11 Reasons Why E-commerce Companies Need to Adopt Subscriptions
Anil Menon, Senior Practice Director, Synthesis Systems
Savings and convenience – these are the two words that appeal to the modern buyer. With limited time at hand, consumers seek to simplify their purchase-related decision-making. In line with these developments, several e-commerce businesses have been consciously evolving, and they’ve now reached the next stage of migrating to subscription commerce or have begun to adopt a hybrid approach.
Understanding the basic subscription commerce (or sub-com) model is relatively easy. It’s like an e-commerce business that sells a product but repeatedly—weekly, monthly, quarterly, or anything else that works—instead of a single purchase. Subscription businesses are positioned around the needs of the consumers, and the emphasis is more on customer retention through relationships rather than customer acquisition.
Even though in its nascent stages, subscription commerce is an excellent way to shake things up a bit and strengthen your existing e-commerce business.
Some of its benefits are:
#1: Predictability
A key reason for the success of subscription business is the predictability it brings – be it in terms of revenue, purchase forecasts or order volume. Data analytics is of utmost importance here, but if a business can make accurate predictions, they can increase the probability of maintaining a steady client base and growth rate.
#2: Lower Customer Acquisition Efforts
Acquiring a customer is just the first step of the ladder in e-commerce. Afterwards, sustained efforts must be made so that customers stay and make repeated purchases in the long haul. Since a subscription business is inherently based on a retention model, it requires relatively less customer acquisition efforts than traditional models; even a first-time customer comes in as a subscriber, and it is understood that they will make recurring purchases as long as they remain happy with the service.
#3: Higher Customer Retention
Subscription commerce presents higher rates of customer retention as it allows businesses to get close to customers than e-commerce does. The model is built to maintain a long-term relationship with customers by offering solutions for their daily needs. Moreover, automatic renewal further reduces the buyer’s burden of making purchase decisions every month, which adds to the overall convenience.
#4: Measure and Manage the Customer Lifetime Value (LTV)
Given the variable customer retention rate, calculating the LTV of a customer can be extremely cumbersome in e-commerce; since there is no accurate way to determine whether a customer will return, it is difficult to decide on the worth they add to the business. Also, LTV can only be calculated if there is a contract which is not the case either with e-commerce or subscription commerce. However, with subscription commerce, one can calculate the recurring revenue for the financial year and hence the estimating the LTV is considerably simple.
#5: Better Marketing Pay-off
Marketing for a sub-com business is less costly, more targeted, and creates more opportunities for cross-selling and up-selling. Subscription commerce enables us to get a better insight into the customer behavior with the way they purchase the products, use the products and their browsing behavior within the portal. As the consumer base is pre-defined, it is easier to understand consumer preferences and strategize accordingly. Regular communication—primarily through social media campaigns—continues to be the most effective way to reach out to customers as far as subscriptions are concerned.
#6: Cash Flow Management
Subscriptions provide a much better safety net to a business in terms of cash flow. Since the income is received in recurring streams, uniformity is guaranteed, and companies can plan and manage their operations more efficiently. Also, it is a lot easier to implement an automated billing procedure in a subscription business, which reduces much of the time and efforts spent on payment follow-ups.
#7: Simplified Inventory Management
Inventory management is vital for most e-commerce business, and its mismanagement can cause a severe monetary and non-monetary impact. Maintaining a stock of the inventory can be a tricky affair especially for big companies. Subscription commerce solves this problem to a large extent as owners are aware of the number of subscribers and their demands for each cycle. Hence, they can efficiently estimate their stock and minimize wastage.
#8: Simplified Logistics
Subscription businesses offer a standardized selection of products, which helps businesses maintain simplified delivery systems. It is easy to estimate both the quantities and kinds of orders that are expected to go out during every cycle, making the entire process very streamlined.
#9: Gain a Competitive Edge
Unlike e-commerce, sub-com is immensely personalized and caters to a particular consumer base, which makes it noticeable among the target users even in an increasingly competitive global market. The more tailored the services are, the more worth they create for the customers, which means business is more likely to stay relevant. Also, a high degree of customization makes it trickier for a model to be replicated by others in the market.
#10: Higher Profitability
Decent profitability in e-commerce is not an easy goal to achieve. The rising costs, offers, logistics, etc are significantly driving profitability south. While subscription commerce too faces the profitability challenge, it leverages business optimization advantages to protect the profitability of an organization. E.g., reduced marketing and sales costs, optimized routing and logistics.
#11: New Avenues for Small Businesses
Running a sub-com business is relatively a less mammoth task than managing a full-fledged e-commerce business. The business model is much simpler and overhead costs are well within reach of small and mid-scale entrepreneurs.
So, how are you going about your subscription commerce journey? Talk to our experts to ensure that you get all these advantages and many more.