The subscription business model allows businesses to scale with predictable revenue and provide more personalized customer experiences. The subscription ecommerce market is expected to exceed $450 billion by 2025, which presents a huge opportunity for existing and new business owners. In this article, you will learn how to leverage the subscription business model for your new or existing ecommerce business, as well as the pros and cons of different subscription business models.

What is a subscription business model?

The subscription business model is a strategic revenue generation method in which customers pay a recurring price on a regular basis to access a product or service.

In ecommerce, subscription models are used by sellers offering a wide range of products, from physical goods like groceries or beauty products to digital services like streaming media or software. By providing ongoing value, subscription models build long-term customer relationships, encourage repeat purchases, and allow businesses to more effectively predict revenue.

Advantages of the Subscription Business Model

• Predictable returns
• Secure a lot of cash
• Reduce customer acquisition costs
• Increase customer loyalty
• Ease of upselling and cross-selling

Predictable returns

Knowing your monthly revenue in advance allows you to manage everything from sales forecasting to inventory planning more efficiently. It also gives you a clear idea of ​​how much you can reinvest in growing your business.

Secure a lot of cash

Many subscription businesses ask for upfront payment at a discounted rate. This is not only good for cash flow, but also acts as a cushion to provide startups with the stability they need.

Reduce customer acquisition costs

Businesses that use a product-based pricing model must continually invest in marketing and sales to attract new customers, thereby increasing revenue. However, the increasing cost of customer acquisition is one of the main reasons for startup failure. In a subscription-based model, customers pay regularly, so there is no need to invest heavily in acquiring new customers to maintain the business.

The cost of acquiring a new customer can be 5 to 10 times more than the cost of retaining an existing customer.

Increase customer loyalty

The recurring nature of subscriptions creates a virtuous cycle: regular purchases provide deep insights into your customers’ behavior, which allows you to continually improve the personalized experience you provide. As a result, your customers keep coming back.

A well-run subscription business creates highly loyal repeat customers, who spend 67% more than new customers. This is the premise of Customer Lifetime Value, one of the most important factors in determining business success.

Ease of upselling and cross-selling

Subscription models put you in a unique position to generate more revenue from your existing customers. By engaging with your customers on an ongoing basis, you build a trusting relationship, which makes it easier to market additional products or services, because your customers already know you provide a valuable service.

Starting a subscription business can be very profitable, but it has to be done right. The first step is to choose the subscription model that best suits your business.

Types of Subscription Business Models

There are three main types of subscription business models: Curation, Replenishment, and Access. Each model has its pros and cons, and choosing the right one for you will depend on the types of physical and digital products you want to sell, your operational capabilities, and the unique idea and goals of your business.

Curation business models (e.g. subscription boxes)

The curation business model is the most common subscription business model, popularized by companies like Birchbox, Blue Apron, and Stitch Fix. This model refers to subscription box businesses that surprise and delight customers by providing them with new items and personalized experiences.

Typically, businesses sell products in the apparel, beauty, and food categories, but this model works well across a wide range of product categories and is expanding into more industries every year.

✅ Advantages

• High Revenue Potential: Subscription boxes can be very profitable. In fact, the growth and share of the subscription market is being driven by a few curator brands. Subscription boxes are considered a ‘luxury’ by most standards, costing between $15 and $100 per month and encouraging new product discovery. When compounded monthly, this revenue model can scale faster than other food business ideas.

🚫 Risk

• High churn rate: Since novelty drives the initial enthusiasm for these businesses, this model can experience higher customer churn. In addition, since the products are usually niche products rather than essentials, they thrive in good economic times, but can be the first to suffer in a recession.
• Operational Complexity: Not only is it more expensive to acquire customers in the subscription box space, but these businesses also have to bear significant operational costs in packaging, branding, and regular shipping.

Supplemental Business Model

This model focuses on convenience and cost savings. Replenishment subscriptions allow consumers to automatically purchase essential items, often at a discounted price.

Since most products do not need to be replenished regularly, the type of product you sell becomes an important consideration in this business model. Everyday consumer goods such as razors, diapers, vitamins, and pet food are well suited to the replenishment model.

✅ Advantages

• High conversion rates: 65% of customers who consider a supplemental service subscribe, which is significantly higher than other models (50%).
• High retention rates: Because of the nature of the products this model sells, the supplement model has a particularly high long-term subscription rate, with 45% of members staying for at least a year.

