E-commerce can be so much more than selling physical products.
You can go beyond the limitation of physical products and one-time purchases using the subscription-based business model. It’s a model that many e-commerce giants use to stabilize their revenue and guarantee higher customer lifetime value.
If your customers love your physical products, they will also love paying for a digital product (a membership) that guarantees them receiving the products regularly and getting some relevant perks and bonuses. This originally started with newspapers and magazines before expanding to many other industries and then to e-commerce.
Table of Contents
Overview of the global subscription e-commerce market
What is the subscription-based business model?
How to use subscriptions in your e-commerce business (+ Examples)
The bottom line
Overview of the global subscription e-commerce market
The subscription e-commerce market grows significantly each year. It’s expected to reach US $330.58 billion in 2024, up from US $199.41 billion in 2023, which indicates a 65.8% compound annual growth rate (CAGR). Moreover, the global subscription e-commerce market is expected to grow even more to reach US $904.2 billion by 2026.
What is the subscription-based business model?
A subscription-based model is a business model where customers are charged a recurring fee in exchange for certain benefits or a regular supply of certain products/services.
Instead of one-time purchases, this model is similar to having a contract between you and the customer where the latter agrees to pay for a value proposition for a specific period of time. The customer can have the option to pay weekly, monthly, or yearly, and they can renew or cancel their subscription when the contract ends.
Subscriptions and memberships have become highly profitable digital products to sell. Most software-based companies use this model as their primary business model to generate revenue, but this doesn’t mean physical-product-based businesses cannot benefit from it.
What are the benefits of the e-commerce subscription business model?
The subscription model incentivizes customers to build a long-term relationship with your e-commerce brand instead of a one-time purchase. It also “digitizes” the e-commerce business; instead of being limited by the income generated from selling physical products, you can now generate income from digital products.
The subscription business model also has other benefits, such as:
- Recurring clients for an extended period of time
- Consistent and predictable income
- Reduced cost of client acquisition (increased retention)
- Increased customer lifetime value
- Valuable and accurate customer data
This model is also beneficial for customers. It releases them of any worries about running out of essential products or having to buy more of them at full price.
How to use subscriptions in your e-commerce business (+ Examples)
The traditional subscription-based business model in e-commerce is usually centered around providing a regular supply of products, but this doesn’t work for all e-commerce businesses.
Some products require regular use. This means you can use the classical e-commerce subscription business model with products like skincare, snacks, supplements, pet food, etc. Many people pay to have these products delivered directly to their door each week or month.
However, if your products don’t belong to this category, you can provide a subscription that gives your customers other special perks and benefits. In general, there are 3 types of e-commerce subscription models:
1. Replenishment subscription model
This is the most known subscription model in e-commerce and works best for products that require regular purchase. It’s also called subscribe-and-save or auto-ship subscription.
In this model, customers subscribe and automatically receive regular deliveries of the products they need and consider must-have.
- Example: FFS Beauty has adopted this model since launching. When the customer subscribes, they receive their first order (which is a new razor and replacement blades). After this, they regularly receive replacement blades for the long-lasting razor.
2. Access subscription model
This is an e-commerce membership where people pay a recurring fee to have the ability to choose which products they want to be delivered to them whenever they want. It also gives members exclusive offers and discounts as well as exclusive content.
Instead of focusing solely on physical products, this subscription model allows e-commerce businesses to offer other benefits to their customers and treat them like special members.
- Example: LOLA adopts the access subscription model to share special offers and exclusive discounts with its customers. It also gives them other perks, such as the ability to donate products to those in need.
3. Curation subscription model
This model is based on a “surprise” element. When a customer subscribes, they will receive a curated collection of products in each delivery, but they don’t get to choose them. The brand selects a range of products and delivers them to customers on a monthly or yearly basis.
- Example: Bokksu has a curated Japanese snack subscription. It offers monthly snack boxes of various authentic snacks, teas, and candies delivered to the subscriber’s door.
The bottom line
The subscription business model boosts the potential of your e-commerce business and takes away the limitations of one-time deals. However, keep in mind that the competition in subscription offers is high, and you should develop a subscription offer that is relevant and valuable to your customers. Make sure to do market research the same way you do when you choose your products.
