With the proliferation of subscription commerce based companies over the past five years—from Birchbox (cosmetics) to BarkBox (dog treats)—it’s easy to think of the model as new. The truth is, subscriptions have been a favored shopping style for centuries. Consumers love the convenience and for business owners, subscriptions are a practical solution to help bring in new customers and engage existing ones. Five years ago—with the benefits of this model in mind—I launched OrderGroove to simplify the lives of shoppers as well as the retailers that serve them.
Today, over 30% of the top 100 online retailers utilize subscriptions. This number is projected to approach 50% this year. In 10 years, we forecast that all 120M households in the U.S. will be receiving at least one product via subscription.
By converting a shopper to a subscriber, businesses benefit from recurring revenue with minimal sales efforts. For companies considering adopting the model, the numbers speak for themselves:
- A shopper costs $20 to acquire, purchases 2x per year, and spends $50 a year. Your profit is $30.
- A subscriber costs $20 to acquire, purchases 8x per a year, and spends $200 a year. Your profit is $180.
In this scenario, a subscriber yields a 300% increase in revenue and a 500% increase in profitability. I don’t know a single business executive who wouldn’t like those numbers.
In fact, across our 75+ retail clients—including brands such as Stumptown Coffee, Jockey, Kiehl’s, and Zabar’s—we’ve found that subscribers often have a lifetime value that is 200% to 400% higher than non-subscribers. The great news is, these levels of success are possible for almost any business selling products that get consumed or used up.
For brands looking to implement a subscription program in 2014, there are five ways to make it both convenient for customers and profitable for your business:
Subscription programs go the extra mile to connect with high-value customers by simplifying their lives via convenience and savings. When done right, subscriptions allow retailers to provide both a product and service to their most valuable customers—a surefire way to keep them coming back for more.
Greg Alvo is the Founder and CEO of OrderGroove.