What is subscription commerce?
Let’s start off with a quick overview of what subscription commerce is. Generally speaking, there are two different types of subscription commerce:
- Convenience commerce – Receiving the same products automatically on a repeat purchase basis.
- Discovery commerce – Helping consumers discover and sample new products they might not have otherwise known about.
Perhaps the most popular and successful subscription commerce business model, at least currently, is subscription boxes.
Every month, week, or year, customers pay a variable subscription fee to receive products personally delivered to them in a box.
Be it cosmetics, male grooming products, pet food or movies, mystery and surprise generally play some kind of role as you don’t always know what you are going to receive.
The idea is that it’s a mix between getting a gift delivered with little surprises as well as getting the products you do need on a continuous basis.
7 things to know about the subscription commerce model in 2023
Now that you know what subscription commerce is, here are 7 more things you need to know about it.
1. Subscription commerce is also known as 'Subcom'
There are a few different names for subscription commerce.
If you’re a consumer, then ‘subscription box’ is the most frequently used and best known. Other terms include things like ‘lazy boxes’, and even ‘sample boxes’ or ‘replenishment boxes’.
If you’re an industry insider then subscription commerce is usually referred to as ‘subcom’, and it’s under this name that it is perhaps best known.
2. Subscription commerce isn't new
It’s important to note that the subscription business model isn’t entirely new. In fact subscription models have been around for the best part of 150 years in some way, shape or form.
However, it was the birth of that little thing known as the internet that gave new life to subscription models in business. As the masses flocked online the demand for an online shopping experience saw traditional brick and mortar commerce evolve into what we know today as ecommerce.
- 150,000 years ago, traditional commerce was born. From the minute man could communicate, he was bartering and trading.
- Ecommerce was invented in 1979 by a guy called Michael Aldrich. He simply a modified domestic television, connected it to a phone line and thus ecommerce was born.
- Pizza Hut were actually one of the first major brands to test out online commerce, way back in 1994.
- Amazon.com and eBay launch in 1995 and begin pioneering modern day ecommerce, recognised after the course of a decade as two of the most successful ecommerce companies.
- In 2005, social networks such as Facebook introduced a new way to to influence buying decisions. This trend was dubbed social commerce and is an important segment of the wider ecommerce market.
- In 2010, subscription commerce found new life after the launch of companies like BirchBox who set off the subscription box trend by sending monthly subscribers 4-5 new beauty samples and lifestyle items to try out for a very affordable price.
- In 2014, Forbes estimated that subscription business Birchbox was generating over $125 million a year in revenues.
- Ecommerce sales reached $1 trillion in 2012 and are predicted to represent top $7 trillion by 2025.
3. Subscription commerce provides a constant stream of revenue
Ecommerce empowered small businesses to compete with the big boys. Now, as the space becomes more saturated and competitive, businesses are again striving to stand out from the crowd and increase their revenue. Mobile ecommerce, social ecommerce and subscription ecommerce are all growing sub-segments of the larger ecommerce market.
Subscription commerce is all about turning a single purchase decision into repeat purchase behavior and allowing retailers of all sizes to take that little bit more comfort in the fact that they have a constant source of incoming revenues on a monthly basis without the need to influence a customer’s repeat purchase decision.
In times where cash flow is king, it allows them to manage cash flow, business planning and other important metrics such as determining customer lifetime value, churn rates, expansion etc.
4. The subscription model is all about curation, mystery, surprise, and value
What makes subscription boxes so popular is the element of mystery and value. For as little as $10 per month you can receive a special gift from someone who knows you best… YOU! And this is what makes subscription boxes so addicting.
You may not love every item you receive in your box but considering how the contents of many boxes are often worth 2 or 3 times what you actually paid for them, it makes up for the risk. Many boxes are also curated based on your own profile so more likely than not you’re going to be happy as you know you’ve been able to have a say, and can adapt future boxes accordingly.
