The 4 Ecommerce Subscription Types (Pros & Cons)
Real talk: nothing is more attractive for an ecommerce business than having a robust subscription program and MRR base.
When people think about recurring revenue, they typically think about SaaS, utilities, etc. But that's no longer the case.
In recent years, product-based subscriptions have exploded in popularity, and it's easy to see why.
For customers, they provide convenience and cost savings, while for brands, they bring in reliable, recurring revenue and higher business valuations.
Benefits Of Ecommerce Subscriptions
The Subscription Model isn't just convenient for customers, it's an amazing way for businesses to boost their revenue and predictability.
1) Recurring Revenue Flow: With customers signing up for regular deliveries, businesses can bank on a consistent stream of income. This stability can be a game-changer, helping with budgeting, forecasting, and growth planning.
2) Increased Customer Retention: As customers get used to the convenience of automated deliveries, they're more likely to stick around, leading to higher retention rates. The longer a customer stays, the higher their lifetime value. And that, my friends, is what we call a win-win.
3) Opportunities for Upselling: The frequent touchpoints with customers provide ample room for upselling other products. By tailoring recommendations based on customer usage and buying patterns, you can smartly boost your customer lifetime value (CLTV).
4) Lower Acquisition Costs: The recurring nature of the replenishment subscription model means you’ll be spending less time and money acquiring new customers. Instead, your focus can shift to pampering your existing subscribers and keeping them happy.
There are four primary types of ecommerce subscriptions that have been proven to work - each with their own advantages, nuances, and challenges.
Let's break down each of the four types.
The Replenishment Model
The first of the four ecommerce subscription types is the Replenishment Model. This is typically type of subscription model that works best for consumables or replenishment-based businesses.
Some great examples would be food products (ex. Olipop), supplements (InnoSups), personal care products (Curie Deodorants), or cleaning supplies (ex. Dropps).
The big premise of these subscription services is to make it easy and convenient for customers to get recurring deliveries of the products they need, when they need them.
Why This Model Rocks
Replenishment based businesses that nail subscriptions become incredibly valuable.
In theory, customers may genuinely want to use your consumable product forever if they like it enough and can get on a consumption protocol.
Think about your favorite deodorant, the dog food you prefer for your pup, a trusted daily creatine supplement, or the coffee you've been drinking for the last five years.
Once you find something you like, there's really no need to shop around - and that loyalty is golden if you're a brand.
As long as your customers are actually consuming your product and enjoying it, you can theoretically keep them subscribing for years and years.
Challenges To Consider
The Replenishment Model only works when customers are consuming your product on a regular basis. This means that you need to find the right balance between frequency and quantity so that you’re not overwhelming or underproducing your customer base.
Because of the major pitfalls replenishment based brands fall into is spending a ton of time acquiring subscribers, but very little getting them to actually consume. When this happens, people may stay subscribed for a month or two, but eventually will have too much product stacking up. At this point, they will cancel and there's not much you can do.
Another challenge is that replenishment-based subscriptions typically have to have a financial benefit or discount for a customer attached.
Normally, the "put your X on autopilot" value prop is not enough. So brands usually have to provide subscribers a small discount (ex, 10% off every shipment) or some other benefit to incentivize them to subscribe rather than purchase as needed.
Finally, replenishment businesses usually have a lower barrier to entry than most other types of subscriptions, which means you'll likely have some competition. It's important to make sure your product stands out from the crowd and offers a unique value that customers can't get anywhere else.
That being said, if you can pull off an amazing Replenishment Model subscription service, it can be a major boon for your business.
What Brands Do Replenishment Well?
There are SO many amazing brands that do replenishment-based subscriptions well.
In the food & drink category, we love brands like Olipop, a delicious plant-based soda and sparkling tea company that offers subscriptions for all their products. Or Four Sigmatic, mushroom based coffee and drinks.
In the personal care category, a great example of someone nailing it is Curie Deodorant, who offers up a monthly subscription for men's and women's deodorants.
For supplements, there are so many. Think brands like Athletic Greens.
Finally, in the cleaning supplies department, Dropps is killing it with highly customizable cleaningsupply subscriptions, tailored to each user's needs.
As you can see, there are plenty of options to choose from when it comes to Replenishment Model Subscriptions - and we've only just scratched the surface!
The Curated Box Model
The next type of subscription ecommerce businesses typically use is the Curated Box Model. This is when a business curates a variety of items and packs them into a themed box, which is then shipped out on the same date each month.
This type of subscription works great for businesses that carry multiple products or categories - especially if those products change every month.
Why This Model Rocks
The Curated Box Model is incredibly popular right now because it's different and exciting for customers. It's a great way to introduce subscribers to new products they may not have known about before, while also keeping things interesting with variety. Plus, it's fun!
The idea of getting a surprise package in the mail every month really resonates with customers - and can lead to excellent customer retention.
Challenges To Consider
The challenges with the Curated Box Model are similar to the Replenishment Model, but in different ways.
For starters, it's important to make sure you're curating your boxes and including products that will be relevant for customers. If people don't like what they get in their boxes each month, your retention rate is going to suffer - so it's essential to keep the content of your boxes fresh and exciting.
Another big challenge is pricing - you need to make sure the value of the box justifies its cost, otherwise people may not see the point in subscribing. You can also increase retention by giving subscribers a choice in what goes into their boxes, as well as offering discounts or other incentives for sticking around longer.
Finally, it's important to make sure your customers are getting something unique in the boxes that they can't get anywhere else. If people are just getting stuff that they could find on Amazon or at their local store, there's not much incentive to subscribe.
What Brands Do Curated Box Subscriptions Well?
There are plenty of great brands out there rocking the Curated Box Model.
