Subscription commerce is experiencing explosive growth–and you don’t need to look far to understand why! The business model holds numerous benefits for both consumers and business owners. So, it’s no surprise that both parties embrace it with open arms.
What is Subscription Commerce?
Subscription commerce is a business model where customers subscribe to a company’s regular supply of products or services. This model provides consumers with a convenient, cost-effective, and customized way to purchase items they regularly need in exchange for a fixed fee–typically monthly or annually. McKinsey & Company reported that about 15% of online shoppers have registered for one or more subscriptions to receive products regularly, often via monthly subscription boxes.
The subscription model is not exactly a new phenomenon in the business world. History shows that the concept has been around since the 1800s when consumers started paying for their magazine subscriptions. Over the years, many companies, including those in fashion, food, beauty, and entertainment, have adopted subscription-based models in their business operations. The outcome of this adoption is the birth of a billion-dollar industry that, according to Statista, will generate more than 38 billion dollars in revenue by the end of 2023.
Pros of Subscription Commerce
If executed correctly, subscription commerce is a perfect example of a win-win model for both consumers and businesses. It allows consumers to enjoy the consistency and comfort they desire while providing firms with a constant revenue source, a high customer retention rate, and a growing customer base.
Constant Revenue Source
Unlike the regular pay-per-use model, subscription commerce removes the unpredictability of business revenue. While companies running on the usual model may struggle with income irregularities, the subscription business model allows you to predict the total revenue you expect to receive in a month. The subscription framework guarantees you a constant revenue stream. That will help you predict future sales and make better decisions for your business. The model also enables you to manage your inventory more effectively. You’ll know the exact materials that need replenishing and the required quantities.
High Customer Retention
Running your e-commerce business on subscription can significantly increase your customer retention rate. Consumers enjoy their convenience, and this business model gives them precisely that. The model can lower your churn rate and boost your customer’s lifetime value as long as your subscription service remains valuable. As the cliche says, it costs much less to retain a customer than to acquire a new one. By improving your customer retention ratio, subscription commerce saves you money in marketing funds, thus widening your profit margin.
Over the past ten years, the subscription commerce market more than doubled in size and will continue on this route of exponential growth. This growth is due to the consumers’ constant search for more convenient and affordable ways to purchase products and services they require regularly. Adopting the subscription model for your e-commerce business allows you to acquire your share of the ever-growing market and raise substantial profits.
Cons of Subscription Commerce
Despite its many perks, subscription commerce does not come without its disadvantages. It is imperative that you weigh the pros against the cons before deciding to run an ecommerce subscription service.
Thanks to its benefits, more companies are adopting the subscription model than ever before. The downside to this mass adoption is the rise in competition among businesses that have adopted the model. This competition can make acquiring and retaining customers a tedious task. Business owners thinking of launching their subscription services will have to take extra measures to differentiate themselves from the competition to snag their market share.
Increased Supply Chain and Logistics Pressure
Subscription commerce can increase your sales volume and put loads of pressure on your logistics network. If this network is not well-oiled, it might cave, create a bottleneck in your supply chain, and cause problems such as late shipments, higher operating costs, and a reduction in product quality. These problems can lead to the unfulfillment of buyer expectations and leave your customers dissatisfied.
GoShip can take the logistics pressure off your shoulders.
Launching a subscription service for your e-commerce business can help you accrue a steady revenue source and retain your customer base. However, with an increased sales volume comes a rise in logistics pressure– this is where GoShip comes in. GoShip.com is an online self-service platform that assists ecommerce businesses to find efficient and affordable local freight carriers. We take care of the logistics aspect of your business, so you never have to worry about late shipment or other issues again.
Our online quotation tool gives you a free quote and connects you with the best freight carriers in your area. All you have to do is enter your shipping details, and you’re good to go!