Subscription commerce. The recurring revenues

In this article, you'll learn what the subscription business model for recurring revenue is and how to implement it for your business.

What is a subscription service?

The e-commerce subscription model is a business model in which a company offers regular services in return for regular payments from the customer.

The subscription model is no longer limited to traditional niches. Nowadays, companies from all industries run this model - from food to image editing programs and car rental. Renting instead of buying is the new trend.

Large companies have recognized the potential of this concept and set up services such as Amazon Prime, Netflix and Photoshop in various service packages based on user needs. There are many constellations in terms of payment and flexibility of the service. Companies like Netflix and services like Amazon Prime are successful because they focus on the individual experience of the customer. Instead of delivering CDs, the movies and series are made available online in a few seconds and many profile-based recommendations are made for maximum entertainment.

Subscription advantages

A few years ago, the subscription model was more familiar from magazines with their newspaper subscriptions. According to one study, revenue for subscription business models in almost everyday life situations increased from $57 million in 2011 to $2.6 billion in 2016.

(Source:https://www.gsb.stanford.edu/insights/why-every-business-will-soon-be-subscription-business).

Customer loyalty

In its basic form, a subscription business model is one that charges customers a recurring fee (usually monthly or annually) for access to a product or service. But at a deeper level, e-commerce subscriptions are about strong customer relationships. Subscriptions turn customers who have already seen the value of the business into loyal followers who become reliable sources of recurring revenue.

The longer customers use your product or service, the more valuable it becomes to them. In addition, higher customer retention rates mean lower acquisition costs in the long run.

Recurring revenue

The recurring revenue of a subscription model can be a lifeline for your business, especially in situations like the COVID-19 pandemic or sessions with few revenues or orders.

Reduce costs for customer acquisition

Subscribers are more willing to buy repeatedly. This means that you have more chances to get sales from existing customers than from new customers you still have to convince. Also, your loyal subscribers voluntarily promote you by telling their friends about your service or product.

Easy decision for your customers

Customers need to think about their decision more often only once instead of thinking about it intensively every time.

This is an example of "set it and forget it". The customer makes the decision only once and can reverse that decision at any time by canceling the subscription.

Added value for customers

The guaranteed recurring revenue can be partly reinvested for the improvement of the service. This also means higher quality and a better offer for less money for subscribers.

Better service or product planning

When you sell a product a hundred times, you gain more and more insights about the potential for improvement of your product and the buying process. This feedback serves as a template and guide for planning new products or optimizing existing services. For example, you can offer free trials to your subscribers and ask their opinion before launching the final product. This strategy can save you a lot of time and money and, above all, give you direct and customer-oriented feedback.

The most common types of subscription models

Customer expectations have changed in recent years. Nowadays, values such as sustainability, individualization and user-friendliness are in the foreground. Subscriptions fulfill the desire for flexibility and individuality.

Restocking

is suitable for products that are consumed regularly and bought again and again: These are often physical products such as: Food, hygiene products, cleaning products, food supplements, etc.

Software as a Service

This type overlaps with the access-subscription model, but here it is limited to the software.

How to start a subscription service?

Regardless of whether you're already running a traditional e-commerce business or still looking to take that first step: There are a few prerequisites to setting up and running a subscription service.

Subscriptions should meet the needs of the customer persona

The first step is to determine the personas of your target customers. You need to know who you want to do business with before you can target them and sell to them.

To do this, you need to study the demographic, psychographic, and behavioral data of the target audience in advance.

You should answer the following questions:

What feeling does your offer evoke in the customer?

What problem does the subscription solve?

What added value do your customers get compared to similar services?

How much can subscribers spend?

What changes can the subscription product bring?

Does my target audience currently have a subscription to such a service?

More specifically, you want to be able to assess the need and potential for your service, as well as make viable plans for long-term customer retention.

For existing businesses, much of this data should already be available. If you are just starting your e-commerce subscription business, you should use consumer data from your industry and from organizations that offer the same "type" of subscription service as a guide.

Find out what is missing

You need to be superficially knowledgeable about your industry.

To offer a photography subscription service, you must have knowledge of cameras, objects, accessories, and photography technology. A thorough knowledge of your niche is important, of course, regardless of what you sell or offer. It is essential, however, if you want to be able to attract and retain a "following" of paid subscribers over time.

This knowledge is critical to identifying what exactly is missing and what users are missing from what is already available. That's why it's important to know what your competitors are doing and to be one step ahead of them in order to be able to offer your customers added value as a pioneer.

What makes you different

Beyond that, you also need to have a clear idea of what your subscription service's unique value proposition is. That is, you need to know what makes your business different from everyone else in your industry.

Is your product or service revolutionary or unique in some valuable way? Does it save your customers steps in the process? Do users get significantly higher quality at no extra cost? Is your model flexible?

Wähle ein Abomodell, das zu deinem Unternehmen passt

With your customer:in persona and niche in mind, the final step is to figure out what type of subscription you want to offer your target audience.

It's important to note that you probably won't have to decide which type to focus on. Rather, based on everything we've discussed so far, the decision will have already been made for you. Based on that, you can choose one or more of the above subscription types.

Integrate subscription service with existing services

A subscription in itself is a service that can be sold alongside other products. How customers respond to and perceive it depends on a number of factors such as:

Timing: is the dietary supplement subscription sold only at checkout or from the beginning as a standalone product?

Storytelling: with texts, images and banners you can illustrate e.g. time or money savings and thus increase the purchase rate

Medium: you can promote your subscription in the newsletter or on social media and present it as a supplement or extension to existing products.

Subscription service design and implementation tips

Always give customers a choice: A "one-size-fits-all" pricing policy doesn't always work. Give your customers the option to choose and switch between price tiers and service packages as needed.

Define subscription targets as early as possible: This allows you to better manage your pricing strategy and product development processes, and better predict revenues.
Drive more acquisition through a better experience: It's a simple formula: more customers = more revenue. That's why signing up for your subscription service needs to be as easy as possible. A great customer experience will improve your sales over time.
Simplify the billing process: Optimize your billing system so that it is understandable and intuitive for everyone. Customers want to avoid complex billing processes.

Establish strong customer relationships: The subscription business model relies on strong and loyal customer relationships. If your customers are dissatisfied or not regularly reminded of the value of your service, they will cancel. Focus on retaining customers for as long as possible by nurturing that relationship. This is where customer personas really matter. If you have an accurate picture of your customer base, it's easier to align your business with their expectations. This requires not only a good experience, but also reliable data on preferred features and overall willingness to pay.