Is an eCommerce Subscription Model Right for Your Business?
Q&A with subscriptions guru Rob Holthause of Subscribe Pro
It’s easy to spot when someone is truly passionate about a topic. They know it inside and out, are eager to share their knowledge with others, and bring a level of excitement that can be somewhat contagious.
That’s the type of passion you can truly feel coming from Rob Holthause when you bring up eCommerce subscriptions.
As the Director of Sales at Subscribe Pro, a Saas tool we regularly work with on Magento websites, Rob wears many hats and really invests the time to make sure customers are well-versed in the platform and prepared to get the most out of their subscription business model.
I asked if he’d be willing to “talk shop” about subscriptions and he eagerly agreed to do a Q&A session.
What are some of the benefits of subscriptions for a business?
There are a number of benefits. The first, honestly, is financial. A subscribing customer, in our experience, has a lifetime value that is significantly higher than a non-subscribing customer.
It can really vary by vertical, but we have some clients with subscribers that have a lifetime value that's 20 times that of a non-subscriber’s average lifetime value. And you’re not going out and acquiring new customers—eating into your marketing spend. These are people that are already familiar with your brand, and that reliable revenue is a good thing.
The other benefit there is that you're regularly interacting with these customers. So every time that you send them a package, it's a chance for your brand to get in front of them. It's a chance for them to share that on social media and to stay more involved.
And there's a lot to be said for subscriptions that are changing with each box you deliver—not like a replenishment subscription—but the surprise and delight factor when something unexpected is in the box. Unboxing videos are stupidly popular on YouTube right now. There's an enjoyment to it. And that that helps keep people really engaged with and excited about your brand (which is really valuable).
What are the different types of subscriptions?
There are a ton of different ways to categorize these, but for us, we break it into three major categories.
The first of which, and the most common that we see is replenishment subscriptions. For example, this is my favorite coffee that I never want to run out of, so send me two bags of French Roast blend every two weeks. That's also typically what you see with consumable products like vitamins, nutritional supplements, skincare creams, or pet food that you're going to be using on a regular basis. It's just more convenient for you to get it directly to your house.
Replenishment subscriptions are particularly useful for long frequency things for your house—for example, having a new water filter sent every six months, and just replacing it when it arrives, is easier than trying to remember when to replace it.
We've seen the most growth though with clubs or a monthly box subscriptions where the products within the box change, but the subscription frequency stays constant. These are merchants like wineries with their curated monthly or quarterly wine membership. But they're really smart about it. They say, if you want to substitute some of these wines, like if you're going to get a merlot and you want to swap it out, you can come to the website to change it and you can also do a virtual tour of the winery while you’re there. That's a really good way to send a physical product while also keeping people really involved in the brand.
We find the subscription actually also increases the non-subscription purchases as well. Not to mention that a subscriber is going to have a stored payment method to use at checkout for a non-subscription order, and while it's a small thing, it removes a roadblock at checkout.
Then the third type would be what we would call an access subscription. It’s the least common, but would be like “when you sign up we're going to regularly bill you for access to an online textbook” or “you can join the ‘such and such’ club, which gets you regular discounts early access perks and free delivery.” With Subscribe Pro’s web hooks, you can create a virtual product with subscribers and at whatever frequency you want, the web hooks will move the customer into a particular group within Magento, for example, and set what benefits that customer group gets.
Are you seeing an increase in customer demand for subscriptions?
Yes. All of our merchants' business is pretty consistently trending up. Especially now that we're all at home all the time. The demand has never been higher.
What key challenge comes with launching a new subscription business?
Subscriptions are inherently complex because of the logic that goes into it, so it's really important to test the ever-loving hell out of them. It’s very useful to have a team of people at a dedicated System Integrator (SI) who are going to help you determine what you want your customer journey to be like, implement the subscription solution and help you test it. Working with someone who has experience with subscriptions is super valuable rather than like trying to have just one of your developers add it.
What are some of the benefits of using a platform like Subscribe Pro to manage subscriptions?
You have a couple of choices. You could go with an off-the-shelf native Magento extension. And we have folks that we've spoken with who ended up going that route simply because of a cost limitation. And I get that, right? It's super attractive to pay like $700 one time and get a module that you can use, but the concern there is that the cost of ownership on that is actually a bit higher because you have to customize it, you have to add it in, then it lives within your environment.
There is a lot of value in a SaaS model for subscriptions. The biggest advantage is that it's very configurable. So it's easier to just switch a feature on or another feature off, or if you need to make a change. But with the native extension, you have to upgrade your whole platform.
Maybe you go in to change something and downstream a bolt falls off. What are you going to do? We see a ton of advantages to decoupling that and having the subscription platform sit adjacent to the Magento site and just connect via an API. It’s more stable, but also far more flexible in terms of what customers and merchants are able to do with it because it's not living within Magento.
What advice would you give to someone starting a subscription business?
Focus on what value you add and why a customer would want to subscribe in the first place. Most customers are familiar with subscriptions, but they don't know yours. It's important to overcome any objections at the point of sale by including a little FAQ about your subscription program, how it works, and your value proposition to the customer. How is yours different?
It’s also important to focus relentlessly on the customer experience. Every step of the way should be looked at from the customer's experience. Are they going to want to keep doing this? Is it easy? Is it attractive? Is it straightforward for them to understand? Does it add value for the customer? Keeping that at the forefront of everything is crucial.
Lastly, if your subscription program is going to be really successful, it’s a commitment that your business needs to make at the very highest level where everybody wants to see it succeed. That's why we do so many training sessions during the onboarding period—we want to make sure that everybody in the organization that's going to use this tool knows how it works and understands how to manage it. The brands that go “all in” are far and above the most successful with subscriptions.
What’s next for subscriptions?
That’s a great question! As for the types of subscriptions available, there’s probably a happy medium between what we’re seeing today and some of the more “extreme” types of subscriptions taking over. For example, I've spoken with some clothing brands that want to do something similar to Rent The Runway with a ‘clothing as a service’ type of approach you’re essentially renting your clothes.
‘Automobiles as a service’ is another one. You already see that in some cities with Zipcar, and I know Mercedes has done this as well, but some of the existing car rental places are exploring the “you need it, come get it” model where they bill you automatically and you have access to drive a certain tier of car.
There’s also the possibility of expanding upon ‘housing as a service’ like Airbnb. That goes hand-in-hand with the reason companies are starting to do more rental furniture because young people tend to move a lot.
But in the short term, you're going to continue to see an improvement around the customer experience of subscriptions themselves and how customers are able to manage it themselves around the messaging of it.
A huge thanks to Rob for taking the time to talk subscriptions with us! If you'd like to learn more about implementing a subscription business on your Magento website, check out our eCommerce Subscriptions page.