Does a Subscription Model Make Sense for My Business?

In the past decade, subscription models have charmed us with everything from movie rentals to grocery and alcohol delivery. But how have subscription models disrupted the traditional retail space — and how do you decide if a subscription model makes sense for your business?

Retail subscription services are broken down into two basic categories: Curated subscriptions, which send new products each time (FabFitFun or StitchFix); and replenishment subscriptions, which make it easy for consumers to get repeat essentials (Quip or Dollar Shave Club). Both models focus on creating a steady, reliable stream of income while building customer loyalty.

Acquisition, Churn & CLV

Although this new method has taken off in the past decade, subscription models like BirchBox are struggling to stay afloat in the market, let alone take a competitive advantage. The risk of churn can be high for these businesses — and with aggressive offers like “get your first box free,” the acquisition costs aren’t cheap. This combination is why some businesses are losing money: The churn is so quick that the acquisition cost is never made up, let alone exceeded, making for a worryingly low customer lifetime value (CLV).

In short: Sometimes, the juice just isn’t worth the squeeze.

But — if you’re strategic about lowering your acquisition costs, and investing instead in customer retention and loyalty, a subscription model could be your ticket to a sustainable revenue stream.

Sizing up the Competition

Another big risk to subscription models is market saturation. Five years ago, this business model was still new and shiny; a rarity in the retail industry. Now, as more and more businesses jump on the subscription bandwagon, the competition is getting stiffer. At this point, most products that can have a subscription service, do — in spades. 

Many subscription brands are losing traction due to the increasingly saturated market. Yet, we still see some strong, successful subscription brands dominating the retail space.

Finding Your Niche

So, what sets the successful ones apart? They found their niche, and their customers love them for it.

More and more, ethics play a role in the public’s purchasing decisions. It’s not enough to just sell a good product anymore: You have to stand for, or against, something. People want to shop with businesses that help them put their own ethics into practice. That’s how you find your niche — a community of customers that feel good about supporting your brand. 

Successful subscription brands put their ethics on display, drawing strong response from niche audiences. Daily Harvest, for example, has turned a multimillion-dollar profit selling pre-made meals in a cup. Undoubtedly, some of this success is attributable to the stay-at-home impact of coronavirus — but this subscription model also garners support by resounding with a growing niche: vegetarians. 

Daily Harvest’s tagline, “Built on fruits and vegetables,” resonates with a generation of young people who are moving to plant-based diets. Then, they drive the value home for their audience by offering something many food subscriptions don’t: ready-made, plant-based options. This is the ideal scenario for a customer: It makes it easy to adhere to their ethical standards, and adds a layer of convenience to their day-to-day lives.

We see this nod to ethics crop up in other subscription-model businesses as well: Billie razors show a foundation of body positivity; Bippy offers a sustainable bamboo toilet paper alternative; Bite serves up a plastic packaging-free toothpaste option. 

Ethics-based subscriptions allow consumers to easily access a like-minded community. Plus, to put it simply: Shopping your conscience makes you feel good. This combination helps to retain customers through brand loyalty and ethical advocacy.

Subscriptions to Supplement Your Business

Don’t think that just because your entire business model isn’t based in subscriptions means you cannot reap their benefits.

To compete with the rise of full-on subscription models, many brands are adding the option for customers to “subscribe and save!” on essential products. Natural beauty titan LUSH Cosmetics, for example, now offers the opportunity for product loyalists to receive their must-haves on a regular basis — but they have not shifted their business to an entirely subscription-based model. 

The benefit of this method is clear: You get the perk of a reliable revenue stream, without the high stakes of unpredictable customer churn. Supplemental subscriptions have grown in popularity enough that you’ll find a handful of apps devoted to them on e-commerce platforms like Shopify and BigCommerce.

Key Takeaways

So, as you consider whether or not a subscription model makes sense for your business, keep the following in mind:

  • Does it make more sense for you to go all in, or use subscriptions as a supplement to your business?
  • Assess the competition: How saturated is your market? How will you stand out from the crowd?
  • Keep an eye on your acquisition cost — strong offers can help you draw in new subscribers, but being too aggressive may result in a net loss if they churn quickly.
  • Similarly, consider your plan for customer retention and brand loyalty. How will you build a strong community? What will be your niche?