5. It's a fast growing market
In 2021, the subscription commerce market was already estimated to be worth around $72.9 billion, and is predicted to grow to over $120 billion by the end of 2022. Dollar Shave Club is one of the most successful subscription box companies. For $9 per month, you get your usual razors automatically delivered on a monthly schedule, but they also go that little bit further by throwing in some “One Wipe Charlies” and other quirky products.
Other big players in the subscription market include Birchbox, ShoeDazzle, BarkBox (a subscription box specifically for your pets) and Graze Box, a food based box delivering healthy tasty treats to your door, however frequently you’d like.
Subscription commerce also exists in the digital realm too. Perhaps the most well known online subscription-based business is Netflix. With nearly 220m subscribers, Netflix started out life as a DVD subscription service, but took advantage of emerging digital and mobile technology and internet speeds to become one of the worlds largest video streaming services in the world. The subscription business model has indeed proven itself been a huge success for niche businesses.
6. These are the top 3 most successful subcom businesses to look out for
We’ve already mentioned Dollar Shave Club being one of Subcom’s success stories, mainly due to their killer online video marketing campaign in 2012 that saw them get over 12,000 orders in the first few days. But here are some other subcom success stories:
In just 4 years, Harvard Business School graduates Katia Beauchamp and Hayley Barna revolutionized the multi-billion dollar beauty industry with the launch of Birchbox, a subcom business that aims to ‘cut through the clutter’ by sending out sample boxes of beauty and lifestyle products to paying customers from just $10 per month. The boxes are carefully curated and personalized according to the customers profiles. Birchbox grew from just 600 paying monthly subscribers in 2010 to over 800,000 in 2014 and have shipped tens of millions of boxes to date. After years of success, Birchbox is now estimated to be worth nearly $45 million.
2. ShoeDazzle & JustFab
Founded in 2008, ShoeDazzle is a subscription box service in the fashion space, bringing a personalized boutique experience to an online platform. For $49.95 per month you get a VIP Elite Membership which converts into rollover VIP Credits that members can save and spend later if they require. ShoeDazzle debuts and showcases the best new brand name shoes, handbags and more on a monthly basis and curates a custom online showroom to each member’s individual style preference. They have received over $66m in funding to date, while a 2013 merger with one of its biggest competitors, a subscription box service called JustFab, saw them become the market leader in their niche and is predicted to capture 15% of the market share niche of online footwear sales among 18-35 year old women. The combined company now has over 30 million users.
It doesn’t seem fair that we get our monthly shipments of beauty products, cosmetics and male grooming products and our pets don’t, which is why BarkBox was founded in 2011. They have since gone on to be one of the most successful subscription commerce businesses. Matt Meeker, Carly Strife and Henrik Werderlin founded BarkBox as a convenient way for dog owners to spoil their beloved friends every month. Starting at just $35 per month (with no minimum commitment) or $23 per month (for a 12-month commitment), the subscription service delivers healthy and natural treats along with some cuddly and chewable toys. All the products and treats are made in the U.S and Canada and are not available at any of the big pet retailers. With over 1.8 million subscribers at the end of 2021, BarkBox recently achieved the culmination of their success, a chance to go public via a SPAC which is expected to raise $454 million. With over 45 million dog owning households in the United States, the future certainly looks bright for BarkBox.
7. These are the 5 most popular subscription commerce categories in 2022
There are thousands of subscription commerce businesses out there, but what categories are the most popular? If you are thinking of launching your own subscription box you may want to consider creating an offering within these categories, which have proven popular with a huge percentage of consumers worldwide according to current data.
- Groceries/food/beverage (used by 41% of surveyed consumers)
- Personal care products (used by 38% of surveyed consumers)
- Household products (used by 34% of surveyed consumers)
- Clothing (used by 32% of surveyed consumers)
- Toys/games/books (used by 26% of surveyed consumers)
Opportunities in the subscription commerce space
The subscription commerce space has already grown exponentially since its early days, and shows no sign of slowing down. This industry growth has led to a massive increase in opportunities in the space for existing entrepreneurs and first-time founders to transition to a new era of commerce and reap the rewards.
