Practical Ecommerce

Interview: Subscription Revenues Can Supplement Ecommerce Sales

The notion of adding additional revenue to an ecommerce business presumably appeals to merchants. And, increasingly, one way to do that is with the use of subscriptions. Amazon Prime may be the best example of a merchant selling subscriptions, but there are many ways smaller merchants can do it, too.

To discuss the possibilities of subscription revenue, we recently spoke with Massimo Arrigoni. He is the CEO of Early Impact, a shopping cart software company that has just launched a new hosted subscription management platform called SubscriptionBridge.

Practical eCommerce: Can you tell us some ways that merchants can tap into subscription revenue?

Massimo Arrigoni

Massimo Arrigoni

Massimo Arrigoni: “Subscription revenues have that recurring portion that’s really appealing to any entrepreneur. There are different levels that they can look at.

“First, if your core product or service is subscription paid, it’s a no-brainer. This could include recurring shipments of vitamins or a web 2.0 service that people subscribe to. But, you have to find a way to reduce the cost of managing those subscriptions and there are services out there that help you do that.

“The second area is ancillary services. For example, on top of whatever products or services you sell, you decide to provide 24/7 support, but only if somebody subscribes to a special support package. So, that’s not really a core product or service, but a subscription to an additional service that you provide.

“A third area is additional features, or let’s say VIP services, that you might offer on your website if somebody subscribes to a special additional package. A great example of that is Amazon Prime. Say you subscribed for $79 a year (I think that’s the price for it), and what you get in return is sort of VIP treatment, like second-day shipping is free for you, and you feel like a special customer. Amazon has been incredibly successful and I’ve seen estimates of over 3 million people that subscribe to Amazon Prime.

“I like to frame it into those three areas: (1) your core products, (2) additional services, and (3) sort of ‘VIP treatment’ that you can offer on your web store, and you can act in all of those three areas.”

PEC: Using a hypothetical example of three types of retailers, office supplies, pet supplies and a seller of herbal teas, how could they take advantage of subscription revenue?

Arrigoni: “Let’s refer back to the three areas that we just talked about. All three of those industries could offer the VIP treatment, right? So, regardless of whether you’re selling office supplies, pet supplies or herbal teas, you could provide, for example, a fast shipping service if somebody subscribes to the additional service that you provide.

“In terms of the core products, say office supplies, larger offices tend to buy the same products over and over again. So you might want to provide those customers with the ability to say ‘please send me these products every month’ and ‘this is what it’s going to cost’ so the purchase could be automated through a subscription service. The same thing applies to pet supplies where you tend to buy the same products over and over again, so that also could be automated.

“Herbal tea is an area where a business model that’s worked is a product-of-the-month type of thing. So, you could offer your customers the ability to say ‘send me some samples of your teas every month’ or a product that you’ve picked. And, again, subscription-based is clearly not that expensive and it could be a good business model to try out.”

PEC: Can you tell us some other examples of actual ecommerce merchants that are benefiting from a subscription model, beyond Amazon Prime?

Arrigoni: “Where you see a lot of this is the ancillary services that I was talking about. A great example of that is a higher level of support, and you see this over and over where you subscribe to, for example, phone support, or you subscribed to a service that gives you priority in the way your technical support tickets will be handled. You see this across all industries. You might purchase open source software where the cost is free, but you might be paying a yearly fee for technical support. There are several providers that do that. The technical support area is an area where clearly the subscription model works for many, many companies.”

PEC: Your company, Early Impact, just launched SubscriptionBridge, a new, hosted platform to help merchants manage subscriptions. Tell us about it.

Arrigoni: “The challenge when you sell subscriptions is really not the sale itself, it’s really what happens after that. Some studies have shown that the cost of managing a subscription can be substantial–up to 6 or 7 percent of revenue. And the reason is, during the life of a subscription, all kinds of things can happen.

“For example, a typical one is the customer needs to change the payment method or a payment didn’t go through because of various reasons. So, what do you do after that? If you don’t have an automated way to follow up with a customer when there is a decline, that can cost you an incredible amount of money in terms of human resources dedicated to following up and trying to get a payment to go through. SubscriptionBridge allows you to cut down on all the customer service costs that go with selling and managing subscriptions. At the same time it allows you to automate some of the things that customers need to be able to do, for example, add a feature to a subscription, change the payment method, and all sorts of things like that.

“We’re certainly not the only one in this space. There are other competitor services including CheddarGetter, Chargify, Recurly and Spreedly. We all provide essentially the same set of features to take the pain out of recurring billing. Our focus at Early Impact, given our experience with our ProductCart shopping cart software, is in providing you tools to make it very easy for you to integrate what you’re already doing with managing subscriptions.”

PEC: What is the cost for SubscriptionBridge?

Arrigoni: “You can try it out free of charge; it’s free for 90 days up to 100 subscribers. After that, it’s very inexpensive. It’s geared pricing that starts at about $0.20 per subscriber, and then it goes down from there depending on how many subscribers you have. So, it’s a subscription service itself, and you pay depending on how many subscribers you’re managing through the system.”

PEC: There are hundreds of shopping cart platforms, both licensed software and hosted solutions. Let’s say I’m a merchant that uses the Yahoo! Small Business hosted shopping cart to sell pet supplies. How would SubscriptionBridge tie in with what I’m doing with my Yahoo! cart?

Arrigoni: “Two ways. One is to do some custom development (assuming that your ecommerce platform allows you to do that), and leverage APIs (application programming interfaces) that systems like SubscriptionBridge give you. All the offerings that I mentioned–CheddarGetter, Chargify–they all provide an API that you can leverage to do this.

