    The biggest benefit of the subscription model is a predictable and stable revenue stream for an eCommerce business. Having a clear understanding of subscriber numbers and recurring payments lets businesses forecast revenue more accurately.

    Let’s consider an imaginary fashion retailer named “FitFlix”. The company offers subscription-based fitness video streaming services. The brand charges $20/month from its customers to access these videos, and it has around 1,000 subscribers. The monthly revenue for FitFlix would be $20,000/month (1,000 subscribers * $20/month).

    With the subscription model, eCommerce businesses have a consistent customer base, resulting in stable demand. This stability allows businesses to estimate the quantity of inventory required to meet customers’ demands. Also, it eliminates the most common inventory management challenges like overstock or out-of-the-stock inventory. Furthermore, the subscription model also unlocks deep insights into the preferences of customers, thus businesses can manage the relevant inventory.

    2. Reduce Customer Acquisition Costs (CAC)

    Acquiring new customers is costly for businesses due to investments in marketing, advertising, and lead generation.

    According to ChatterBuzz, the average cost of customer acquisition through Google Paid Search Campaigns is $45.27. Furthermore, the cost of acquiring new customers is five times higher than the customer retention.

    When an ECommerce business adopts the subscription model, its focus shifts from acquisition to retention, thereby less spending on marketing, advertising, and lead generation.

    Let’s continue with the example of the FitFlix brand. Suppose FitFlix spent $2000 on marketing and advertising to acquire 50 new subscribers for their video streaming services, with an average CAC of $40.

    Now, if FitFlix manages to successfully retain those customers, they will be able to generate a steady stream of revenue without spending any additional CAC.

    3. Improved Customer Lifetime Value (CLV)

    Customer Lifetime Value (CLV) refers to the total revenue a business generates from a customer. According to research conducted by WebEngage, the subscription model plays a vital role in boosting CLV. Furthermore, today’s customers are more inclined towards the hassle-free shopping experience, free-delivery, and instant gamification, the subscription model empowers eCommerce businesses to serve those needs.

    4. Positive Cash Flows

    Positive cash flow refers to the amount a business has after covering all of its expenses. The subscription model provides businesses with a more steady cash flow compared to one-time purchases.

    Positive cash flow empowers the business to plan its investments, expenses, and strategies more effectively. Also, the majority of the subscription base model requires an upfront payment, therefore, businesses have the cash at the beginning of the subscription period that can be used to cover operational expenses, improve products or services and retain customers.

    5. Enhanced Customer Experience

    Another benefit of an ECommerce business model subscription is improved customer experience. With customer information at your fingertips, you can offer personalized recommendations, exclusive content, and other benefits to subscribers to improve customer experience.

    You can also offer loyal subscribers with early access to new products or services and special discounts to incentivize them for being valued customers. Also, the subscription model provides a hassle-free shopping experience saving customers time and effort and resulting in improved customer satisfaction.

    commerce cloud experts for ecommerce business

    Take Advantage of the Subscription Model for E-commerce Business With Salesforce Commerce Cloud

    Subscription-based eCommerce models offer businesses a great number of benefits. However, building an eCommerce business with a subscription model appears like a frightening task. Therefore, it is essential to have the right tools, and expertise in your support to build an eCommerce business.

    Salesforce Commerce Cloud is the world’s leading eCommerce platform leveraging cutting-edge technologies to allow you to create a consistent shopping experience that encourages today’s shoppers to turn into loyal customers of a brand. Here at Cyntexa, we have expertise with Salesforce Commerce Cloud to create specifically designed eCommerce storefronts tailored to your needs. Let’s connect with us to build and run a highly profitable eCommerce business.

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