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:
Give customers control over their subscriptions. Let them change, skip, or accelerate deliveries anytime. Allow them to temporarily opt out if they want to. This might seem counter-intuitive, but it’s crucial for subscription success.
When you offer sign-up incentives such as discounts, free shipping, or new product samples, be sure you’ve done your homework. Test, analyze, and measure different offers so you know you’re offering the right incentive to maximize response.
Studies show that a 10% increase in customer retention can translate to an 80% increase in profitability. Similarly, a 2% increase in customer retention can have the same profitability impact of slashing costs by 10%. Analyze retention and churn points to optimize the life-span of subscribers and drive profitability.
A week prior to shipping a subscription order, deepen the relationship with the customer by offering complementary high-margin products that can be added to the delivery. Upselling can increase average order values by up to 110%.
A successful subscription program requires a sophisticated payment-processing platform. Retailers should integrate credit card optimization systems and use data-driven insights to ensure flawless payment experiences. If they don’t, they will be unable to provide the level of customer service that today’s shoppers expect.
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.