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The e-commerce landscape is swiftly changing, and the subscription business model is quickly becoming a popular trend. The e-commerce subscription market is expected to grow to more than $450 billion by 2025. This means that both experienced and new entrepreneurs looking for steady income streams can find big chances in this market. In our guide, I’ll carefully examine the complexities of subscription business approaches, discuss their advantages, break down the different types of subscriptions, and offer practical advice for starting your subscription venture on Shopify.

Subscription Business Model

Subscription-based online shops let customers get what they need quickly, easily, and cheaply. That makes first-time buyers regular customers, and they often stay customers for life. With predictable monthly recurring income (MRR), businesses can plan their growth and scale in the right way.

Here are some good things about the subscription business model:

a) Predictable revenue

Knowing your regular income makes it easier to predict sales and plan your inventory. It also means you know how much to put into growing your business.

b) More cash on hand

A lot of subscription services need payment in full at once at a price. This cushion helps companies keep their cash flow up and calms them down.

c) Lower the cost of getting new customers

Pay-per-product companies need to spend money on sales and marketing to get new customers and make more money. Rising costs to get new customers cause startups to fail. With a subscription-based plan, customers pay you on a regular basis, so you don’t have to spend as much on getting new ones.

It takes 5–10 times more to get a new customer than to keep an old one.

d) Commitment and Loyalty

When people subscribe, they make regular purchases, which give you more information about how they behave, which helps you give them a better experience and keep them coming back. Subscription businesses that are run well get loyal customers who buy from them again and again and spend 67% more than new customers. The total value of a customer is one of the most important factors in running a successful business.

e) Makes it easier to cross-sell and up-sell

Your subscription plan lets you get the most money from customers who have already bought from you. You build trust with people by talking to them all the time. It’s easy to sell them more because they already know you provide a good service. If you do it right, starting a membership business can make you a lot of money. The first thing you need to do is choose the right payment plan for your business. 

Choosing the right subscription business model

To start a membership business, you should think about these three main types: curation, replenishment, and access. It’s important to pick the right one for your goods, capacity, and goals because each has pros and cons.

a) Curation Model:

This is the approach that subscription boxes like Birchbox and Stitch Fix use most of the time. These companies want to surprise and please their customers by giving them unique events and new things every month. They can make money, but they also have problems, like high churn rates because people get bored with them quickly and hard to run tasks like shipping and packing.

b) Replenishment Model: 

With the goal of saving time and money, replenishment contracts buy things like razors and pet food automatically. They say they have better rates of conversion and retention, but because their margins are so small, businesses have to compete on price and work at a large scale to make money.

c) Model of Access: 

People who sign up for access pay a monthly fee to get special discounts or benefits. This model is used by brands like JustFab and NatureBox, which add value through personalized deals and the chance to bundle items. But it needs to be maintained on a regular basis to keep customers happy and interested.

Bonus: The add-on model is not a stand-alone model, but a hybrid approach that is becoming more and more common. It lets businesses add subscription services without committing to a single model. It gives you options while you explore the subscription environment and find new ways to make money.

Tips for making the subscription business model work for you

Loss of subscribers is the main risk of any contract. When people subscribe to a service, they stick with it as long as they like it. How to keep your subscription  business profitable and keep customers from leaving:

a) Check if the goods will work

Every business starts with making sure the product fits the market and can be made. There are too many of some types of membership products on the market, which makes it harder for new companies to get in. Because the best meal kit companies offer similar products and prices, a lot of customers quit within six months. Check to see if people need your product by doing market study and keeping an eye on your competitors.

b) Make your business goals clear

How much money, new customers, or units sold? Keep your business goals in mind, especially when you start using a new model.

c) Start by setting prices that aren’t too high

A lot of subscription customers leave quickly, so don’t spend too much on free trials or big deals that don’t pay off. As your business grows, you should try, change, and look over your prices.

d) Investments made just for you

Customers want services that are more and more tailored to their needs over time for all types of businesses, but especially for curation. 28% of people who subscribed to curation said that the main reason they did so was to get a unique experience. Can you make personalization bigger by using your own data or technology know-how? Would you be able to pay for it?

e) Make renewal efforts a top priority

Acquisition is important for sales early on. Once you’re up and running, change your methods and focus on keeping clients. Remember that getting new customers costs more than keeping old ones, and loyal customers are always worth more. Getting new customers is what most subscription businesses do, but it’s not the best way to grow.

f) Use a mix of marketing channels and ways

There are many ways that subscription models draw and keep customers. If you’re new to social media, influencer marketing can help you stand out. Email is important for all types of businesses, but subscription-based ones need to connect with customers often and in a meaningful way. Remember that every type of contract has a “marketing match.” Affiliate marketing is the main way people find new products in the curation approach. Recurring packages come with a marketing area to get customers interested.

g) Turn the track

It’s important for your business to keep an eye on and analyze voluntary churn, which means customers who cancel their contract.

h) How about churn that happens by itself?

Customers who pay for subscriptions have to leave when their cards expire, are lost or stolen, or when their addresses change or the network goes down. Profitwell says that keeping an eye on five common reasons for involuntary churn can help your bottom line because they account for 20–40% of all turnover. 

How to start your own subscription business

Subscription business models can connect with an existing firm or launch a new one. Start a subscription business with the following five-step guide.

1. Choose your subscription Idea

Selecting a subscription model that fits your business and product(s) is the first step. If you have a successful apparel brand, a subscription model can guarantee monthly revenue. Instead, you may have a great subscription box theme that you want to construct from scratch. You should start with designing your subscription idea and describing its implementation. Popular subscription service FabFitFun sends seasonal boxes with 6-8 full-size goods. Beach needs for summer and dry skin products for winter are examples.

