Practical Ecommerce

Consider the Subscription Model for New Revenue

Selling to a customer once is great. Selling to a customer every year, month, or week is even better.

This mantra of sorts — along with apparent growth in consumer demand and several new subscription-specific billing solutions — is creating opportunity for ecommerce entrepreneurs large and small.

An Old School Business Model

As a business model, subscriptions (including permission-based recurring billing) have been around for a very long time in industries like publishing or even cable television. For example, in 1926 the Book of the Month Club began a very successful recurring billing business wherein club members received a new book and a new bill each month without reordering. Likewise many adults remember Columbia House’s mail-order music business, the Columbia Record Club, which introduced its recurring payment business in 1955.

The model is effective because it benefits both the merchant and the customer. Specifically, the business has a very reliable revenue stream that arrives each billing cycle. The customer is happy because he or she consistently receives a product or uses a service without having to repeatedly order or take some other renewal action. It is just easier.

Credit Card and PayPal Payments

Thanks to credit cards and services like PayPal, subscriptions and recurring payments can be charged directly to a customer without actually having to send a bill or wait for payment. If customers have granted permission to merchants or service providers to charge them, the money just rolls in.

Consider a web hosting businesses that charges a regular monthly fee for server space and bandwidth and collects that fee by regularly charging the subscriber’s credit card or PayPal account. After the initial agreement between the hosting provider and the customer, the charges are made without asking for specific permission from the customer.

Imagine the impact for an ecommerce business owner. Regular monthly revenue, predictable overhead or cost of goods sold, and a relationship with customers that allows for additional sales or upgrades. If this is business model is not an opportunity, what is?

What Can be Sold as a Subscription?

Nearly any product or service can be sold as a subscription or membership that includes recurring payments that are made to the merchant without reordering. Here are some examples.

Amazon Prime

Millions of consumers pay Amazon $79 per year to become “Prime” members. For this, members receive upgraded shipping, free shipping, and “faster” shipping.

Amazon Prime costs $79 annually; benefits are free and upgraded shipping.

Amazon Prime costs $79 annually; benefits are free and upgraded shipping.

Sprout Social

Sprout Social sells a service—social media marketing management tools. The company charges from $9 to $49 to access and use its solution.

Sprout Social sells social media marketing management tools as a subscription.

Sprout Social sells social media marketing management tools as a subscription.

Toys4Tails

Toys4Tails provides dog toys by subscription.

Toys4Tails provides dog toys by subscription.

Toys4Tails has a monthly dog toy subscription. Customers specify their dog’s name, breed, weight, sex, and birthday, and Toys4Tails sends a new appropriate toy each month. Customers pay an automatic recurring payment that varies from $14.95 per month for a three-month subscription to $9.95 per month for a one-year subscription.

Audible.com

Audible.com sells downloadable audio books by subscription.

Audible.com sells downloadable audio books by subscription.

Audible.com sells downloadable audio book memberships. Members pay a recurring monthly fee from $14.95 and up to secure monthly credits that can be used to download audio books.

Doorstep Dairy

Milk and other dairy products can be delivered on schedule with a subscription from Doorstep Dairy.

Milk and other dairy products can be delivered on schedule with a subscription from Doorstep Dairy.

Doorstep Dairy is a regional grocery service company that sells subscriptions to home-delivered milk, eggs, cheese, and coffee. Subscribers can make any number of payment arrangements, including recurring monthly payments.

If these companies can sell their products as subscriptions, anyone can.

Management the Payments

Managing recurring subscription or membership payments is, generally, no more difficult than singular transactions.

Nearly every good shopping cart/ecommerce platform has a subscription management or recurring billing feature built in. These features are especially good in solutions like Magento and Volusion, for example.

A number of subscription-specific payment services are also available. These services may be either standalone or integrated with an existing ecommerce platform. Examples include Chargify, Recurly, Spreedly, and SubscriptionBridge.

Summing Up

Subscriptions and recurring billing represent an excellent opportunity for ecommerce entrepreneurs. They can provide regular and predictable revenue and make it easier to build relationships with customers.

After all, selling to a customer once is great. Selling to a customer every year, month, or week is even better.

Armando Roggio

Armando Roggio

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  1. Craig Vodnik January 25, 2011 Reply

    Hi Armando,

    Thanks for the detailed article on subscriptions. Those are some great examples of physical products and services in a subscription sense. At cleverbridge, we specialize in subscriptions for digital goods, such as anti-virus database updates, computer utility software, online storage and other SaaS services.

    One additional point that I would make is the more advanced subscription billing option of usage based subscriptions. The concept is to not only charge a specific amount each billing cycle, but treat it like a phone plan where you have overage amounts billed dynamically. By doing so, you can avoid heavy users taking advantage of an "all-you-cat-eat" model to put you out of business.

    Keep up the great work.

    cheers.

    craig

  2. Jessica_Rooney March 18, 2011 Reply

    A good article! If you have a product that requires multiple payments, many customers prefer to just be charged automatically. However, it’s also important to remember that recurring billing doesn’t just work for traditional eCommerce – it can also help if you are running charities or recurring donations. Recurring billing provides many options for your business!

    If you are interested in recurring billing, I would suggest checking out CheddarGetter. This online billing service specializes in recurring billing and subscription payments, and is simple and flexible enough to be used by a wide range of businesses. Its features include multiple pricing plan options, custom analytics, and a thoroughly documented API. Best of all, it has a free membership available, and is really easy to use. I definitely recommend it!

  3. Randy Goff January 10, 2012 Reply

    In considering a subscription software, I wonder if there is a comprehensive list of features that I should look for? (sorry grammar experts.) Such a list would save me a bucket full of time.

    Also, do all of the major software options accept all currency or is that a specialized option.

    Thanks so much for the good work and comments….it helps so much.

    • Cooper R.W. Krings June 25, 2015 Reply

      There is a good list of what you should look for. I work for the industry leader in Recurring Revenue management (and believe me it involves a whole lot more than simply recurring billing). If you look at the Zuora Academy at http://www.zuora.com/academy you will get a lot of insight into what you need to look into. I can’t publicly share our comprehensive list but if you are looking into it you should give us a call.