Cloud Topics

What Is the Subscription Commerce Business Model?

By Nicole Lim / August 18, 2020

What Is the Subscription Commerce Business Model

Subscription commerce is the practice of selling services or products to customers on a recurring basis. B2B subscription commerce allows businesses to sell their products and services in a way that’s more convenient for their enterprise customers. This can involve sending the same physical products each month to customers, providing them with new products they may not have tried otherwise, or permitting them access to digital content.

Although relatively new, subscription commerce has become immensely popular in recent years. One survey discovered that over half of respondents are members of a subscription box service, while as many as 75% of Americans have at least one online subscription. With such massive potential for success, a growing number of organizations are looking to embrace this business model. However, the subscription commerce business model also presents unique challenges that can be difficult for companies to handle if they aren’t properly prepared.

If you’re thinking about starting your own subscription-based business or implementing a subscription service at your organization, it’s crucial to learn more about this business model. With more knowledge about the features of, current trends behind, and best practices for subscription services, you can make the best possible decision for your business — and set your organization’s subscription service up for success.

Features of the Subscription Commerce Business Model

Ranging from monthly boxes to SaaS businesses to video streaming services, many different types of businesses fall under the larger umbrella of subscription commerce. Despite the wide range of organizations that can be considered part of this economy, there are several features all products, services, and businesses involved in subscription commerce share:

  • High Customer Retention: It’s easier to retain your customers for a longer period of time with a subscription service. You may not earn as much on a single purchase, but there is greater lifetime value from customers who see the long-term value of your product continue to use your services for several months or years.
  • Better Cash Flow Management: Due to recurring billing, subscriptions are paid for on a regular basis (such as each month or quarter). This means you can enjoy a more consistent, predictable revenue flow and make smarter decisions and data-driven financial plans for your organization.
  • Customer Churn: With an increase in subscription fatigue, you need to continually monitor your customer churn rates (or how many customers stop patronizing your business). Even a few customers leaving can have a significant impact on your organization, so you need to constantly work to keep those rates as low as possible.
  • Increased Engagement: With subscription services, you have multiple opportunities to engage with your customers. Instead of only a few instances — such as when they are comparison shopping or actually making a purchase — you have the chance to connect with your customers and encourage them to interact with your brand every time you deliver to them.
  • Pricing Issues: It can be hard to price your subscription services correctly. While you don’t want to undercharge customers or settle on an unsustainable price point, many potential customers will be unwilling or unable to pay for a service that is too costly.
  • More Upselling Potential: With subscription services, there is greater potential to upsell a more comprehensive or premium package to your customers. Similarly, because you already have an established relationship and know their preferences, you may also have greater success in cross-selling complementary products.

Some of these features are more like challenges you’ll have to overcome, while others are benefits you could enjoy if your subscription service is successful. No matter what type of service you launch, it’s vital that you understand the reality of working in subscription commerce.

Types of Subscription Commerce Businesses

Though there are many different types of subscription commerce businesses, most of them can be categorized in one of the following ways:

  • Services: This subscription gives customers access to a certain service or collection of services. This type of subscription commerce is especially common in B2B software-as-a-service contexts, as businesses look for assistance with their operations. Common examples include services like the Google Suite, Zoom, and Slack.
  • Goods: This subscription is a form of e-commerce that involves selling physical products to customers on a recurring basis. These goods may be curated based on customer preference (such as StitchFix or BirchBox), or a recurring replenishment of consumable products (such as Dollar Shave Club or Quip).
  • Content: This subscription allows customers to access digital content through their membership. “Content” can take many forms, such as video streaming, music streaming, or e-learning resources. Popular content subscriptions include Netflix, Spotify, and Hulu.

As subscription commerce continues to grow in popularity, innovative organizations will likely discover more unique ways to utilize this business model.

Current Trends in Subscription Commerce

The digital economy has expanded exponentially in recent years; in fact, e-commerce sales are expected to increase to over $6 trillion by the year 2023 in the United States alone. Subscription commerce is no exception, with several major trends fueling its growth:

  • Popularity of Curation: Generally, curated goods and boxes are the most popular form of subscription commerce, though digital service subscriptions offer a range of solutions for consumers and the B2B marketplace. This difference indicates that though the market for curated goods is already heavily saturated, there may be more opportunities available in the digital subscription services market.
  • Superior Experiences: When it comes to subscriptions, customers want a high-quality end-to-end experience. Signing up for a subscription of any kind is a large financial commitment, and customers will only continue using a service that provides the experience they’re looking for.
  • Personalization: No matter what they purchase or why they purchase it, customers want some level of personalization in their subscription services; it’s one of the features customers expect to see from the e-commerce sites they patronize. This is especially true as customers develop a long-term relationship with a company and maintain some kind of active subscription. The longer a customer stays with an organization, the more personalization they likely expect from their subscription service.

By understanding more about the driving forces behind the meteoric rise of subscription commerce, you can determine the best way to harness them as you launch your own subscription business.

Best Practices for Starting a Subscription Commerce Business

There are several guiding principles and best practices you need to follow if you want to build a successful subscription commerce business. Perhaps the most important thing to keep in mind is that your offerings must be unique. Because subscription services are so popular, you have to create a product or service that provides a tangible benefit to your customers and is distinct from those of your competitors. If the product is too similar to that of your competitors, customers may choose your competitors over you, or leave your company to try out a different subscription.

In addition, you’ll need the proper internal tools to manage your subscription service. For instance, you may need a digital commerce platform to effectively sell and distribute your products, as well as a software solution to handle recurring billing, and analytics tools to learn more about your customers and their preferences. Without these tools powering and streamlining your internal operations, it’s difficult to effectively launch and scale any kind of subscription service.

Finally, make sure you focus on maintaining your relationships with your customers. The subscription business model enables and requires organizations to craft deeper, longer-term relationships with their clients. In addition to creating a great product and experience for your customers, make sure your organization and team members are ready and able to assist anyone with their questions and problems. Make sure all team members are well-trained in your customer support practices and that they have the tools they need to drive success. Focusing on your customers is the only way to retain them and get additional referrals or recommendations. In other words, your customers are key to successfully starting and growing your subscription commerce business.