Top 6 Benefits of the Subscription Model

Thanks to the popularity of the subscription business model, you’ve probably been hearing a lot about how the subscription economy is absolutely booming. That's because it’s actually one of the fastest-growing industries and is expected to reach $1.5 trillion by 2025. A significant part of this growth can be attributed to the advantages of recurring payments that are inherent to the model.

So: why is this happening? Well, a major reason is that subscriptions offer perks for both brands and consumers alike — which is a significant reason why the subscription model works in the first place.

Of course, a substantial component of finding subscription success involves identifying the best Shopify subscription app for your brand. But before you can vet the right subscription management solution, it’s important to understand exactly why subscription models (and recurring orders) work in the first place.

We’re diving into the 6 benefits of the subscription model for DTC eCommerce brands so you can fully grasp why so many businesses have been learning to leverage monthly recurring revenue.

But First: What’s a Subscription Model?

Just so we’re all starting with the same baseline, let’s discuss what we mean when we say “subscription model.”

A subscription business model is one that revolves around a recurring revenue stream where customers pay regularly to access products and/or services. Streaming platforms are an example of a subscription that gives you access to a subscription service (like Netflix) whereas DTC Shopify brands would be an example of accessing products via subscription. For the sake of this article, we’ll be focusing on the product side of things.

Subscription Perks for Customers

Before exploring the many advantages that the subscription model provides for brands, let’s take a quick look at what subscription-based business models and recurring payments provide for consumers:

• ✅ Convenience
• 💵 Savings (Subscription pricing regularly comes with discounts baked in)
• 🤝 The chance to have a personalized and engaging experience

Knowing why consumers are so attracted to subscriptions can help brands further lean into and reap the benefits of this business model.

Subscription Model Advantages For eCommerce Brands

1. Dependable Recurring Revenue & Improved Forecasting

Unsurprisingly, the ability to generate a steady stream of predictable revenue is probably the biggest draw when it comes to subscription billing — especially if you’re effectively leaning into your subscription analytics.

Not only is having a reliable cash flow highly conducive to experiencing both substantial and sustained growth during great economic times, but perhaps more importantly, it can also build an important shield for your brand during a recession. During economic uncertainty, having a strong subscription model to fall back on is crucial for the health of your brand.

Knowing exactly how much revenue you’re driving month over month enables you to plan ahead accurately and predict the future of your business. This helps you better manage your inventory, budget for your subscription marketing, effectively build out a team, and even secure funding.

2. Stronger Customer Relationships

In addition to predictability, because subscriptions let you interact with customers on a recurring basis, it opens the door wide open to foster better long-term relationships with your audience. Studies show that 64% of consumers felt more connected to companies where they had subscriptions versus companies where they had one-off transactions.

Think of it this way: just like you feel closer to the friends you see frequently rather than the ones you bump into occasionally, the routine nature of subscriptions causes subscribers to feel closer to your brand. This is also a psychological concept known as the Mere Exposure Effect. We tend to like things more if we’re more familiar with them.

By having a strong social media presence, developing a recognizable brand voice, delighting subscribers with exclusive perks, giving subscribers flexibility with subscription management, and sending personalized messaging, you can help transform your audience into a true community and boost customer loyalty — which will have a measurable impact on your business.

3. Higher Customer Lifetime Value (LTV)

As we discussed, having strong relationships with your subscribers is meaningful from a customer experience standpoint — but it’s also extremely important for subscription growth strategies, like driving your customer lifetime value.

Here’s the great news: in general, returning customers are more likely to spend more, refer friends, and try new products — which makes them 22 times more valuable than their non-loyal counterparts. This means that simply having a subscription can help boost your LTV, but the best DTC brands know how to truly lean into their subscription offerings in order to maximize customer lifetime value.

