The idea of consistent, predictable monthly revenue is enough to make any e-commerce business-owners eyes shine. And if you look at the success that subscription model leaders like Birchbox and The Dollar Shave Club have had with monthly recurring revenue (MRR), it’s enough to get the rest of us thinking: Should we consider starting up a subscription model too?
Like any other big business decision, there’s a lot that goes into considering whether to offer a subscription product. Then once you’ve decided to give it a shot, there’s the whole learning process of getting started. From the very basic (“Is there an app for that?”) to the more complex (“What’s our acquisition strategy, and how do we minimize churn?”)
If you’re considering dipping your toes into the subscription waters and need a little more background info to guide your decision-making, or you’ve decided to jump on in and want some straight talk about how to get started adding a subscription product to your existing Shopify store, this post is for you.
Why Sell Product Subscriptions?
The widely-accepted founder of the subscription-based e-commerce model, Birchbox, launched in 2010. We’re less than a decade into this and the market has grown by more than 100 percent a year over the past five years. It’s estimated that there are already between 3,500 and 10,000 subscription-based businesses out there, and analyst firm McKinsey calling it a $5 billion dollar industry.
It’s more than just predictable revenues driving so many companies to jump into the fray.
- Are an opportunity to target a specific niche
- Make it easy to calculate customer lifetime value
- Are inherent “retainment” machines - customers are coming back without any extra effort on your end
- Work great with loyalty systems
- Minimize surplus inventory since you’ll know exactly what you need
- Streamline shipping needs by timing all orders on the same date(s) and in the same packaging
There’s a lot there to like for business owners. Just be cautious of the drawbacks as well. With open subscription policies that allow customers to cancel anytime, revenue forecasting can be misleading and churn can become a significant challenge. Customer acquisition can be a higher hurdle to jump, since you’re asking for a bigger commitment, and keeping customers engaged can be a constant battle of staying fresh-new-hot-trendy.
If you’re up for the challenges, though, one of the first considerations should be what your product will be.
Types of Subscription Products
There are plenty of different ways to categories subscription products, but the most common are:
Product Discovery / Curation
This is the Birchbox of subscription products. The idea that customers will receive a package delivery every month (or the time period of their choosing) and get the exciting surprise of opening it up and discovering an assortment of great new products. It’s exposure to a lot of goodies that you might not ordinarily buy, at an attractively low cost. According to Forbes, 55% of all subscription products are curation-based, making this the dominant category.
Commodity Automation / Replenishment
Everyone needs toilet paper each month. And razors. And a zillion other basic needs that used to require a trip to the grocery store or Target. Or even (gasp) a one-off order on Amazon Prime.
Now with this subscription model, businesses like Amazon Subscribe and Save, The Dollar Shave Club, Sol de Janeiro, and Joe Grooming are offering a big convenience advantage by delivering these basics on a pre-arranged schedule.
Replenishment just when you’re about to run out - without you needing to even think about it.
Try Before You Buy
Sure you can order a bunch of clothes from ay retailer, try them on, keep the ones you like and return the rest. But even better, you don’t have to look around online for what to order. You can just input your preferences into an online survey, or have a text chat with a virtual customer service person, and then receive personalized boxes of product to try out, and keep only what you love. While this type of subscription product remains a small piece of the pie at only 13% of all subscription businesses, success stories like StitchFix are holding their own in this increasingly competitive market.
A somewhat new development in the subscription market, the customer purchases a product and then subscribes to receive content that helps them make the most use of the product. Companies like Peloton are using this approach in the fitness industry - selling exercise bikes that are equipped to stream Peloton’s own workouts and digital instructor-led fitness programming.
Similar to the category above but more basic, support subscriptions provide ongoing support services that enable customers to continue using and getting value from the product they’ve already purchased.
This model has been in existence for a long time, but is being tweaked and refreshed as merchants like Siren Marine see it’s new relevance within today’s subscription obsession.
Which subscription model is right for you? It depends on your existing business and products (if you already have them) and your customers preferences and needs.
There was a great article that ran on Vox recently about the obsession among young urbanites to have the best of the best products - including a lot of up-and-coming subscription brands. It’s worth a read.
How to Build a Subscription Product Into Your Shopify Store
Once you’ve decided what subscription product(s) to offer, it’s go time. The Shopify App Store has a number of apps to help with adding subscription functionality to your online store. Our favorite - and the one we use with our subscription-based clients - is ReCharge Subscriptions. (Two other great options to consider are the Recurring Orders app from powerhouse developer Bold, and CrateJoy)
When you’re considering capabilities of these subscription-enabling apps, it’s worth noting that most of them deliver the same primary benefits:
- Letting customers purchase subscriptions and one-time items in the same order
- Syncing your subscriptions up with loyalty programs
- Letting customers control when they want to receive their next order or if they want to cancel (no need to contact you!)
- Offering a free sample, then switch their subscription to the full product
- Letting your customers build their own subscription box
- Integrating with fulfillment apps and payment processors
- Providing analytics and reporting to help merchants track customer trends and revenue growth
- Shipping and taxes pulled from the Shopify app so they are real-time accurate
- Syncing inventory with Shopify
Once you’ve chosen an app to work with, there are a few simple steps to get it up and running on your Shopify site. Let’s take a look at the ReCharge install process to give you a feel for what you’ll need to know about your subscription product plans at this point:
How to Get Started with ReCharge
Once you install the ReCharge app, the first page will ask you to choose the type of subscription:
- Subscribe and save
- Subscription box
- Digital download
You’ll also select the product category, and answer whether you already have subscription customers who you need to bring over from another platform.
Next you’ll select how you want to offer your subscription:
- One-off and subscription
- Subscription only
Will you offer a discount to subscribers?
Then it’s time to note frequency options: how often do you want customers to be able to receive you product? Days? Weeks? Months? This will display as a drop-down menu on the product page to give customers a frequency choice.
Almost done. The next step is to choose the specific products that you want to offer as subscriptions.
Last, you’ll need to choose a payment processor. Unfortunately, none of the apps can work with Shopify Payments, since the native payment processor doesn’t save customer data (it’s only for one-time purchases). ReCharge gives you the option of using Stripe or Braintree; if you don’t already have an account, you can create a new Stripe account from now.
That’s all it takes to get a basic subscription product up on your Shopify site and available to customers. From here, there are a ton of options for customizing, and both app companies provide great resources to show you the opportunities for branding your customer portal and making functional adjustments.
Boxing It All Up
There’s no end in sight for the popularity of subscription products. If you think your business might be a good fit for this model, it’s worth a try. Requesting regular feedback from your customers and checking in on key analytics will help you gauge whether it’s a bust or a boom - sometimes you just never know until you do it.
Need help customizing your subscription app integration or optimizing your Shopify site for your new subscription products? We know this stuff like the back of our hands, and can get your subscription business up and running in no time. Just give us a call and we’re happy to talk through it with you.