Building a steady stream of recurring revenue is the aim of every business, but generating customer loyalty in an ever-changing ecommerce environment is easier said than done. Differentiating yourself from competitors, rewarding repeat customers, and incentivizing new ones to try your products takes ingenuity and creativity—as well as a robust system to scale your growth, manage inventory, process payments, and appropriately time deliveries.
While there are certainly challenges to company growth, establishing a reliable and steady revenue stream for your company is vital for success. No matter what products you offer your customers, there’s a recurring revenue model to utilize. Here are four recurring revenue models ecommerce businesses need to be familiar with, as well as some of the challenges that come with them.
Ecommerce Recurring Revenue Streams
Recurring revenue streams allow your business to establish an expected monthly revenue that makes planning for future growth possible. While it’s easy enough to understand why recurring revenue is so important—the challenge is setting up a system and strategy for generating it effectively.
Here are some recurring revenue streams ecommerce businesses use to maximize success:
Ecommerce companies are increasingly leaning towards subscription product offerings to establish reliable recurring revenue streams. For ecommerce companies, this means offering product subscriptions for goods that customers need on a regular basis. Some well-known examples include Dollar Shave Club for grooming products or Chewy for pet products. Getting a customer to buy something they regularly need from you provides predictable and recurring revenue.
Companies that pursue subscription routes would do best to maintain transparency with customers throughout the signup process. The last thing you want is for an unexpected delivery to arrive at someone’s door.
Along with delivery transparency, incentivizing new customers to sign up may include offers such as:
- Discounted costs on their first several orders
- Exclusive access to certain products for being a repeat customer
Not only do these offers make signing up for repeat product orders more enticing, but they also help address the issue of early customer retention for subscription services. Considering that one-third of subscribers cancel within the first three months—creating a longer incentive structure through recurring discounts or offering membership perks can help keep them around longer and establish customer loyalty.
2. Subscription Boxes
Subscription boxes are a unique take on the subscription product model and eliminate a lot of the traditional subscription model challenges—while adding a few of their own. Subscription boxes typically go out to consumers around the same time each month, which cuts down on the complexity of your shipping, packing, and inventory logistics, but scalability can be a major concern for subscription boxes as well.
BirchBox, for example, has experienced massive fluctuations in subscribers in recent years, with as many as 1 million subscribers in October 2018. However, because of scaling issues, they were forced to lay off 25% of their global workforce by February of 2019. Because of the exceptional amount of growth in recent years, and the exponential growth of subscription boxes during the coronavirus outbreak—scaling subscription boxes appropriately for success is a serious consideration for this recurring revenue model.
Whether it’s for home cooking or dental hygiene, there seems to be a subscription box for everything these days. And for good reason—companies who use subscription boxes are guaranteed to receive revenue on a monthly, quarterly, or annual basis, depending on how often their subscriptions last. These can be successful since they offer customers a convenient way to get products they frequently purchase or get interesting new products to try in a fun way.
Every time a customer receives your subscription box, they are physically interacting with your brand. As such, your presentation matters, so the unboxing experience should be a memorable one. For example, you might add a ribbon to your boxes, fun graphics, or organize them in a way that keeps your products well protected and stylish.
There are different types of subscription boxes, each of which has its benefits:
- Exclusive Access: These subscription boxes have an added membership feature that includes exclusive products for subscribers. It’s a good way to let customers sample your higher-priced products.
- Convenience: Boxes that will satisfy your customers’ need to replenish disposable products at the right time.
- Discovery: These involve products that have been hand-picked by you, allowing customers to try new products regularly. If they enjoy a product they find in the subscription box, they can order more of it from your website.
- Customized: Some customers have specific needs and wants. Customized subscription boxes allow those customers to curate their boxes to meet those demands.
3. Supplementary Goods/Add On Products
Some companies sell accessories that can only be used with their products. For example, Dollar Shave Club razor blades can only be used with their razors and must be changed out regularly. Since their products will always require refills, Dollar Shave Club can safely rely on their razor blades as a source of recurring revenue.
Many companies are recognizing that it’s not only beneficial to have customers sign up for recurring orders for product refills, but also offering add-on products during the checkout process to increase the value of each sale.
