I am a huge fan of comfort. My groceries are delivered to my door once a week, and my dog food is automatically supplied once a month. Heck, once or twice a year, I'd like my favorite businesses to surprise me with new things. And I'd like to stay away from retailers as much as possible these days. So, on numerous levels, online subscription businesses appeal to me.

By 2025, the subscription e-commerce market is expected to be worth $478 billion.

And I'm not the only one. 15 percent of Americans have signed up for one or more subscriptions to receive things on a recurrent basis, according to McKinsey. The subscription e-commerce market is expected to grow from $15 billion in 2019 to $473 billion by 2025 —making it lucrative for both present and aspiring entrepreneurs.

This article is for you if you want to add subscription services to your Shopify store or establish a subscription e-commerce business from scratch. I'll go through the advantages of recurring revenue, the various subscription business models, and how to get started on Shopify in the sections below.

What are the benefits of starting a subscription business?

In brief, Subscription e-commerce businesses provide online buyers with a convenient, tailored, and cost-effective option to buy what they want and need on a regular basis. Meanwhile, businesses can grow by generating regular monthly recurring revenue (MRR).

Let's take a look at the advantages of a subscription-based business model:

1. Predictable Revenue

Knowing upfront how much money will come in each month makes everything easier, from sales forecasting to inventory planning. It also means you know how much you can put back into your company's growth.

2. More cash on hand

Many subscription services require full payment upfront in exchange for a discount. This buffer can give entrepreneurs much-needed peace of mind in addition to helping with cash flow.

3. Spend less on customer acquisition.

Businesses that use a pay-per-product pricing model must invest in marketing and sales on a regular basis in order to attract new consumers and boost revenue. A major cause of startup failure is rising client acquisition costs. Customers pay you on a regular basis using a subscription-based model, so you don't have to invest as much in new curation.

It can cost 5–10 times more to acquire a new customer than it does to keep an existing one.

4. Customer Loyalty

Subscription businesses, when done right, create incredibly loyal, repeat consumers, who spend 67 percent more than new customers. Customer lifetime value is based on this assumption, and it is one of the most critical aspects in determining a company's success.

Subscriptions' recurring nature creates a virtuous cycle: recurrent purchases provide greater insights into your customers' behavior, allowing you to continuously improve the personalized experience you provide and, as a result, keep customers coming back.

5. Eases upselling and cross-selling

You're in a unique position to gain additional money from existing consumers if you use a subscription model. You're developing a trustworthy relationship with your customers since you're in constant communication with them. Because customers already know you provide a useful service, it's easier to sell them additional products or services.

If done correctly, starting a subscription business can be incredibly profitable. The first step is to determine which subscription model is best for your company.

How to choose the right subscription business model

Curation, replenishment, and access are the three important forms of subscriptions. They all have advantages and disadvantages, so figuring out which one is best for you will depend on the types of physical and digital things you offer, your capacity, and your specific business ideas and ambitions.

Curation Subscription Business Model (i.e., subscription box)

Companies like  Stitch Fix, Blue Apron, and Birchbox made this the most popular subscription business model. These are subscription box companies that aim to surprise and please clients by delivering fresh things and highly tailored experiences.
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Typically, these companies sell products in the beauty, food, and fashion sectors, but the model can be applied to a wide range of products and is spreading into new areas every year.‍

BENEFIT

• The profit potential is high:  Subscription boxes can be quite profitable—in fact, a few curator brands are driving the subscription market's growth and share. Subscription boxes, which range in price from $15 to $100 per month and promote the discovery of new things, are considered a "splurge" by most standards. This profit concept can quickly scale if compounded weekly.
  

RISK

• There is a lot of churn: Because novelty fuels initial enthusiasm for these enterprises, this strategy is prone to higher client churn. Furthermore, because these products are often specialized non-essentials, subscription box firms thrive when the economy is good, but they are the first to go during a downturn.
• Operational difficulty: Not only is it more expensive to acquire clients in the subscription box industry, but these businesses also have far greater running costs, such as packing, branding, and regular shipping.
  

Replenishment Business Model

This approach is focused on saving money and offering convenience. Consumers can use replenishment subscriptions to automate the purchasing of critical supplies, frequently at a discount.

Because most products don't need to be restocked on a regular basis, the types of products you sell are crucial in this company strategy. Razors, diapers, vitamins, and pet food are ideal examples of commodities and convenience goods that work well with the replenishment model.

Benefits

• Conversion rates are higher: Customers who are considering a replenishment service subscribe at a rate of 65%, which is much higher than the other models (50% ).
  

• Retention rates are higher. The replenishment model has exceptionally high long-term subscription rates due to the nature of the products that these businesses sell: At least one year has been subscribed to by 45% of members.
  

Long-term membership rates for replenishment services are particularly high: 45 percent of customers have signed up for at least one year.

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Risks

• Marginally thin: In many cases, this business strategy forces businesses to compete on pricing and give substantial discounts. This means that in order to make money, businesses must keep their expenses low and operate at scale (in other words, sell a lot of products).
  

