How to grow your subscription box business effectively
Apr 18, 2019
Everything you need to know about successfully scaling a subscription model
The subscription box industry is booming. Research suggests fifteen percent of online shoppers in the U.S now subscribe to a subscription box or product, and a further 35% have a media subscription account. Thirty five percent of consumers that have at least one active subscription actually have three or more, and 13% are such converts to the subscription model that they have six or more.
According to a 2018 report examining the state of the subscription economy, the subscription eCommerce market in the U.S. grew by over a hundred percent every 12 months since 2011, generating $2.6bn of revenue in 2016.
So it is unsurprising that across a wide spectrum of industries more and more businesses, from start-ups to globally recognized brands, are taking a closer look at the subscription model as a means for growing their customer base and revenue.
That the subscription model will continue to grow in popularity seems inevitable, but as the market becomes saturated new businesses in particular are going to find it increasingly difficult to find a footing and then prosper in the long-term. Many subscription box businesses have humble beginnings, and these boutique businesses are often extremely challenging to scale.
So what are the golden rules that subscription box businesses need to adhere to in order to set themselves up for long-term growth? We’ve asked industry experts and a leading subscription box business founder to tell us the secret to their success; these are our key takeaways:
1. Upsell! Upsell! Upsell!
To find out more about how subscription box businesses can scale efficiently in the modern climate, we spoke to Chris George, Chairman and CEO of the Subscription Trade Association (SUBTA), and founder of numerous subscription box businesses including men’s luxury accessories provider Gentleman’s Box.
Chris’ message is very clear; the cost of acquisition for subscription box businesses is undeniably increasing and this is the most significant factor preventing growth. To counter this, businesses need to double down on maximizing their average customer lifetime value, in order to drive up the expected ROI for each acquisition to a level that facilitates scale.
“Digital marketing, paid social campaigns, Instagram adverts… all the traditional avenues for advertising subscription box businesses are becoming more expensive,” Chris explains.
“So it’s vital that you maximize the value of each customer you acquire. Have the mindset that your subscriber base is a market to sell additional products to, rather than simply a list of clients that receive your subscription box. The most successful subscription businesses are constantly upselling relevant products to their subscribers. For example, if you are a food delivery business, offer your subscribers exclusive deals on kitchen utensils or culinary classes; at Gentlemen’s Box we have offered our subscribers exclusive deals on numerous products such as limited-edition watches. This additional revenue stream really boosts your customer lifetime value.”
2. “No-one calls Amazon to ask for fashion advice”
As well as marketing one-off and limited-edition products to your subscribers, subscription box businesses must develop a unique product offering to retain their existing customers, particularly where they have eCommerce giants as competitors. Subscription businesses that are unable to retain clients will be constantly fighting an uphill battle to grow their subscriber base; the cost of replacing the lost subscribers will severely damage their ability to scale.
As Chris explains: “All subscription box businesses are concerned that the market will become saturated, especially as the Amazon’s of the world focus in on offering subscription models. But the most innovative and successful subscription businesses are constructive in the manner they approach this challenge.
“You have to be realistic and understand that your customer can get the vast majority of the products in your subscription box, or their equivalents, from Amazon. So you have to offer them a superior customer experience that they can’t get anywhere else.
“That begins by going over and above with your customer service; this can be outsourced if you don’t have the resources to manage this process effectively in-house. With multinational competitors now entering the subscription box space, remaining customer-centric and always available at the end of the phone is a key way to distinguish your business from those larger entities.
“Additionally, the most successful subscription businesses are positioning themselves as a source of expert advice and a company that offers more than a box of products. As well as curating the best products, subscription box businesses should continue to communicate with customers between distributions; engage your subscribers with valuable content that provides them with another reason to continue to subscribe.
“Remember, no-one calls Amazon to ask for fashion advice. By offering a great curation of products and this type of added benefit to subscribers, subscription box businesses can offer an overall customer experience that Amazon cannot replicate.”
“Remember, no-one calls Amazon to ask for fashion advice. By offering a great curation of products and this type of added benefit to subscribers, subscription box businesses can offer an overall customer experience that Amazon cannot replicate.”Chris George, Chairman and CEO of SUBTA
3. Have a plan for combatting declined transactions
Another of the most significant issues that subscription businesses contend with when seeking to increase the average lifetime value of their subscribers is recovery of failed payments.
There may be a number of reasons that an issuer declines a recurring payment, such as a change of bank card or a bank card expiring, which can be a source of significant frustration for both merchants and consumers that want a seamless user experience.
To maximize growth potential subscription businesses should partner with a payment service provider (PSP) that is able to automatically resolve issues of declined card payments by isolating the reason for the decline and, where relevant, applying business rules and logic to enable the transaction to be processed successfully.
