Subscription revenue is the best way to grow your online store and boost sales. So giving customers subscription options is a necessity these days.
In some industries, like streaming services, a subscription revenue model is the standard.
For others, it supplements revenue by offering customers premium features. For example, this is true of Amazon Prime or other services that remove ads with a monthly subscription, such as Spotify.
In the case of an online store, subscriptions can become the lifeblood of the business.
A subscription business model can be applied to nearly every store selling a product or service.
Online stores selling coffee beans can offer a monthly subscription of a customer’s favorite coffee bean or a monthly subscription box with various coffee beans each month.
Consulting agencies specializing in marketing could offer clients a subscription that includes a package of services such as monthly online seminars, a weekly newsletter, on-demand assistance, etc.
Online shops with products that customers re-order frequently are an excellent match for offering subscriptions so customers can subscribe and get automatic “refills” on products they love.
Whatever the product or service, subscription revenue gives any business a profound advantage.
Subscription Revenue Creates More Customers
Creating subscription options for consumers will open your business up to new customers.
Subscription services offer customers convenience and practicality.
There’s no denying it. Subscriptions have become a part of our everyday life.
Consider all of the subscriptions you use regularly and the variety of forms in which they come.
There are some subscription streaming services like Netflix or Disney+ which have become synonymous with modern life.
Other more niche services like Dollar Shave Club offer replenishment subscriptions that add value to people’s lives through the convenience of a product they regularly need, like razors.
In the case of Dollar Shave Club, customers save time by not having to order razors manually.
Subscription services create value for people, and your business will be more appealing to customers that want them.
Subscription Revenue is New Revenue
Much of your subscription revenue will be new revenue.
As mentioned above, subscriptions will bring in new customers, but best of all, each new customer will be buying more on average.
When customers sign up for a subscription service, the goal is to have them signed up for life.
Offering subscriptions creates more significant revenue per customer.
Before offering subscriptions, a larger percentage of your sales will have been one-time purchases.
You may have new customers only making one or two purchases per year without subscriptions.
After offering subscriptions, customers will buy more each year, especially if they sign up for a monthly subscription.
This customer that is receiving an order each month previously might only have made one the entire year. It might not even have anything to do with your product. After their purchase, it could be that they discovered that one of your competitors offers subscriptions and you don’t.
Let’s say you have a store that sells coffee, and you are now offering a subscription service.
You sell a package of coffee for $20 and will now offer 3 months, 6 months, and 12 months payment options for monthly subscriptions.
In the 12-month payment option, you offer a 15% discount to provide the customer more value.
Your revenue for the customer you would have lost to your competitor increased from $20 to $204 for the year.
One great thing about subscription revenue is that it’s more predictable than revenue from one-time purchases.
It’s much less likely that a subscriber unsubscribes from your service than a customer not making an additional purchase from your store.
Using the online coffee bean store as an example, imagine the consumer’s behavior when making purchases.
Say a customer is very passionate about their coffee but doesn’t have time to shop for different varieties of coffee beans.
As a way to save time, they decide to look online for e-commerce options.
This passionate coffee drinker happens upon your store and makes a purchase, buying two packages of coffee beans for $20 each.
Let’s say the customer enjoyed their coffee beans, but rather than buying more bags next month, and they simply buy two from their local grocery store when they’re shopping.
Then the month after that, they decide they want to order coffee beans online again, but rather than going straight to your store, they simply google coffee bean e-commerce options and ultimately buy from a different store.
Alternatively, if you offered subscriptions, the customer could have signed up before their first purchase or afterward having seen that you offered subscriptions.
This passionate consumer might now order two packages per month for the entire year.
Not offering subscriptions will lose your potential revenue.
Of course, the number of subscribers will surely change from month to month.
Knowing your churn rates and your typical customer acquisition can eliminate some of this lesser uncertainty.
The predictability of subscriber revenue has several positive effects on your business.
A positive effect of consistent subscription revenue is a more efficient use of inventory.
For starters, you know how much inventory is already needed for your current subscribers.
Not to mention the additional inventory that you’ll be selling because of new revenue.