Developing and marketing products that compliment your more popular items can facilitate a steady stream of revenue. In the best-case scenario, your supplementary goods are things that often need to be replaced. Examples of this include:
- Beauty product refills, such as face lotion
- Razor blades
- Lead for mechanical pencils
- Ink cartridges for printers
- Staples for a stapler
- Filters for water filters
4. Loyal Customers
While not technically a system for developing recurring revenue, creating customer loyalty for products ensures companies have a loyal customer base that will regularly purchase products. Larger brands, like Nike and Coca-Cola, are perfect examples of companies that have generated intense customer loyalty (and in some cases obsession) with their products. Sneakerheads will drop everything and wait in overnight lines for new shoe designs and releases, and Coke has enduring customer loyalty from people who just can’t live without their daily can of Coke (we all know someone that drinks Diet Coke every day).
Creating true brand loyalty takes a strategic, customer-centric approach. One way that many companies are overcoming the hurdle of establishing customer loyalty in an increasingly crowded ecommerce space is by creating loyalty, or membership programs.
Membership programs are designed to offer exclusive content and products to your loyal customers. They help make customers feel appreciated by surprising them with special discount codes, access to exclusive products, and loyalty points they can use towards your ecommerce store.
A great example of this is IKEA’s Family rewards program. With IKEA, members are entitled to a free hot drink from their restaurant every time they visit, are granted access to free workshops and events, and get membership discounts on their food and furniture.
Membership benefits come in all shapes and sizes and are highly adaptable to a variety of product and service offerings. Some common examples include:
- Free shipping
- Storewide discounts
- Autoshipped orders
- Access to virtual and physical events
- Exclusive product offers
While customer loyalty is an ultimate goal for many brands and companies, it is harder to develop and takes a long period of time for it to become a reliable stream of recurring revenue.
Challenges of Recurring Revenue
While recurring revenue models come with their own sets of challenges and benefits depending on the type of stream you establish, there are some overarching challenges to recurring payment structures and subscription services.
Many companies offer customized subscription services and provide customers with not only the option to choose their products, but they also allow them to change their mind on what products their order will include. The subscription box HelloFresh not only allows customers to pick weekly meals, but also allows customers to change their minds and swap out meals up to their cutoff date—about a week before shipment. They also encourage add on meals and snacks as an upsell for each weekly box.
Customizations are great for customers and can be great for your company, but they also present logistical challenges and greater complexity on your backend to manage these changing subscriptions and orders. Autoship with QPilot is the only subscription manager that creates a seamless customer subscription experience while integrating dynamic inventory management for product fulfillment.
Shipping physical products to consumers means considering what the final product will look like in their hands. This is exceptionally true for subscription boxes that provide an “unboxing” experience for your customers. Products need to be packaged for maximum visual appeal and to maximize space in the box. Putting yourself in the customer’s shoes to consider what their “unboxing” experience will be like is paramount to providing the ultimate customer experience for subscription boxes.
Monthly subscription services hold credit card or other payment data to process recurring payments. While not needing to go back to your customers to request payment for recurring orders simplifies the sales process, it also presents cybersecurity issues and risks. Storing credit card information on your backend, managing changing payments, cancelations, and changing payments means a dynamic but secure payment processing system.
There are also additional regulatory requirements for businesses that store credit card data for their recurring revenue models. In the US, you must register with the Payment Card Industry Data Security Standards before you can store credit card information for recurring payments.
Getting products to customers when they need and want them is challenging. While it may sound simpler if you send a subscription box on a recurring basis, if you’ve put this practice into action you’ve likely discovered that arrival times vary depending on the delivery location of your items. Staggering deliveries so they arrive on time takes careful planning and management—especially if you have a subscription box that is a surprise each month for consumers. You don’t want a box that generates social media buzz to spread the word about what’s in the box before your customer has a chance to experience it for themselves.
Furthermore, part of providing a stellar customer experience in subscriptions involves letting customers modify orders and delivery days – so your shipping needs to be dynamic to show those price changes.
Rethink Your Recurring Revenue
Improving your current recurring revenue streams can be challenging. At QPilot we recognize consumer needs for subscription processes need to be as simple and user-friendly as possible. We also know that the challenges of managing subscriptions for ecommerce means companies need stellar backend connectivity, dynamic inventory management, and shipping integrations to fulfill the expectations of their customers.
Autoship Cloud can help. It’s easy to implement and highly customizable to suit businesses with expanding recurring revenue streams. We offer a free 30 day trial for all of our plans so you can determine if Autoship is the right solution for your ecommerce needs. Get started today.