This approach facilitates the required customer experience and reduces subscriber churn as well as maintaining revenue, enabling the business to grow its customer lifetime value further.
4. Outsource your fulfilment, but be smart about it
One of the greatest challenges when trying to scale a subscription box business is how to efficiently package and distribute your orders as they grow in number.
Managing fulfilment in-house can often make sense when you are launching a subscription business as it not only requires less capital to fulfil a smaller quantity of orders, but you can also be more ‘hands on’ with your product, ensuring quality control and product development remains in keeping with your brand ethos as you stay ‘in-touch’ with your growing subscriber base.
However, while there may be some benefits for the company founders doing a turn on the production line when starting small, being hands-on for this time-intensive process isn’t practical for scaling the business. Factor in overheads such as a burgeoning workforce and storage facilities, and it is clear that outsourcing your fulfilment management is a more efficient and scalable solution.
Outsourcing generates new businesses costs of its own, so selecting the right fulfilment partner for this is critical to scaling efficiently.
When looking for a fulfilment partner in the U.S, subscription businesses should ask the following questions:
- Do they have specific experience and nuanced expertise in fulfilment management for subscription box businesses?
- Do they have operations based nationwide including the East and West Coast to lower shipping costs?
- Do they have negotiated rates with major carriers and pass that savings to their clients?
- Can they leverage their buying power to lower material costs for custom packaging solutions?
- Do they provide an efficient fulfilment solution for expanding your subscription business into new international markets?
5. Meet customer expectations at the checkout
A critical factor all eCommerce merchants must acknowledge in order to futureproof their businesses is that customer expectations are changing, and that begins at the checkout. Consumer preferences as to when, where, and how they make transactions online are diversifying, and businesses must adapt to this fragmenting payments landscape. This is as true for subscription businesses and any other eCommerce model; for a subscription box business to scale effectively it must meet consumer preferences in the most cost-efficient manner to maximize its market potential in a scalable way.
Subscription businesses should ask their PSP the following questions about how they can meet this demand and support their growth through the checkout:
- Can you process omnichannel payments?
Today’s eCommerce consumer isn’t restricted to desktop, and enhanced technology has raised expectations for mCommerce significantly beyond simply offering a non-mobile-optimized checkout hosted in a browser.
Subscription businesses must work with a payments service provider that supports mobile and omnichannel operations as well as eCommerce; this is especially critical for subscription businesses that are targeting acquisitions through channels such as paid social campaigns that are most commonly access via mobile platforms.
- Can you process payments in multiple currencies?
eCommerce is globalizing, so much so that it is predicted that the value of cross-border eCommerce could exceed $1 trillion by 2020. But for consumers there is still a clear benefit to making a transaction in their national currency rather than that of the merchant when buying from overseas. Fluctuating exchange rates and potential hidden supplemental charges mean that the consumer often doesn’t know what the final charge for a product will be, and this can have a huge impact on conversion at the checkout.
For subscription businesses that wish to sell internationally, minimizing consumer concerns surrounding cross-border payments by facilitating transactions in multiple currencies is a beneficial differentiator.
- Can you offer more payment options?
In the U.S. and Canada, card payments are still the most common payment online payment methods. In our 2018 consumer survey Lost in Transaction: Payment Trends 2018, 46% of U.S. consumers had made an online debit card payment in the past month, and 44% had made a credit card payment. In Canada, 64% had made at least one transaction online using a credit card.
But this only tells part of the story. The growth of alternative payment methods such as direct bank transfer, digital wallets, and online cash replacement systems is a significant trend.
And the growth of regional payment preferences is a key factor for international subscription businesses to consider. For example, our consumer research indicates that in the UK digital wallets are a more popular method of online payment than cards.
And forward-thinking merchants are responding to this trend. According to our Lost in Transaction: The future of payments for SMBs report the average number of payment methods online businesses accept is currently four, but this is predicted to grow to six within two years.
“I can envisage a world where consumers buy almost everything on a subscription model.”Chris George, Chairman and CEO of SUBTA
The future of subscription: Is it the future of everything?
The subscription model has exploded across a wide variety of industries in recent years, but according to Chris we’re still only at the tip of the iceberg when it comes to business potential.
“You think the subscription is everywhere now, but the truth is there is still a long way to go for this trend. I can envisage a world where consumers buy almost everything on a subscription model; their cars, furniture, entertainment. There is a huge opportunity for entrepreneurs to launch new ventures with enormous potential.”
Of course, not every subscription business will thrive, and being able to scale a great product will play a critical role in separating the successful ventures from the failures. Following these guidelines will give you the greatest chance at being in the former group and not the latter.
This article was written in collaboration with eWorld Fulfillment.