On the surface, more inventory might sound like a challenge, but new opportunities will also accompany it.
Greater inventory means that you can potentially save money on purchases from your suppliers.
Your inventory’s relatively more consistent nature also means that you can more efficiently use your inventory space.
What I mean by this is simple. You are less likely to under-utilize or stretch your inventory space when your inventory is easier to predict.
During the holiday season, inefficient inventory tends to be an expected problem.
You can instead take advantage of the holiday season with gift subscriptions.
You can offer your customers the option to buy gift subscriptions for their friends and family. So not only are they purchasing a subscription for themselves, but now you are up-selling them on buying more.
Gift subscriptions help you offset some of the dips in sales after the holiday season and expand your customer base, potentially converting them into new long-term customers.
Gift subscriptions are a great way to introduce new customers to your subscription products.
New subscription customers lead to more revenue and naturally to additional predictable subscription-based inventory.
Being able to predict revenue more accurately will lead to better budgeting in your business.
When you better understand your revenue in advance, you know how much money you can dedicate to essential functions of your business, like marketing.
Knowing your budget is an essential part of growing your business.
If you’re able to predict your budget more accurately, then you can take more calculated risks.
For instance, you might be more willing to pay an SEO expert to audit your online store or increase your Google Ad spending in the coming month.
These actions could speed up the growth of your business. Still, they’re not necessarily the best decisions if you’re not sure how much revenue will come in next month from only one-time or miscellaneous purchases.
Knowing your numbers and taking control of your business finances is much easier when you have access to subscription analytics.
Lower Cost of Sales
A hidden benefit of subscription revenue is the lower cost of sales from subscribers.
The cost of acquiring a customer may not necessarily go down, but the average price per sale you make will inevitably go down with subscription options.
Let’s say, for example, that you sell coffee beans and that your average customer acquisition cost is $5 per customer.
If you sell two bags of coffee beans per customer on average, your cost per bag is $2.50.
After adding subscriptions to your product options, your average number of bags per customer increases to 10.
Your average cost per bag of coffee beans sold is now $0.50.
More sales per customer will effectively lower other overhead costs as well.
Additionally, subscribers tend to be your most loyal customers.
These loyal customers are the first ones to help promote your products for you, whether it’s through social shares, word of mouth, or even gift subscriptions. This is free advertising.
Subscription Revenue Makes a Healthier Business
Subscription revenue can bring profound benefits to your business.
Predictable cash flow better ensures that you can keep the lights on.
You can make smarter business decisions regarding budgeting and business growth.
New customers that want the convenience of subscriptions will become loyal shoppers.
This loyalty will result in more efficient business through lower average costs and improved use of inventory space.
You’ll establish a more loyal customer base that will be essential to business growth.
Not only will subscribers be more likely to help promote your products, but they’re also the first to buy new product offerings and upgrade to higher-priced subscriptions.
Subscription Revenue Recap
- Creates new revenue from consumers that want subscription options
- Subscription revenue leads to more predictable sales
- Subscription revenue helps create secure income, with a more consistent cash flow
- Inventory is easier to predict and more efficient
- Save on larger merchandise wholesale orders with subscription products
- Subscription revenue creates stable revenue, which allows you to determine budgets for marketing and sales campaigns more accurately
- Recurring revenue Keep the lights on with more business that can grow your customer base
- Lower cost of sale, customers will buy more on average with subscriptions
- Ongoing subscriptions Shopify app can help you offer and accept recurring payments on your store
Best Subscription App for Subscription Revenue
Do you think creating a steady flow of subscription revenue would make a significant improvement to your business model?
If that’s the case, then check out Ongoing Subscriptions Shopify app.
The app makes it simple to set up subscription offerings for your store in less than a minute.
You can create subscriptions that appeal to all types of shoppers.
Some of the subscriptions you can offer with Ongoing include refill, gift, and subscription boxes.
Features of the app include automated renewals and automatic recurring billing, allowing for recovery of late or missed payments meaning more revenue for your store.
Ongoing also comes with analytics features that allow you to analyze subscription revenue.
Featured image displaying Natchu Products, photography by: Sincerely Media
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