Understand subscription model
Discover how implementing a subscription business model can help boost recurring revenue for your business
Last updated
Discover how implementing a subscription business model can help boost recurring revenue for your business
Last updated
High Customer Acquisition Costs (CAC) can significantly drain a business's budget, as it’s often more expensive to attract new customers than to retain existing ones.
In fact, studies show that it costs 5 to 7 times more to acquire a new customer than to keep an existing one. This is where subscription models can offer a solution by reducing CAC over time.
With rising ad prices, businesses are finding it harder to maintain profitability through one-time purchases alone. This is where subscription models offer a sustainable solution by reducing CAC over time.
Once a customer subscribes, the business continues to generate recurring revenue without needing to repeatedly invest in marketing to the same customer.
The focus shifts to retention and increasing the customer's lifetime value (LTV), making each acquisition more cost-effective in the long run.
But how do subscription business models actually work? Let's dive in!
Recent data from a recent industry report shows that subscription models are gaining ground as a sustainable growth strategy for eCommerce businesses. The report found that subscription models grew at a 60% rate, far outpacing other retail models.
Additionally, 45% of subscribers remained loyal to brands for over six months, proving the effectiveness of subscriptions in improving customer retention.
According to a global subscription economy report, rising customer acquisition costs (CAC) are a growing concern, with companies increasingly focusing on retention through subscriptions to reduce CAC and increase lifetime value.
These findings highlight the significant advantages of subscription models:
Reliable Recurring Revenue: Subscriptions provide predictable, ongoing revenue, making cash flow more stable and easier to forecast.
Improved Customer Retention: Subscribers tend to stick around longer, leading to lower churn and deeper customer relationships.
Lower Customer Acquisition Costs: Retaining a subscriber is more cost-effective than acquiring new customers, boosting the overall lifetime value.
Better Inventory Management: Subscriptions help businesses forecast demand more accurately, optimizing inventory and reducing waste or stock shortages.
For store owners, applying a subscription model can be a game-changer for long-term business sustainability and growth.
Subscription business models work by offering customers ongoing access to a product or service in exchange for recurring payments, typically on a monthly or yearly basis.
Instead of making a one-time purchase, customers agree to a subscription that delivers continued value, such as regular shipments of products, access to premium content, or maintenance and support services.
Here’s how it typically works:
Sign-Up and Subscription Plans: Customers choose a subscription plan that fits their needs. Businesses often provide tiered options, allowing customers to select from basic, premium, or custom plans, each with varying levels of features, products, or service frequency.
Recurring Billing: Once a customer subscribes, they are billed automatically at regular intervals (e.g., monthly or annually). This ensures continuous cash flow for the business and a seamless experience for the customer, who doesn’t need to place new orders manually.
Product or Service Delivery: Depending on the type of subscription, customers receive the product or service at the agreed-upon intervals. For physical products, this could be monthly shipments of consumables, curated boxes, or necessary supplies. For digital services, customers might gain continuous access to premium content, software, or maintenance services.
Customer Retention: Subscription businesses focus on retaining customers by delivering ongoing value, offering personalized experiences, and providing excellent customer support. The goal is to keep subscribers engaged so they renew their subscription rather than canceling.
Overall, subscription models create a recurring relationship between the business and the customer, providing convenience and consistent value while generating predictable revenue for the business.
The subscription model works best for businesses offering products that customers need or want regularly
Businesses that sell consumable goods are an ideal fit for a subscription model. These are products that customers use up regularly and need to replenish frequently, such as toiletries, grooming supplies, pet food, coffee, or household items like cleaning supplies.
A subscription model offers convenience by ensuring customers never run out of these essentials, and they can receive them automatically at regular intervals.
This recurring model not only ensures steady revenue for businesses but also fosters customer loyalty, as subscribers are less likely to switch brands once they are locked into the convenience of automatic replenishments.
Curated subscription boxes provide an engaging experience for customers, especially in categories like fashion, beauty, food, and hobbies. These businesses deliver a personalized assortment of products on a regular basis, allowing customers to discover new items without the hassle of selection. Companies like Birchbox (beauty), Rent the runway (fashion), or Blue Apron (meal kits) offer curated experiences tailored to individual tastes and preferences.
For businesses, this model creates recurring revenue while enhancing customer engagement by adding an element of surprise and personalization. Curated boxes work well because they turn shopping into a regular, enjoyable experience rather than just a transaction, keeping customers engaged and excited with every delivery.
Overall, if your business involves products that customers consistently need or benefit from over time, a subscription model is a great fit.
Businesses that offer physical products can also leverage a subscription model through ongoing services related to their products. Maintenance services, replacement parts, and support packages are excellent examples.
For instance, companies that sell home appliances or electronics can offer subscription plans for routine maintenance, priority repairs, or extended warranties.
Similarly, a printer company might offer a subscription for automatic ink or toner replenishment combined with tech support. This ensures that customers not only receive the physical product but also benefit from ongoing services that keep the product functioning optimally.
These service-based subscriptions ensure recurring revenue and long-term customer engagement while providing continuous support and added value for the physical product.
This model helps businesses build a strong relationship with their customers by offering more than just the product itself, but also the services that keep it useful and relevant over time
Subscription models are a powerful tool for eCommerce businesses, offering steady revenue, improved customer retention, and lower acquisition costs. Whether it's consumables, curated boxes, or service-based products, subscriptions provide a scalable, sustainable path to growth. With subscription commerce growing 60% faster than traditional retail, now is the perfect time to adopt this model.
Install Joy Subscription today and start building long-term relationships with your customers.
