The Shopify Subscription Model - Pro's and Con's

The push to go online for your shopping over the past couple of years due to the pandemic and social restrictions has opened the door and expanded into subscription-based consumables. Anything like dog food, coffee, vitamins, consumables that are taken at a regular interval is being looked into a delivery-based model - leveraging local delivery services or national shipping that have matured from the surge of online purchases. Given this, consumer confidence in a subscription model appears to have raised to new levels, making the subscription model be a new component of the sales mix, loyalty, and customer retention strategy for Shopify storekeepers.

Subscription Trend and where to get started

Over 15 US Consumers (McKinsey) had registered and subscribed to have products delivered to their homes. The projection is $473 Billion to be spent in this space by 2025, an increase of $15 Billion since 2019. This is a growing space and the tools are also getting easier to set up and apply to your store.

Getting started with your Shopify store requires some planning, research, and understanding of the tools, logistics, and Shopify has guides to start your eCommerce business from scratch. Additionally, Shopify has conveniently covered various business models from D2C, B2B, and the application of various subscription business models. Subscribers are looking to stretch their income further with the current higher inflation, and where subscriptions can offer a lower cost with greater convenience it entices the audience to convert while it will increase customer loyalty. This is a long-term strategy, opening re-marketing opportunities, and improved customer experience. Offering a diverse set of payment and credit cards with the addition of member-only offerings can make your online store popular.

Benefits of a subscription model

Revenue stream: With subscribers, your revenue stream is more predictable and with good retention, cumulative. Inventory planning to fulfill subscribed orders can be handled easier, which usually reduces overstocking and the cost of inventory. Streamlining your suppliers with regular orders makes the supply chain more predictable as well, enhancing the overall productivity of the operation.

Cash flow: A lot of subscription models are pre-paid which is a cash-flow positive position for your bank account. Subscribed members still get a discount for being a member, yet, upselling is a lot easier given that budling their new purchases within the expected shipment from their subscription adds leverage on both the customer and the business.

Customer acquisition: With a great customer experience, positive customer interactions, a good loyalty program you usually foster good word-of-mouth between your subscribers and their family, friends, and community. This is crucial for any small business with its business plan being customer-centric. Retention is key, where the cost of acquiring a customer is amortized over the duration of the subscription, scaling your marketing spend to acquire additional customers - an important marketing strategy.

Loyalty Focus: Retaining a customer ranges from 10% to 20% of the cost of acquiring a new customer. Executing this well can really impact your financial statement in improving your net income all the while having a great retention rate. Happy customers are spending customers, no matter the amount of cash on ancillary on-off items, the recurring payments are the basis of your income statement.

Scaling profitability: Subscribers are happy to be paying the price of their subscription month after month with options and variations from promotional offers. As your subscribers grow, you end up with more leverage and scaling of your base products which reduces product cost and leverages your operational expenditures. This will naturally scale your profit margins, allowing you to re-invest to drive your marketing or other improvements.

There are additional benefits from a Shopify Subscription model, both impacting short term and long term - but the greatest benefit is the community that gets created around your brand, products, and services.

Risks in the Subscription Model

Customer Experience sensitivity: Attention to detail is a requirement for this business model, as customer retention is based on value, experience, and continued perceived benefits of the subscription. This requires good planning in both promotional marketing and execution in delivery all the while communicating well with your members.

High Churn: Novelty, promotional offers, try-n-buy are the type of risks where a subscriber may want to redeem an offer through subscribing, and once received, drop the subscription. In order to avoid this disappointing cycle, planned offers and promotions that are going to demonstrate value for being a member during the initial sign-up will reduce the risk of cancelation.

Keeping the subscription business model engaged

There are 3 key tenets to drive for: Convenience, Lower Cost, Reliability. The latter being reliability will include the quality of the product, how reliable the delivery service and the ease of use of the website. When it comes to the online store, Shopify has all the tools to build customer loyalty, and while you focus on the business operations, your Shopify Subscription App will do the work on the revenue end. If you would like to discuss a Shopify Subscription Model, feel free to reach out to us a wish@thegenielab.com