The supplement service has a particularly high long-term subscription rate, with 45% of members remaining subscribed for at least a year.

🚫 Risk

• Tight Margins: This business model often requires competing on price and offering deep discounts. This means that you have to keep your costs very low and operate at scale (i.e. sell a lot of product) to make a profit.

Access Business Model

Access subscribers pay a monthly fee to get lower prices or exclusive member benefits. JustFab, NatureBox, Thrive Market are examples of access subscription businesses, and their main value proposition is to provide exclusive benefits to their customers.

✅ Advantages

• Provide greater value to your customers: Since customers pay for exclusive access to benefits, there is an opportunity to deepen your relationship with them by offering personalized offers. This value can be further expanded by creating a community where members can interact through forums or Facebook groups.
• Bundling Opportunities: Provide opportunities to offer customers multiple products (including non-material ones, such as discounts on future purchases) as part of a single membership.

🚫 Risk

• More time investment: The access model is not a standalone service or a product that can be added at checkout, but rather requires more effort in that the membership offering needs to be robust and regularly maintained to provide value to the customer.

Bonus: Additional Subscription Business Model

This model is not a formal business model, but rather a hybrid approach that allows you to add subscription services to your existing business. More and more companies are moving to this revenue model, and it is a flexible way to explore the subscription ecosystem without having to commit to a specific revenue model.

Tips for running a successful subscription business model

The biggest risk in a subscription business is high churn rates. But the good news is that once customers find a service they like, they can be very loyal. Here are some tips to reduce churn and run a profitable subscription business:

1. Product marketability assessment

The first step for any business is to assess product/market fit and the viability of the product. In the subscription business in particular, some product categories are oversaturated, making it more difficult to enter the market.

For example, the meal kit category has a very high cancellation rate within the first six months, due to competitive pricing and similarities between major players. Research whether there is demand for your product in the market and keep an eye on what your competitors are doing.

2. Set clear business goals

Whatever your business goals, whether it's revenue targets, customer acquisition, or number of units sold, you should always set them clearly and keep them in mind when choosing a business model.

3. Initial pricing is conservative

Since many subscription consumers tend to cancel quickly in the early stages, it is advisable not to invest heavily in free trials or deep discounts unless there is a clear expectation of profitability. Also, prices should be continually tested, adjusted, and evaluated as the company grows.

4. Invest in personalization

Across all business models, and especially curation models, customers expect a more personalized subscription experience over time. 28% of curation subscribers say a personalized experience is the most important reason for continuing to subscribe.

Do you have the data expertise or technology stack internally to scale your personalization efforts? If not, do you have the budget to invest in it?

5. Prioritize customer retention strategies

In the early stages, you should prioritize customer acquisition to drive sales. However, once you are on track, it is time to shift tactics and focus on customer retention strategies.

Remember: It costs less to retain a customer than to acquire one, and you get more value from a loyal customer base. Most subscription companies focus all their efforts on acquiring new customers, but that’s not the most effective way to grow your business.

6. Diversify your marketing channels and tactics

The subscription business model uses a variety of channels to attract new customers and maintain relationships with existing subscribers. If you’re just starting out, it can be helpful to use influencer marketing to build your presence on social media.

Also, since subscription-based businesses rely on frequent and meaningful engagement from customers, email is an essential tool for any business model. Keep in mind that each subscription business model has a “marketing match.” For example, in the curation model, affiliate marketing is the primary customer acquisition channel. Recurring packages provide a built-in marketing tool to maintain relationships with customers.

7. Monitoring the cancellation rate

It is natural to monitor and analyze voluntary cancellations (when customers cancel their subscriptions) to continuously improve your service. To reduce customer churn and improve your service, you need to manage your churn rate thoroughly.

8. How do I terminate involuntary?

Expired credit cards, lost cards, stolen cards, address changes, network errors, etc. all contribute to involuntary cancellations during the subscription customer lifecycle.

According to Profitwell, involuntary terminations account for 20-40% of all terminations, so proactively managing this common cause can make a big difference in your bottom line.

Start your own subscription business

The subscription business model can be added to an existing business or used as the foundation for a new business. If you are interested in starting a subscription business, here are five simple steps to follow.

1. Choose a subscription idea

The first step is to decide what type of subscription model your business will use and what products you will offer.

If you currently run a successful clothing brand, adopting a subscription model can be a great way to generate a guaranteed monthly income. On the other hand, you may have a great idea for a subscription box theme and want to start from scratch.