“Clearly, that’s not what small businesses want to hear. They don’t want APIs. They want just ready-to-go solutions and, at SubscriptionBridge, that’s what we want to focus on. So, we started creating ready-to-go integrations with shopping carts. We haven’t worked on the Yahoo! platform. But the other day we launched a beta of our integration with Magento. This means that if you’re a Magento-powered store, you can take advantage of SubscriptionBridge without any custom programming whatsoever. Meaning that on your store on the same catalogue, you can now sell one-time purchase products or services and recurring payment products or services.

“You can also sell priority customer service plans at the same time as you’re selling one-time purchase products and services. You can do this very, very quickly, and that’s our strategy with SubscriptionBridge, to continue developing these ready-to-go integrations that allow merchants to very easily be able to sell subscriptions and manage those subscriptions from within their ecommerce platforms.”

PEC: For a merchant that uses the Magento cart and wants to offer subscription products using SubscriptionBridge, would a subscription be a separate product in the store, or an option that customers would have as they’re checking out of the cart?

Arrigoni: “It’s pretty seamless. You would go to the Magento Connect marketplace where you can download Magento extensions, get the SubscriptionBridge extension, install it on your Magento store and now all of a sudden, in your Magento catalogue and products, you can pick a product and say ‘okay, this will be a subscription,’ and you can link it to the subscription package that you’ve created separately in your SubscriptionBridge merchant center.

“So the subscription package might be, for example, a monthly subscription with a free trial. So now, when the customer goes through checkout, Magento would recognize that that particular product is not like any other product; it’s a subscription, and so it will handle it differently during the checkout process. Specifically, when the order is completed, it will tell SubscriptionBridge about it and from then on, SubscriptionBridge takes over the management of that subscription in terms of sending email notifications and so on. It allows you to flag specific products within your Magento catalog as subscriptions, and from then on, those products are handled differently. And, when you look at the product details page, you’ll see what we call a ‘terms widget.’ It tells you about the terms of the subscription and those are dynamically retrieved from SubscriptionBridge.

“The same model will be applied with other shopping carts. We’ve got our own product cart shopping cart software, ProductCart, and since we developed it internally, the integration with ProductCart is even easier. SubscriptionBridge is built right into the software so you literally turn it on just by pressing a switch.”

PEC: Any other thoughts for our readers as they contemplate the possibility of subscription revenue?

Arrigoni: “Yes. Be creative. Look at your business model. Look at what your customers are asking for. Even if your core products are not subscription products or services, there might be ways for you to sell a subscription by providing additional services. The Amazon Prime example is a great success story and you might want to take a look.”

Practical Ecommerce

Practical Ecommerce

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Comments ( 4 )

  1. Massimo Arrigoni October 21, 2010 Reply

    Quick note: if you are coming to the PayPal X Developer Conference (https://www.paypal-xinnovate.com/), make sure to stop by our kiosk and say hello. We will be presenting SubscriptionBridge and the newly released integration with Magento. There are also some other subscription billing systems to checkout, such as Zuora (higher-end system). Cheers, massimo

  2. Trendslate October 22, 2010 Reply

    Very interesting interview. We are particularly interested in subscription ecommerce and were wondering how your service is different from recurly or chargify?

    Additionally, [we wrote about one of the most successful subscription ecommerce companies here: Shoedazzle.](http://www.trendslate.com/2010/10/18/subscriptions-are-booming-in-ecommerce/)

  3. Massimo Arrigoni October 23, 2010 Reply

    The pitch is basically the same: (a) take the pain out of subscription billing (e.g. the process of following up on declined subscription payments can be a huge pain in the neck if it’s not automated); (b) facilitate changes to a subscription (add features, upgrade plan, change payment method, etc.); (c) allow developers to build applications without having to worry about the billing side of things (thus providing an API that developers can leverage); etc.

    With SubscriptionBridge, we started by providing a solution that sits on top of existing recurring payment systems. So if you are <b>already</b> using a system such as Authorize.Net Automated Recurring Billing (ARB) or PayPal Website Payments Pro (or Express Checkout) Recurring Payments, you can add SubscriptionBridge and take advantage of a number of new, useful features.

    Recurly and Chargify are recurring payment systems themselves. They trigger the payments. Credit card information is stored either by the company itself (Recurly), or via credit card storage systems like Authorize.Net CIM (Chargify).

    SubscriptionBridge will soon provide that option as well, since it allows for support of the Freemium model (free subscriptions that are then upgraded to a paid subscription if/when needed), which we currently do not support. We will support it in Q1 of 2011.

    Another difference is our focus on building ready-to-go tools for more complex business scenarios. For example, a store that is selling both subscriptions and non-subscription products. In that scenario, you need a full-featured shopping cart system that is integrated with a subscription billing system, and we have released two such integrations so far: Magento & ProductCart (see: https://www.subscriptionbridge.com/web-site-integration.asp#carts).

    For instance, a software company could sell one-time licenses for its software, and a subscription-based technical support plan (and we do exactly that ourselves at Early Impact).

    Subscription-based business models are proven and here to stay. It’s an exciting space in the ecommerce arena. Your example about Shoedazzle is very telling in that regard.

    And it’s good to have competition. It pushes all of the players to provide even better, smarter solutions. Recurly recently picked up a $1.6m investment, which is a testament to the fact that there will be a lot of growth in this area in the years to come. Zuora, a higher-end provider in the same space, has raised over $21m in capital.

    Hope to see some of you next week at PayPal X Innovate for a demo. Zuora is there too.

    Cheers,

    massimo
    Early Impact, Inc.

  4. Alex January 18, 2017 Reply

    There another subscription and usage-based billing out there. http://www.flybilling.com/