Is the Subscription Model Right for Your Business?
We take a look at the growing popularity of the subscription model for eCommerce businesses, including:
- what is the subscription model?
- pros and cons of using the subscription model
- choosing the right product
- a look at NZ business The Snobby Collective who are using a subscription model
What is the Subscription Model?
Do you get your toothbrushes delivered to your home each month? How about a box of pre-planned meals each week? These are two examples of a business using the subscription model to sell their products.
The subscription business model is when a customer signs up to pay for and receive a reoccurring service or product. This product or service is delivered on an agreed upon schedule, often weekly or monthly, without the customer needing to do anything else. Funds are automatically taken from the customer by an agreed method, and the customer has the right to cancel the subscription should they choose.
Many eCommerce businesses are taking advantage of this business model and it is proving popular with customers. Let's take a look at the pros and cons of doing so.
Pros & Cons of Using the Subscription Model
If you're considering using the subscription model for your online store, take a read through the pros and cons of doing so first.
Pros of Using the Subscription Business Model
- regular and predictable income - you know the number of customers who have signed up for your subscription, which means you know the income you will be receiving.
- better customer relationships - you have the opportunity to build better and long lasting relationships with your customers as you'll be dealing with them on a regular basis. This can help you to retain customers for longer.
- targeted audience - a subscription box of say soap will only appeal to a highly specific audience. This makes it easier to target your promotions, saving you time and money with your marketing efforts.
Cons of Using the Subscription Business Model
- high risk of churn or cancellation - your customer will sign up to say they want your subscription, but may cancel it a few months down the track. You'll need to think of ways to keep them interested and paying for it. Or you could do what The Snobby Collective have done, and charge for a multiple months subscription in one payment.
- nerves in signing up - many of us get concerned about signing up for things that are going to cost us money. What if we don't like it? This is quite a big obstacle to overcome initially.
- boredom - if you send the same products each time, people will get bored. How will you overcome this?
- timing - if you're sending out a product every third Monday, you need to have all of your ducks in a row. If you're late, customers may run out of products and will have two deliveries too close together, for instance.
Choosing Which Subscription to Sell
You've decided that selling a subscription sounds good, but which of your products should it contain? Remembering that your subscription will only appeal to a small number of individuals, should it contain your most popular products, your most expensive products or completely unique products to what you already sell on your website?
There are three important things to consider here:
- Niche - the highly specific product you are focusing on selling to a highly specific group of people.
- Value proposition - the value a customer sees in what you are selling them.
- Aesthetics - how your subscription product looks when your customer receives it.
Having taken into consideration these three points, choosing a product to include in your subscription should become clearer. It needs to appeal to your target audience, they must see it or something related to it as valuable and they must like the look of it.
The Snobby Collective Coffee Subscription
How The Snobby Collective Uses a Subscription Model
Paul Harris runs his coffee website The Snobby Collective using Website World's CMS. Along with coffee brewing gear, reusable cups and gift boxes, he also sells one, three, six and twelve monthly coffee subscriptions.
We asked Paul to share some insights with us as to why and how he uses the subscription model for his business.
- What made you want to sell using the subscription method?
Our goal is to make a difference in the lives of coffee producers and their communities. To do this we need to take people on a journey. A journey of insight, understanding and change.
A subscription model allows people to have regular coffee deliveries, the buy-in of not missing out on the next part of the journey, learning about the trials and triumphs of the communities and the partners in the coffee value chain that have made it possible.
A monthly celebration of people before profit.
- How do you overcome customers objections to purchasing a subscription?
One month teaser. It helps our customers sample our service without obligation or the hassle of cancelling their subscription if it’s not for them.
Also, by having set blocks of 3, 6 or 12 month options, it’s a set and forget. Budgeting is easier as there is no recurring bill to forget, just a friendly reminder that your subscription has finished.
- What do you see as the value you are providing your customers?
We save our customers time.
We are professional coffee geeks. We seek out NZ’s best specialty coffee roasters, the best ethically sourced coffee currently available and ship it to your door.
We take the guesswork out by supplying the roasters recommended recipe for brewing (always filter as that is our market and gets the best out of the single-origin coffees) meaning you’re getting the best out of your beans, which equates to value for money.
A lower carbon footprint. We offer free shipping of anything in our web store when shipped with your subscription. Using the code “nextsub” means it’s clear to us and our customer when these items will be shipped.
- How do you take advantage of having the ability you have to build a relationship with your subscription customers, versus a one-off purchase from your site?
Thanks so much Paul for taking the time to give us an insight into your business. If you're ready to start selling using the subscription model, consider using Website World. Here are four tips about how our CMS can help you with your subscription products:
- Use the "Repeat Order Service". The repeat order service automatically creates a draft order immediately after submission of the initial order. The customer selects the repeat interval. At the repeat date, the draft order will be submitted, and the process begins again. This is great for home or restaurant food replenishment, retail stock replenishment etc, as it gives the customer a chance to cancel or make changes to their order at any stage. The assumption in this process is usually that payment is made on account, via an accounting system like Xero, that may tally up weekly/fortnightly orders and take a monthly payment. In any case an invoice is sent to the purchaser each time the order is submitted, with the option to pay by the usual method of payment. The obligation remains with the merchant to confirm orders have been paid, or meet their terms of engagement, before fulfilling an order. Orders will simply show as unpaid in our system, until marked as paid in Xero, or actually paid by some other means.
- If you run some sort of online membership service, consider using our membership widget. Our membership widget will allow new members to signup and pay for immediate access. Thereafter, it will send them a reminder near to their expiry date asking them to renew their membership. This sort of approach works best with 3 month, 6 month or 12 month terms, where renewal is not automatic.
- If you want a set and forget payment plan, such as gym membership, then you are best not to use the shopping cart for this process. The best way to setup a recurring payment plan, is to find a payment provider such as stripe or PayPal who have special features for managing all of your subscription payments. Each of them will allow you to add some "widget code" anywhere in your website. Inside our website builder CMS, you can paste this code as HTML. This is a very simple interface, with all management of subscriptions taken care of by the payment provider.
- You may also consider using our shopping cart to offer customers their first month payment. Thereafter, you can set up a recurring payment plan in an accounting system like Xero, and use their methods of payment, and their reconciliation system to manage that.
Posted: Monday 21 October 2019