Either way, the first step is to conceptualize your subscription idea and outline how you'll actually implement it.

For example, the popular subscription business FabFitFun sends out boxes of six to eight full-size products each season, with products tailored to the season—for example, beach items in the summer, and products for dry skin in the winter.

2. Select a subscription product

Choose the types of products you will offer in your monthly subscription business. At this stage, you should also consider partnering with brands to offer their products in your monthly subscription service. This will help lower your business costs.

You should also create a “prototype box” or sample subscription so that new subscribers can see in advance what types of products they will receive each month. It doesn’t have to be perfect at this point, but the products you use in your marketing photos should be the same types of products you will actually be sending out.

3. Pricing Subscription Options

Once you know what types of products you will offer and what prices you can afford, you can start pricing your subscription service. Depending on the service you offer, you may have different subscription levels.

For example, the Variety Fun snack subscription box offers two options: “Regular Snacks,” which is more affordable and features more classic snacks, and “Healthy Snacks,” which focuses on healthier snack options.

You may also offer different prices depending on how long the subscriber commits to the subscription in advance. For example, a one-year subscription may cost less per month than a month-to-month subscription.

When pricing your subscription box, you need to make sure that it is attractive to your target audience while still allowing your business to make a profit. For example, if you spend $25 per box, charging only $20 may be too much for your business.

4. Start your online store

Once you’ve decided on a subscription type and price, it’s time to launch your online store. Here, you’ll share sample product photos, allow customers to sign up for their next box, and provide information about what they’ll receive each month.

Shopify makes it easy to create a subscription business website. Whether you want to add a recurring ordering option to your existing business or create a subscription box from scratch, Shopify makes it easy to start a subscription business with its own Shopify Subscriptions app or third-party alternatives.

Add a subscription app

You can easily provide subscription services by installing a subscription management app such as:

1. Shopify Subscriptions. free Using the Shopify Subscriptions app You can easily set up and manage subscriptions from your Shopify admin.
2. PayWhirl Recurring Payments. A native platform to create, manage, and sell subscriptions.
3. Awtomatic Subscriptions. This app (Awtomatic) makes it easy to add subscription options to your products. Fully integrated with Shopify ’s native checkout.
4. Assemble Subscriptions. Built by a team of Shopify experts, this app is more than just a subscription app.
5. Bold Subscriptions. Built with enterprise businesses in mind, Bold lets you customize, manage, and scale your subscription business.
6. Recharge Subscriptions. Quickly start and manage subscriptions for your Shopify store.
7. Native Subscriptions. Supports subscription payments, seamless payments and recurring orders.
8. Seal Subscriptions. Increase your sales with subscriptions and recurring payments.
9. Appstle Subscriptions. A comprehensive subscription solution that enables you to provide products and services to your customers on a regular basis.

To see more options Browse Shopify 's collection of subscription apps and find the one that's right for your business.

5. Marketing your new subscription business

Now that your new subscription business is ready to sell, you need to get your product in front of your target audience and get them to sign up. Marketing is key to the success of any business, but it can feel overwhelming at first.

Here are some key tips for marketing your new business:

• Create and brand all social media platforms
• Take lots of product photos that you can use for promotions.
• Build your email list and send regular newsletters
• Set a small advertising budget to increase awareness
• Contact influencers who can collaborate with you at a small cost
• Write and distribute press releases for new products
• Network in online communities to increase your awareness
• Run contests and giveaways to get more people interested in your product

It may feel slow at first, but growing a business takes time. With effort and patience, your subscription business will grow.

Building a custom subscription solution

Shopify 's tools are designed for partners and developers to: It allows developers to build new subscription experiences directly within Shopify Checkout. Now, developers can You can build a subscription solution on top of Shopify Checkout, so merchants can no longer sell subscription products. You don't have to choose between using Shopify 's payment system.

Going forward, you will no longer need to manage multiple payment experiences, and your customers will enjoy the same seamless checkout experience whether they are purchasing a one-time purchase or a recurring subscription.

The resources currently available are:

• Shopify Subscription APIs and Product Subscription Extension.
• Detailed developer documentation and existing subscription agreements You can check out our developer guide on how to migrate to Shopify .

This is a first step towards improving payment scalability, which can help developers customize payments to meet the needs of more merchants. For more information on how to access the Subscription API, see Visit the Shopify Partner Blog to find out.

Subscription Business Model FAQs