If there's one thing to know, it's that the global e-commerce subscription is growing.
It's currently valued at $3.09 trillion, and should be valued at $9 trillion by 2034.
That's 14% CAGR - 14% growth rate year over year.
Adding a subscription model to e-commerce makes your brand reign in new customers, helps you make more sales per customer (and hence more revenue per customer), and increases profitability.
Writing from experience here: I'm a big fan of ecommerce subscriptions.
I've worked with hundreds of ecommerce companies over the years - and even for the smallest ones, implementing a subscription business model quickly pays for itself.
Usually, you already have the first proof needed to get started:
- You can measure your customer returning rate: the % of clients re-ordering the same product again and again
- If you list your products on third-party marketplaces that offer subscriptions too (Amazon, for instance), you might notice that some clients there are already subscribed to your products.
This is notwithstanding a healthy, positive, and predictable cash flow. Plus, there are even more benefits: let's review them all together!
First, what is an ecommerce subscription model?
Let's keep things simple: an ecommerce subscription model charges customers on a recurring basis, for ecommerce products.
It can be weekly, monthly or yearly.
On the business side, it turns one purchase into predictable, recurring revenue and a higher customer lifetime value.
On the customer side, it turns a repetitive manual purchase into an automated one, usually at a discount (because the company benefits from this predicable revenue).
There are 3 main types of ecommerce subscriptions: replenishment, curation and access. You already know them because some companies became famous for each kind:
- Replenishment: Dollar Shave Club, Athletic Greens, etc: these get shipped to customers on a customized schedule, set by the customer
- Curation: Stitch Fix, Birchbox, etc: these get shipped to customers on a recurring schedule, each time with different selected products (at a discount)
- Access: Amazon Prime, ASOS, NET-A-PORTER's members tiers, etc.: no shipment here, the customer agrees to pay extra on a monthly/yearly basis to gain access to selected sales or a pre-defined global discount.
Benefits of e-commerce subscriptions for businesses
This is on top of the already huge e-commerce market worldwide. For an e-commerce business, there are huge advantages when they add a subscription layer to their existing e-commerce brand or launch pure subscription-based products:
- Steady and predictable cash flows
- Higher degree of profitability
- Garner a higher-quality loyal base of customers (more repeat customers than new ones)
- Expand revenue streams
- More opportunities to upsell and cross-sell or sell more products
- Automatic boost in customer lifetime value
- Easier inventory management
You can consider launching new subscription products, subscription-based services added to products, or add a layer of subscriptions to your existing e-commerce business.
What are good use cases for subscriptions?
According to McKinsey and Chargebee, there are three broad categories for considering adding subscriptions to your e-commerce business: replenishment, curation, and access.
Replenishment
Ruling as possibly the simplest and most natural way to add subscriptions or launch new subscription-based products is the “replenishment” model of subscription.
Banking on the aspect of “convenience”, several product categories lead themselves to this subscription model such as household goods, consumer suppliers, consumables, office supplies, industrial supplies, toiletries, groceries, and many others.
While the replenishment model (for several of the common product categories) lends itself to relatively lower margins, these products also enjoy high conversion rates.
Curation
Pet supplies, collectibles, gaming accessories, apparel, beauty, fashion, perfumes, and several other product categories find themselves using the curation model. Curation -- as an e-commerce subscription model -- leans on the promise of “personalization, customization, and discovery”.
Stitch Fix, for instance, follows the curation model and promises to send in the right set of clothes (for men, women, and kids) once you fill up a questionnaire and send them some inputs. Shoes, clothes, tops, socks, jackets, and everything else that matches, sent straight to you.
Access
Depending on how you position your products and services, there’s a likelihood that you might want to provide members-only access, exclusive access, “product access on invite only”, and so on. You can offer a wide range of products and services under the “access” model of e-commerce subscription which several hotel, travel, clubs, credit card services, beauty, customized experience companies use.
Every e-commerce business is a good case for subscription (unless it’s not).
Adding subscriptions to your e-commerce business model is a terrific way to kill several birds with one shot.
It’s also much easier to implement subscriptions than it ever was. If you use Shopify, for instance, there are several apps in the Shopify Apps marketplace that can help you get started with subscriptions for your e-commerce brand in no time.
Here’s when subscriptions make for a good case for your e-commerce business:
Customizable products & offers
If your e-commerce business finds itself in any of those categories or if your products allow for customization, memberships, and other offers, it’s a no-brainer to start subscriptions.
Customers can customize products and choose specific variants. Then, they can opt for a subscription that allows them to get their chosen products to be shipped regularly. That’s a simple set up.
Or, you could offer a discounted service element along with products. Or a software-based product as an add on.
For instance, Apple sells “Apple Care” along with every Macbook Pro or Macbook Air they ship.
Good fit if: your products come in variants or bundles a customer would happily receive on repeat.
Own the subscription
Certain e-commerce businesses (such as those in the categories of food, gaming, clothes, accessories, fashion, apparel, perfumes, footwear, innerwear, and others) already have huge target audiences “used” to subscribing for products. Already some kind of subscription habit in the market
Note: otherwise, it's hard to create, even if not impossible you better not be the first one to fail, but you rather be the second one which will succeed.
Good fit if: your category already trains people to subscribe (food, beauty, pet, supplements, coffee).
Scale potential
The subscription program you create has to provide you with enough runway to scale. In simple terms, it should give you potential to scale.
With the requisite infrastructure incurring fixed costs already in place (such as warehousing, shipping, and logistics), the subscription element should clearly show you more revenue, increased customer lifetime value, and eventually healthy profitability.
Good fit if: your fixed costs (warehousing, shipping, logistics) are already in place, so each new subscriber is mostly margin.
High Retention rate, Referral Program/Loyalty Programs
Subscriptions automatically add a layer of “stickiness”, as long as customers keep their subscriptions on. They are automatically a higher value transaction since subscriptions have a lot to do with regular payments at intervals. On top of that, you also get added benefits of launching referral programs and/or loyalty programs to the mix.
For subscriptions to qualify as worthy enough for your e-commerce business, the specific numbers such as increased revenue per transaction, designated cash flow boost from subscriptions, added revenue, and the ROI of loyalty programs or referral programs must be tracked.
Good fit if: you can layer a referral or loyalty program on top — subscriptions make both stickier.
Upsell Potential (with new products or existing addons)
Bringing in upsell opportunities (relevant products or add-on subscriptions to existing subscription offerings) give you further boost.
For instance, a single GoPro camera packaged as a “Creator Edition” comes with the camera itself, camera mounting gear, a mini-microphone for the camera, and also GoPro subscription (with unlimited bandwidth, editing software, and more).
If your e-commerce products qualify themselves for sequential upgrades, subscription offerings (one or more than one, stacked one on top of another), you have the potential to help launch profitable subscription offers that you profit from.
Good fit if:your products ladder up (add-ons, upgrades, "creator editions") you can stack onto the base subscription.
FAQ
What is an ecommerce subscription model?
It's a model where customers pay on a recurring basis for products or access instead of a one-off purchase, creating predictable recurring revenue and higher customer lifetime value.
What are the 3 types of subscription models?
Replenishment (auto-reorder of consumables), curation (personalized boxes), and access (members-only pricing or perks) — the framework from McKinsey and Chargebee.
Is a subscription model good for ecommerce?
For most brands, yes — it adds predictable cash flow, higher lifetime value and easier inventory planning. It works best when there's an existing subscription habit and room to scale.
What products sell best as subscriptions?
Consumables (groceries, toiletries, supplements) suit replenishment; beauty, fashion and pet suit curation; travel, clubs and software suit access models." } }