FabFitFun is a great example of an ecommerce business that does this well - they curate boxes full of beauty, wellness, and lifestyle goodies for their subscribers every season.
Another standout is BarkBox, which offers up themed boxes filled with different treats and toys tailored to your pup's size and preferences each month.
Finally, there's Mystery Tackle Box - they send out a box filled with fishing gear each month to help anglers get the most out of their time on the water.
No matter what type of ecommerce business you run, there are plenty of ways to take advantage of the Curated Box Model and keep your customers coming back for more.
The Access Model
In this subscription/membership model, customers pay a membership fee to have access to your products or services, like Amazon Prime to warehouse clubs like Costco. This model can be rewarding for customers because they get exclusive access to long-term savings, brand loyalty perks, and member-only discounts.
Advantages of the Access Model
The Access Model is all about giving customers a great value for their money.
With this subscription type, you can offer exclusive discounts and deals to members that they won't be able to get anywhere else. You can also provide access to exclusive products or services that non-members don't have, as well as loyalty rewards for staying subscribed for longer periods of time.
In addition, access-based subscriptions give you an opportunity to build a strong brand loyalty among your customers. Many brands use the access model to offer exclusive experiences to members, such as early product releases, first access to sales, or VIP treatment.
This helps to create a sense of community amongst your subscribers and can lead to higher customer retention rates than other subscription types.
The best subscription brand on the planet, Amazon, is the the reigning king AND queen of the Access Model.
Challenges To Consider
The biggest challenge with access-based subscriptions is keeping up with the demands of customers.
You need to make sure you're offering enough exclusive value in your subscription that customers feel like they're getting their money's worth - otherwise, they may not stick around for very long.
It's also important to remember that access-based subscriptions require more upfront investment than other types of subscriptions, so it may take longer for them to start making a profit.
Finally, you need to make sure that your customer service is up to par - access-based subscriptions rely heavily on customer support and the customer experience. If people don't feel like they're being taken care of, they won't stick around for long.
What Brands Do Access Subscriptions Well?
There are plenty of brands out there doing access-based subscriptions well.
On the physical retail side, Costco is a clear example. They provide members with access to exclusive discounts and deals, as well as a wide variety of products at low prices.
Then of course, there's Amazon and Amazon Prime - the big daddy of ecommerce. Amazon Prime provides members with access to exclusive discounts on products, free two-day shipping, and tons of other benefits.
Finally, there's Birchbox - they offer a monthly subscription that grants subscribers access to five beauty samples each month for an affordable price.
For ecommerce businesses looking for ways to give customers more value, the Access Model is definitely worth considering.
The Collection Model
The collection model is a great subscription service to offer if your customer base is passionate about collecting your products.
Subscription memberships or clubs can be created to deliver new products every month or quarter to expand the customer’s collection. Think of collectible figurines, baseball cards, or exclusive tee shirts as an example.
Advantages of the Collection Model
The Collection Model is amazing because it taps into the identity of the customers. It's about stuff that your customers want, not need. And that's powerful.
This allows you to build an ever-growing culture of loyalty with your customers, as they feel like they're part of an exclusive group and are rewarded for sticking around. As customers become increasingly invested in their collections, they are likely to stay subscribed longer and tell their friends.
Because it's not tied directly to utility in the same way as some of the other models, if you can crack the code on building a community and brand people want to be a part of, you can charge premium prices for your subscription and keep people around for a long time.
Challenges To Consider
Two primary challenges to building a great "Collection-based" subscription business.
First, these products are typically not being consumed, which means your customers get more and more of your product with each shipment. If they don't actually use the product, then it's easy for them to become overwhelmed and unsubscribe.
Second, product innovation and development. It can be difficult to keep your customers engaged when they're receiving the same types of products over and over. You need to make sure that you're consistently creating new products and collections that your customers will be excited about. This requires a significant amount of time, effort, and money - but it's an investment that can pay off in the long run.
What Brands Do Collection Subscriptions Well?
The success stories for collection subscriptions are endless, from Funko Pop to Loot Crate. These brands have found a way to tap into the passions of their customers and keep them coming back for more.
One of our clients, Til Valhalla Project, has a monthly tee shirt membership with an average subscriber retention of 13+ months!
Whether your customer base is passionate about collecting figurines, trading cards, or limited edition tees, the Collection Model can be a powerful tool for your ecommerce business.
Which Model Should You Choose?
Ultimately, the type of ecommerce subscription you decide on depends on your own unique business model and customer base.
The Access Model is great for businesses that are willing to invest heavily in an ecosystem of member benefits. While this can result in lower cash flow at first, they might be the most resilient long-term businesses.
The Replenishment Model is a no-brainer for businesses that sell products customers need (or want) on a regular basis. This model is easy to set up and requires minimal effort to maintain, so it's a great choice for ecommerce brands who want to provide an easy, hassle-free shopping experience for their customers.
The Curation Model is great for businesses that want to create a personalized experience for each customer. It's also great for brands with lots of products who want to show customers what they have to offer.
Finally, the Collection Model is perfect for ecommerce businesses whose customers are passionate about collecting their products. This model typically requires more upfront investment in brand building, but it can result in incredibly loyal and long-term customers.
No matter which model you choose, it's important to remember that the subscription business is an ongoing process. You need to constantly evaluate how your subscriptions are performing and make adjustments if needed.
With enough hard work and dedication, you can create a successful ecommerce subscription business that brings in a steady stream of revenue for years to come.
If you run a Shopify brand with a subscription program or are considering starting one, we can help! We are a team of ecommerce subscription strategists who specialize in helping high-growth brands build and scale MRR and retention programs. Reach out today for a no-commitment intro call.