Here are some subscription business ideas:

2. Select your ideal subscription products

Choose the monthly product categories for your subscription business. You may benefit from brand collaborations at this point. You can provide their products in your monthly subscription service at a lower cost to your organization. Create a “prototype box” or trial subscription now to show new subscribers the things they’ll receive each month. This step doesn’t require perfect accuracy. Make sure marketing photos are similar to the things you’ll send.

3. Price your subscription alternatives

After understanding the things you’ll sell and how much your subscription service can buy them, you can set your subscription price. You may provide many subscription tiers depending on your products or services. Example: Variety Fun snack subscription package. The “Regular Snacks” option is cheaper and includes typical snacks, while the “Healthy Snacks” option emphasizes healthy snacks. You might also use different price tiers based on how long a subscriber commits. A year-long subscription is cheaper than a month-to-month one. Pricing your subscription box requires balance. Your goal is to recruit target clients and stay profitable. It doesn’t make sense for your business to spend $25 each box when you charge $20.

4. Build your website

After choosing a subscription type and pricing, build your website. Here, you can display gorgeous sample product photographs, simplify client sign-up for their next box, and provide extensive insights about their monthly offerings.

Shopify simplifies subscription company website creation. Whether you want to add recurring orders to your existing business or construct subscription boxes from scratch, Shopify makes it easy. This all-in-one platform simplifies subscription management. You can use a Shopify app or build your own solution when starting out.

Consider adding a subscriptions app.

Creating a subscription offering is a breeze with the installation of any of these subscription management apps: 

  • Shopify Subscriptions : Effortlessly set up and efficiently manage subscriptions directly from your Shopify admin using the complimentary Shopify Subscriptions app.
  • PayWhirl Recurring Payments: This is the ultimate Solution for Recurring Payments. Effortlessly handle, oversee, and monetize subscriptions using this intuitive platform. 
  • Automatic Subscriptions: The Automatic app (formerly known as Bundle Subscriptions) allows you to effortlessly incorporate subscription options into your products, seamlessly integrating with Shopify’s native checkout.
  • Assemble SubscriptionsCreated by a group of seasoned Shopify professionals with extensive knowledge of the platform, this is far from your average subscriptions app.
  • Bold SubscriptionsDesigned to cater to the needs of large corporations, Bold offers a range of features that allow you to personalize, oversee, and expand your subscription-based enterprise.
  • Recharge Subscriptions: Easily launch and efficiently manage subscriptions for your Shopify store. Subscription services for native content. Enabling subscription payments, effortless checkouts, and recurring orders
  • Seal SubscriptionsMaximize your revenue with the power of subscriptions and seamless automatic recurring payments.
  • Native SubscriptionsProcessing payments for subscriptions, smooth checkouts, and regular orders.
  • Appstle Subscriptions: An all-inclusive subscription solution that empowers you to effortlessly provide your customers with products and services on a recurring basis.

To explore additional options, take a look at Shopify’s subscription app collection. You’ll be able to find an app that perfectly suits your business needs.

Build your own custom solution

Partners and developers can use the Subscription APIs and tools to make new subscription experiences that work right in Shopify Checkout.  

5. Market your new subscription business

You need to get people who are likely to sign up for your new subscription service to see it now that it’s ready to sell. Marketing is an important part of running a business, but it can be hard to start from scratch.

Here are some important things you should do to market your new business:

  • Make all of your social media accounts and give them a brand.
  • Take lots of pictures of your products so you have creative things to use to market them.
  • Get people to sign up for your email list and send out regular messages.
  • Set aside some money for ads that you can use to get people to know about your business.
  • Get in touch with micro-influencers. You might be able to work with them for less money.
  • Send out news releases about your new product.
  • Join online groups to make more connections and raise awareness.
  • To get more people interested in your goods, hold contests and give things away.

At first, it may seem like things are moving slowly, but a business grows very quickly. You just need to put in some work. 

FAQ: Subscription Business Model

Example of a subscription model?

Netflix and Hulu charge subscribers monthly for content. Customers can choose feature-based subscription plans. Other subscription models include magazine and newspaper subscriptions, SaaS services, and subscription boxes.

Is the subscription business profitable?

Subscription businesses can be profitable. A solid business plan, loyal clients, and an effective pricing strategy are required for a subscription business to be successful. Subscription businesses can generate recurring revenue, which improves profitability. Subscription firms also profit from economies of scale, which reduce expenses while increasing income.

How do subscription firms make money?

Subscription businesses charge customers a recurring fee for services or products. These fees are often charged monthly or annually. Typically, the subscription cost reflects the value of the service or product. Subscription businesses can profit from advertising and upsells.

What’s the subscription-based model?

Customers pay recurring fees for products and services through subscription-based models. This payment is normally made monthly or annually. Subscription models provide clients with access to products and services for a cost. Netflix, Adobe Creative Cloud, and Birchbox use subscription models.

Ultimately, you’ll discover that adopting a subscription business model offers a valuable opportunity in the modern, fast-moving world of e-commerce. With projections estimating the market to grow beyond $450 billion by 2025, there is ample potential for securing consistent revenue streams. This holds true whether you are an experienced entrepreneur or are stepping into the business arena. By carefully evaluating the advantages and disadvantages of various subscription approaches and implementing effective tactics to diminish risks and enhance opportunities, you can boost your profitability, ensure customer loyalty, and achieve new levels of success.