Five Reasons You Should Consider the Subscription Business Model for your Business
This is a guest post from Josh Ludin at Blind Surprise.
There’s absolutely nothing new about the subscription business model. “Of-the-month” clubs have been around for years; wines, steaks, cigars, soaps were all available long before BirchBox or DollarShaveClub were conceived. Over the course of the last 5 years, though, the subscription eCommerce business model has taken on an entirely new life, with seemingly absurd ideas growing their fan bases rapidly.
When our team launched subscription box Blind Surprise in early 2014, we were essentially just hopping on the subscription eCommerce bandwagon. The party had already started, and was heating up fast, and we entered with no invitation and real reason to be attending. Over the last 7 months though, I’ve fallen in love with the business model, and am constantly urging friends and other entrepreneur-minded folks to seriously consider joining the community.
There’s a reason why people are literally addicted to subscription services, and entire popular websites and directories have been built to feature these mystery boxes. Additionally, the benefits of running a subscription eCommerce business can be evaluated and applied to other ventures, regardless of the business model. Let’s take a look at some of the reasons that have attributed to the launch of the subscription eCommerce phase.
1. Ability to Spend Lots on Customer Acquisition
If you’re selling a product for twenty dollars, and it cost you ten dollars to produce, it wouldn’t make much sense to drop the price of the product down to eight dollars. But, if you knew that if your customer paid eight dollars for that product in month one, and then twenty dollars for it during months two through six, you’d certainly be willing to take a loss that first month. That’s the beauty of the subscription business model: you’re able to pay a lot more for customers upfront, understanding that you will make a profit off them in months to follow.
This allows you to participate in programs like flash deals and Groupon as a method for rapid customer acquisition. Of course, though, it is important to first know what your customer retention rate averages so you don’t run your business into the ground by paying lots for customers that cancel immediately.
2. Easy Process for Customers
One reason why buyers love subscription boxes is because it takes all the work out of making a purchase. Think about Birchbox for example – if you want to sample makeup brands, you can either shop around and buy a bunch of different types of makeup each month, or you can sign up for Birchbox and simply receive a variety of samples. The products arrive every month at your door, and your credit card is charged automatically. It’s a one stop shop and the consumer saves time, money, and energy.
3. Using Suspense as a Tool for Acquisition
We live in an economy where people want instant gratification. Amazon’s currently trying to develop and roll out the technology that would allow for 30 minute delivery on purchases! But subscription boxes take the opposite approach – they create suspense. No matter how quickly people will start receiving products from Amazon, everybody will always love that feeling of unwrapping a gift on the holidays, and subscription boxes continue to thrive as a result.
4. Minimal Options for Customer = Quick Checkout Process
eCommerce stores always struggle with making the checkout process as easy as possible. There are billions of websites, and it is extremely frustrating for a customer to land on your website, add products to their cart, get to the payment page, and then exit out. It’s simply heart breaking. Subscription eCommerce, though, is the easiest purchase process out there; no shopping around is necessary once a customer arrives on the site. They can simply click subscribe, put in the payment info, and you’ll receive their money every month going forward! On my website, it is literally possible for somebody to become a subscriber in under 2 minutes.
5. Inventory Forecasting
Typically, subscription business models don’t have to inventory an abundance of SKUs. There are maybe a few different products being shipped in the mystery boxes each month. Subscription services start each month with a pretty solid forecast of what sales will be and how many boxes will be shipped, so purchasing the correct amount of inventory doesn’t pose a large problem.
The above benefits are clear reasons why eCommerce entrepreneurs are enticed by the subscription business model. As I mentioned, though, even if you’re business is structured differently, it’s worth analyzing these benefits and determining how you can implement practices that result in the same advantages. For example, how could you improve and streamline the checkout process in your store? Is it easy for customers to make a purchase, or are there speed-bumps that may be costing you revenue? Are there ways for you to make more on each customer, so that you can spend additional cash on advertising and customer acquisition? Is there any way that you can create suspense in your business to help build excitement and force people to make purchases based on anticipation?
There’s a reason this model has become so popular in recent years; the benefits are clear. But regardless of your business model, it’s always worth evaluating what is working in other fields and looking for ways to improve your practices.
Josh Ludin is the founder of the subscription box Blind Surprise and writes about his path to building a subscription eCommerce business and making money online at Never Job Hunt. He is determined to motivate aspiring entrepreneurs to take the leap of faith and begin building businesses and create the lifestyles many only dream of from the confines of their cubicle. Additionally, he writes about start up advice and tips to help young businesses get over that first plateau and find profitability.