Growth Hack

How To: Subscription Products - Part 1

How To: Subscription Products - Part 1

Dollar Shave Club was founded by Mark Levine and Michael Dubin. The pair met at a party and spoke of their frustrations with the cost of razor blades. With their own money and investments from start-up incubator Science Inc., they began operations in January 2011 and launched their website in April 2011.

On July 19, 2016, Dollar Shave Club was acquired by Unilever for a reported $1 billion in cash. (Wikipedia)

You don’t have to be one of the firsts to be successful with subscription products. Subscription products are a great way to increase CLV (Customer Lifetime Value) and MRR (Monthly Recurring Revenue) on your Shopify store. Furthermore, subscriptions can benefit the consumer by ensuring they receive their orders with little to no work. 

The question is… when should you implement a subscription product? And what is the best approach for increasing the chances your customers will sign up?  Today, we are going to cover when you should implement a subscription product. 

Should you implement a subscription model? 

Physical Products

If you sell a physical product, you should determine how many average orders customers place within a 12 month period. 

You can achieve this in two ways:

1) Total Orders in 12 months / Total Number of Active Customers in 12 months.

Or

2) Export a list of customers who have placed an order in the past 12 months.

Shopify Dashboard > Customers  and Segment based on the following:

When you have this, export the list and import this into Google Sheets or Excel and produce an average formula for the orders column. 

Both of these formulas will provide you with a baseline figure to help you determine if you should implement a subscription model.

If your average orders per year is below 6, you will struggle to implement a quality subscription program. If your average is over 6, you should move forward. If your number is 12 or higher, a subscription model is ideally suited for your brand. 

12 Month Period:

Average Order Quantity < 6 - Subscription Model Is Not For Your Business

Average Order Quantity => 6 - Subscription Model May Work For Your Business

Average Order Quantity > 12 - Subscription Model Will Work For Your Business

Once you are aware of your average number of purchases per year, you can then begin to decide on subscription frequency. Every subscription software will give you the option to choose how often your product is shipped. For example:

Every Month

Every 2 Months

Every 3 Months

… and so forth. 

But keep in mind that your customers will still have the opportunity to choose quantity. By choosing quantity, it allows for customers to choose how often they receive shipments. So you will need to determine how many frequency options you will allow your customers to choose. 

For example, if on average, a typical customer orders 24 items a year they could choose the following:

2 items every 1 month

Or

4 items every 2 months

Or

6 items every 4 months

Software/Digital Products

If you sell a software or downloadable product, you should still consider implementing a subscription program. 

If you sell a single piece of software/digital products:

Rather than focusing on selling a single piece of software or digital product, you should sell a subscription either for access to the software/product, or a subscription that provides the user with benefits by paying monthly. 

This can include 

  • updates to the software
  • additional support
  • one-on-one tutoring
  • add on products

Always try and to make access exclusive, something that would be desirable to your current customers. One good example is a limited customer club, where you only allow a certain number of customers per year.   

If you sell a multiple piece of software/multiple digital products:

If you sell multiple digital products, a subscription model can be a great option for your brand. Rather than trying to have customers purchase multiple digital products, you can offer them the full suite of products by signing up for a subscription model. 

Concerned about churn rates? Offer significant discounts on an annual subscription that is paid upfront. For example:

Say you want to charge $12/month for access to your digital products. You can also offer customers a full year of access for only $100! They receive a 30% savings, and you receive 70% of the 12 month subscription upfront. 

Today we discussed whether a subscription model is right for your business; in my next newsletter, we will discuss how to increase subscription signup. 

Now go and grow.

J

Reading next

How to Build High-Converting Landing Pages
How To: Subscription Products - Part 2

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