Opportunity 1: Developing better customer relationships
As a subscription business, one of your biggest goals is to maximize the amount of time your customers stay subscribed to your service. This means that while you shouldn’t neglect the process of actively trying to acquire new users, you should put an equal amount of effort (if not more) into retaining the ones you already have.
It’s about 5x more expensive to acquire a new customer than to keep an existing one, plus loyal customers are much more likely to refer new subscribers.
With that in mind, companies who seize the opportunity to set the bar for nurturing and maintaining long-term customer relationships within their niche will see their bottom line soar.
Opportunity 2: Being able to predict revenue and inventory
Success as a subscription business can be measured using a variety of different metrics, but without being able to accurately forecast what’s going to come into your coffers over the next month, and what it needs to pay for in terms of inventory, you’ll find it hard to get a concrete grasp of how healthy your business is.
With a subscription offering, you already know how many people are paying for something within a given billing period, and how many you need to account for in the month to come. Foresight is key — and there’s a real opportunity for subscription businesses to take advantage of this.
Opportunity 3: Improving collection and use of data
The longer a subscriber (or cohort of subscribers within a specific revenue stream) stays with you, the more opportunities you’ll have to collect data which you can use to ask yourself insightful questions and improve your subscription box offering.
Do subscribers drop off after a certain point of time?
Are certain groups of subscribers downgrading to a lower tier plan?
Are your upsell, cross-sell, and downsell opportunities delivering value over time?
These are all questions that are easy to get a clear answer on with repeat purchase data, versus old-school transactional commerce that prioritizes one-time purchases. In the same vein, since your customers are ordering from you on a long-term basis, you’ve got significantly more opportunities to proactively reach out with surveys or requests for feedback!
Challenges in the subscription commerce space
On the other hand, there’s definitely a few aspects of subscription commerce that pose a challenge, both for experienced subscription entrepreneurs and newbies in the space.
Challenge 1: Managing churn
Once you’ve hooked a subscriber, they’re yours to lose. The more you’re able to develop a 360 degree awareness of the entire customer journey, and pinpoint both where and when customers are leaving, you’ll be able to understand why they’re doing so.
It’s a particularly important challenge for entrepreneurs to prioritize early on, when you’re still iterating on the foundational systems, processes, and assumptions that will power your growth later on.
Challenge 2: Scaling operations and logistics
Even if you’re managing your subscription business through an all-in-one-platform, you’ll still have to interact with third parties for some parts of your operations once you start to scale and can’t manage everything yourself, like packing boxes and coordinating shipping.
Consistency is key for a subscription business, and although it’s challenging, it’s important to do your due diligence and try to ensure that you’re able to strategically choose delivery and fulfillment providers who are able to deliver in the long run.
Challenge 3: Pricing your offer
The subscription business world is full of competitively-priced offers which can often confuse first-time founders trying to balance providing value and improving their bottom lines.
It can be particularly challenging at the beginning, where all sorts of unexpected costs come up. It’s even more complicated if you have a multi-tiered offering — how much extra value do you need to provide to get someone to take the leap, upgrade their plan, and consider it worth it enough to stick around for months to come?
However, if you can get a handle on all your costs (and minimize underestimation), not feel tempted to copy your competitors’ pricing (you’re unique after all), and have some financial wiggle room for unforeseen costs, whether it’s an increase in shipping price or an opportunity to buy some extra stock to slip in premium-tier subscribers’ boxes, you’ll gradually be able to find a happy medium.
Keen on entering the world of subscription commerce yourself?
That’s quite a lot of food for thought, but it’s super exciting, too! Starting a subscription business (or any business at all) is no easy feat, but once you’ve launched and momentum starts picking up, the rush is hard to beat.
The best thing is that you don’t need to start from scratch. Almost any business can adapt their offering to the world of subscription commerce, or launch a new offering entirely — but starting from scratch is totally fine too. The choice is up to you – but in any case, it’ll be much easier with Subbly, the world’s only all-in-one subscription first platform. Start your 14-day free trial today!