Access Business Model

Subscribers to Access pay a monthly subscription in exchange for discounted rates or exclusive benefits. Access subscription businesses like NatureBox, JustFab, and Thrive Market all focus on providing clients with exclusivity.

Benefits

• Customer value is increased: Customers who pay for exclusive access to perks have the opportunity to receive customized offers that will help you strengthen your relationship with them. Create a community of individuals who can interact through forums or Facebook groups to extend that value even further.
  

• Opportunities for bundling: Customers can get a variety of things (as well as non-tangibles like future purchase discounts) as part of a single membership.
  

Risks

• Increased time commitment. Because access does not require a single service or product that can be added to the cart at checkout, you will need to invest time and effort to ensure that your membership offering is comprehensive and well-maintained for it to be of value to your customers.
  

Add-on subscription business model 

This isn't a business model persay, but it is a hybrid method that allows you to add subscription services to your existing company. More and more businesses are adopting this revenue model since it allows them to experiment with the subscription ecosystem without committing to a single revenue strategy or rotating your business.

You can make the subscription business model work for you with the tips below

The most significant risk for subscription businesses is Churn. The good news however is that once subscribers find a service they enjoy, they can be quite loyal. Here are a few pointers for reducing churn and running a lucrative subscription business:

1. When it comes to price, be conservative at first.

Many subscription customers churn quickly, so don't waste money on free trials or deep discounts unless there's a clear payoff. Furthermore, as your business grows, pricing should be checked, adjusted, and assessed.

2. Invest in personalization

Customers anticipate personalized subscriptions to become increasingly more tailored overtime for all business models, but especially for the curation model. A personalized experience was the most significant motivation for 28 percent of curation subscribers to keep subscribing.

Do you have the data knowledge or technical stack in-house to help you scale your personalization efforts? Do you have the funds to invest in it if not?

3. Set clear business goals

Is it a revenue figure, a customer number, or the number of products sold? Whatever your business objectives are, you must keep them in mind when deciding on a business model.

4. Examine the viability of your product.

In any business, the first step is to assess your product/market fit and viability. Some product categories, particularly in the subscription arena, are oversaturated, making it far more difficult to break into the market.

The meal-kit category, for example, has extremely high cancellation rates within the first six months, owing to competitive pricing and broad similarities among the major competitors. Do your homework to make sure there's a market for your goods and keep an eye on your competition.

5. Increase the number of marketing channels and approaches you're using.
   

To attract new customers and engage existing members, subscription business models employ a variety of media. Influencer marketing can help you establish social clout if you're just getting started.

Email is a key tool for all business types, especially subscription-based organizations that rely on frequent and meaningful client connections. It's important to remember that each subscription business model has its own "marketing match." Affiliate marketing, for instance, is the most effective acquisition channel for the curation model. The built-in marketing surface of recurring packages allows you to engage with those customers.

6. Make retention strategies of prime importance.
   

To get sales in the early phases, you must prioritize acquisition. However, after you've got things going, it's time to shift gears and focus on customer retention strategies.

Remember that acquiring a customer is more expensive than keeping one, and you can always get more value from a loyal customer base. Most subscription businesses focus all of their efforts on obtaining new customers, but this isn't the most efficient approach to expand.

7. Keep an eye on churn.
   

It is important that in order to improve your service, you should track and analyze voluntary churn (customers who terminate their membership).

8. Look out for involuntary churns
   

Throughout a subscription customer's lifecycle, expired, lost, or stolen payment cards, address changes, and network problems all contribute to involuntary churn.

Involuntary churn constitutes 20–40% of overall churn, according to Profitwell. So staying on top of these typical causes can make a major impact on your bottom line.

Here’s how to launch a subscription business on Shopify

Are you adding a subscription option to an existing business or starting from scratch? Either way, Shopify makes it simple to start a subscription business. There are two options: integrate a Shopify app into your store or create your own unique solution.

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Recommended App‍

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Creating a subscription offering is easy; simply install the Chargezen subscription management app. You can design, manage and grow any startup, mid and enterprise level subscription business using Chargezen.

Also, Merchants don't have to choose between selling subscription products and using Shopify's checkout any longer.

This is because Shopify is taking steps toward making checkout more extensible so that developers may help tailor it to fit the demands of more merchants. Keep an eye out for Shopify's improved subscription management app - Chargezen. It enables brands to sell recurring products, build custom subscription boxes, gain insights into their data, and more to create an incredible experience for their customers! From CRMs, automation, accounting tools, invoicing to tax management; Chargezen integrates with all the apps you’re currently using and constantly adds support for more.

And while merchants who add subscription products typically see a 25% increase in revenue, Chargezen customers also see a 45% decrease in churn, thanks to their churn bursting algorithm.

The best part is; Chargezen not only has a free plan for you, they also charge less than 1% per subscription product unlike their competitors, needless to say, their developers will also take care of the installation for you. So, whether you’re adopting a subscription app for the first time or looking for an economic and comprehensive solution as a Marchant, switching to Chargezen will not only save you on average 50% in third-party apps spent an overage charge, you will also enjoy free SMS-self service among many other customer-friendly integrations to ease shopping, enable your end-users/customers edit or cancel subscription and receive various upsell features so you can spend less on marketing.

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