In this article, we’ll break down the hype surrounding online subscriptions and their true business value by exploring industry-wide data as well as how:
- Hubble has grown $30M+ subscription sales in one year
- Kopari is increasing their ecommerce subscriptions 53% MoM
- Dr. Axe created a customer category with +38% lifetime value
- TULA’s subscriptions revenue increased from 0% to 20% in under a year after moving to Shopify Plus
The challenges facing ecommerce subscriptions fall into three categories …
Before, many businesses believe subscriptions are all or nothing. That misconception can prevent many from taking advantage of a predictable form of revenue and a rich source of data.
During, when deploying the subscription model, knowledge is power. There are many methods of subscribing, and finding the best one to fit your business model and customer preferences is key.
After, once the model is active, the challenge then becomes ensuring subscribers stay engaged. Logistical issues like order management, stock, and fulfillment must also be aligned.
With McKinsey research indicating “15 percent of online shoppers have signed up for one or more subscriptions to receive products on a recurring basis,” knowing the risks and rewards is crucial …
Breaking Down the Hype of Ecommerce Subscriptions
The subscription market has existed for some time but has witnessed exponential growth over the past two years spearheaded by the rise of video-streaming companies like Netflix and replenishment subscriptions like Dollar Shave Club.
If we look strictly at traffic driven to subscription box sites in the U.S. from 2013-2016, we see a 2,963% increase from less than 1 million to 21.4 million visitors per month.
In revenue, worldwide growth is even more pronounced: a 4,461% increase in subscription ecommerce sales — from $57 million (2011) to $2.6 billion (2016) — among Internet Retailer’s Top 500.
What’s especially interesting about this market is that there isn’t one industry dominating the space.
In the U.S., personal grooming leads with 15%, but is followed closely by household items at 13% as well as pet supplies, personal health, and food and non-alcoholic — each at 12%:
In Canada, the types of ecommerce subscriptions are a bit more divided, but still show diversity:
Beyond product types, McKinsey groups subscriptions into three key categories: curation, replenishment, and access.
Curation subscriptions (55%) look to surprise and delight. The majority of people subscribed to subscription services are looking for custom curation, which cannot be easily replicated by competitors. This creates a great opportunity for those looking to enter the space to supplement their current online strategy or curate something entirely new.
Replenishment subscriptions (32%) focus on “never running out” at a lower cost than retail price. The challenge here is that it can be a race to the bottom for price and easy to replicate.
Finally, access subscriptions (13%) are member-only programs that cater to “VIP” perks, early access to new products, and exclusivity. Most business operating at scale already have some kind of loyalty program. By augmenting with subscriptions, you can drive additional monthly or quarterly revenue while continuing to give your best customers a unique experience.
How to Incorporate Ecommerce Subscriptions Into Your Strategy
“Subscription Box” is a limiting term when it comes to ecommerce because it can appear as a binary model. Rather than an all-in-or-all-out business decision, there are many benefits to incorporating subscriptions into your existing products.
- Differentiation: In a highly commoditized or saturated industry, like beauty, a subscription offering can set your brand apart and establishes you as a curator or influencer in your space
- Segmentation: With more information on subscription customers than a typical checkout, there is greater opportunity for upsells or cross-sells as well as to “surprise and delight”
- Stability: As subscriptions take root, you can more accurately predict inventory levels, reduce waste and “out-of-stocks,” and cultivate recurring revenue
Customers, however, don’t subscribe to products because they enjoy money exiting their bank accounts every month.
Why do buyers like this model?
- Exploration: With so much choice online, many buyers see subscriptions as a simple way to “try something new” that’s personalized to what they enjoy
- Personalization: One of the main factors in the longevity of a subscription is increased personalization over time; this is something to keep in mind to ensure churn is minimized
- Value: Overall price is not the key factor here, but rather value for money; as one of the key reasons why someone subscribes and churns, it is important to manage expectations with your buyers and align accordingly
Given the variety of ways to operationalize, let’s look at a few businesses that have already seen great success with ecommerce subscriptions …
Hubble: 20% MoM Growth & $30M+ Subscription Sales in Under a Year
The rest of the product examples given below are not by nature repeat purchases. Contact lenses, on the other hand, are a recurring necessity.
Of course, that means the competition is fierce. So we might as well start with the hardest sell first.
In less than a year since their debut on Shopify Plus, Hubble was able to create a doctor-validated subscription service that new customers can sign up directly from the homepage.
In fact, Hubble makes signing up painless by (1) walking new visitors through how the subscription service works, (2) offering them their first box for free, and (3) allowing them to order that box in just a few clicks:
Kopari: 53% MoM Increase in Ecommerce Subscribers
This coconut-based skincare line noticed they had high customer loyalty and wanted to get in front of the subscription trend. With a one-click subscription, they were able to tie in their loyalty program — Swell Rewards — and create a customer journey that incentivized progressive loyalty.
“After enlisting ReCharge, subscription revenue now makes up 10% of our overall business,” says Lanie DePasquale, Kopari’s ecommerce manager. “Also, subscription customers average 20% more revenue than our overall customers and we’ve seen a 53% increase MoM in total subscribers since launching the program.”
Dr. Axe: 38% Higher Customer Lifetime Value
A slight differentiation from Kopari, Dr. Josh Axe — a top health influencer with over three million social media followers and over one million subscribers on YouTube — uses a one-click upsell and “Subscribe & Save” structure to drive repeat purchases.
Since 24% of subscribers purchase based on word-of-mouth like online reviews, Dr. Axe brings that front and center in their site design.
Leveraging ecommerce subscriptions, Dr. Axe created a new customer category with 38% higher lifetime value.
TULA: From 0 to 20% of Sales in One Year
Finally, Dr. Roshini Raj’s skincare line, TULA, implemented a subscriptions strategy in May 2017 when they migrated to Shopify Plus. While successful, up to that point 0% of their business was subscriptions.
A year later and 20% of their ecommerce revenue comes from auto-renewed transactions.
Particularly, powerful has been TULA’s unique combination of their Try Before You Buy campaign (complete with its own custom one-click checkout page) coupled with an auto-renewal program run through ReCharge.
On top of that, after switching to Shopify Plus, TULA also saw major increases across other critcal metrics:
- Site sessions +95%
- Organic traffic +101%
- Conversions +120%
- Total transactions +297%
Done right, subscriptions can be an incredibly valuable addition to many ecommerce businesses to drive recurring revenue, provide you with more data, and delight your customers with a personalized experience.
In addition — with their rate of growth and proliferation — subscriptions can be a great growth channel for your brand.
About the Author
Julia Bowen is part of the Market Development team at Shopify Plus. Driven by simplifying the complicated, she helps Shopify Plus merchants find unique ways of enabling commerce. Connect with her on LinkedIn or chat with a high-growth ecommerce expert here.