How do they do this? Well, one way is to extend the customer journey by leaning into the post-purchase experience and building a robust customer account portal with Smartrr’s LTV-driving features, like:

• Loyalty
• Referral Rewards
• Trending Upsells
• One-time Add-ons
• Featured Instagram Feeds

These optimizations have proven results, as brands that use Smartrr see a 5X increase in sales over a subscriber’s lifetime.

4. Lower Customer Acquisition Costs

Now more than ever, customer acquisition costs (CAC) are high. Acquiring new customers can cost up to seven times more than selling to the customers you already have, and to add insult to injury, the probability of selling to a new customer is only around 5 to 20%. On the flip side, research shows you’ll have a 60 to 70% success rate if you sell to your current customers.

Rather than focusing solely on acquiring potential customers, since offering subscriptions gives you an audience of loyal customers, you can effectively focus your marketing efforts on cross-selling and upselling to your existing subscribers. Not only does this route save you money, but it also ensures that you’re pursuing the most impactful method of marketing.

Besides, you can easily leverage your loyal customer base to spread the word about your brand, which ends up being cheaper and more effective. We’ll get to that soon.

5. The Ability to Test & Improve Product Offerings

Subscribers are the perfect audience for both testing out and improving your product offerings. Whether you have subscription customization options (like build-your-own subscription box or product bundles), utilize one-time add-ons, or curate a list of personalized product recommendations, subscribers are far more likely to try something new (and proceed to keep buying that new product).

Beyond actually trying out the product, you can also lean into your subscriber relationships to get invaluable feedback. For example, you can incentivize subscribers with discounts or loyalty rewards for filling out a survey of your new product. This can range from the price of the product to its flavor, smell, consistency, packaging, size — whatever is relevant to your business. This way, you can make improvements to tailor your subscription product offerings to your target audience.

In general, subscribers provide you with frequent, high-quality shopping data that you can leverage to make important optimizations. For example, you can analyze products that often get purchased together to identify great candidates for a bundle.

You can also differentiate between your most popular products and your least popular products in order to inform future creation and innovation. Let’s say you’re a beauty brand and notice subscribers are loving your lavender-scented products way more than your lemon-scented products. You might invest in more lavender-scented inventory when you release your next product — or maybe riff off this success to invent a new flavor, like blueberry lavender.

6. Increased Likelihood of Word-of-Mouth Marketing

Many of these subscription advantages are related to one another, which can make it easy to optimize one area of your business and experience a spike in another.

In this case, the stronger relationships that come from subscribers repeatedly interacting with your brand also organically increase the likelihood of word-of-mouth marketing. The more subscribers engage with your brand (assuming these are positive interactions), the more likely they are to talk about it.

What’s more, implementing referral rewards — a known LTV-driving touchpoint — only further encourages subscribers to spread the word about your brand by offering specific incentives for your audience to market on your behalf. And to make matters even better, customers acquired via referrals actually have a 37% higher customer retention rate and a 16% higher customer lifetime value.

Adding Value All Around: The Advantage of Subscriptions

All in all, ensuring your subscription business provides real value to your customer base (through convenience, savings, and high engagement) will come back to you in so many ways — be it through boosted brand awareness, higher customer lifetime value, improved product analytics, or lower customer acquisition cost.

Quick Review: FAQs

• What are the benefits of subscription models?

Subscriptions provide convenience and savings for customers while giving merchants a reliable stream of recurring revenue and an opportunity to grow meaningful customer relationships.

• How do you increase subscription revenue?

With customer acquisition costs (CAC) rising, a great way to increase subscription revenue is to focus on post-purchase marketing to engage your most valuable customers: the subscribers you already have. This includes implementing a loyalty program, utilizing referral rewards, leaning into trending upsells, and more.

• How do you measure success with subscriptions?

In addition to tracking how many subscribers you have, measuring your customer lifetime value (LTV) and ensuring it stays comfortably higher than your CAC is a great way to measure subscription success. Measuring your churn rate to ensure you have stellar customer retention is another effective way to tell if you have a successful subscription offering.

‍Feeling ready to implement a subscription offering for your Shopify brand? Get in touch.