As a savvy subscription business owner, you already know that the subscription eCommerce industry is more saturated than ever before. In fact, the subscription eCommerce market has grown an average of 100% per year since 2011, with an estimated 15% of online shoppers having signed up for at least one subscription at some point in the past few years.
Needless to say, attracting and retaining new customers gets harder and harder every year — and since churn is one of the biggest challenges facing subscription-model eCommerce companies today, nurturing relationships with your customers is critical for sustainably growing your business.
So what’s the secret to reducing churn, enhancing customer relationships and fostering customer loyalty? Flexibility and personalization.
What does it mean to have flexibility in billing and offers, and why does it matter?
The days of the one-offer-fits-all approach to subscription model businesses are long gone. Nowadays, the key to keeping customers engaged and loyal comes down to offering the right offer, to the right person, at the right time. This trifecta is a proven strategy for reducing churn and increasing customer spend over time — and we aren’t the only ones saying so.
According to Monetate, nearly three quarters (73%) of consumers prefer buying from companies and producers that adjust offers to their individual needs. Research from Broadridge also indicates that 77% of consumers have chosen, recommended or have even gone so far as to pay more for a brand that provides personalized services and experiences. Meanwhile, Loyalty360 tells us that 78% of consumers will only engage with offers if they’ve been personalized to their previous brand engagements, leading to customer retention rates of 14% higher when brands embrace personalization.
Simply put, driving customer acquisition, reducing churn, and increasing ROI ultimately leads to bigger, better, faster growth — which, in today’s quickly changing subscription eCommerce landscape, is critical to your business.
In order to deliver personalized offers to each customer segment at scale, you need flexibility and customization to sell your products anyway your customers want to buy them.
That means you need to be able to offer any billing model and any type of offer, at any time. You need to be able to easily create, deliver, and iterate various billing models, and see which work best for your business and the various offers you provide.
What’s in an offer?
If you’re just starting out with offers, it’s important to understand exactly what constitutes an offer — and how customization and personalization play into this process. An offer is a combination of:
- What you’re selling = product + price
- When you’re selling = billing model
- Where you’re selling = campaign (regions and channels)
- How you’re selling = campaign (payment types, shipping methods, fulfillment providers, tax, returns, and more)
All of these elements play into how you can personalize your offers and enhance the customer experience, but one of the most critical (and complicated) elements is when you’re selling — or, more simply, your billing model.
The “When”: 3 billing models for eCommerce businesses
Your billing model is the most important piece of your monetization strategy. This depends on which revenue-generation model you select: that is, a fixed, recurring or hybrid billing model.
Fixed billing model: single purchase or one-time charge
Use case: This is best for products that are purchased as one-offs or one-time buys.
Benefits: This is a good model to use if you want to test demand for new products, give people a chance to try out the product before they sign up for a subscription, or market and upsell products. Even subscription eCommerce businesses use fixed billing models every once in a while, so it’s always good to understand how it works.
Recurring billing model: subscription
Use case: This is best for products that are purchased periodically (monthly, quarterly, etc.). You can charge by cycle (e.g. every 30 days); by date; by day of week; by specific calendar day.
Benefits: It goes without saying — this is a good model to use for continuous revenue, to offer low cost-of-entry for customers, and to increase retention and CLTV. That’s also why this is such a popular trend among online consumers.
Hybrid billing model: a combination of single purchase and subscription
Use case: This is best when you’re selling a mix of one-time buys and recurring products, and want to allow your customers to pay for both in a single purchase
Benefits: This is a good model to use to give your customers’ more options on how they want to buy, simplify their checkout experience, and to add single purchase products to a subscription as an upsell. For subscription eCommerce businesses, giving customers options via hybrid billing model offers can be a great way to keep them engaged.
The most common offer types
If personalized offers are a tried-and-true method for enhancing customer experience and reducing churn (especially for subscription businesses), then it’s important to understand exactly what types of offers you could use. They include:
Offering a free trial can be a great way to increase your base of potential customers since it’s hard to turn down a free product with no risk! You let them see for themselves what your product can do for them.
This strategy is one of the oldest in the book, but you have to assess whether it makes sense for your business. Some factors to take into consideration are trial length (how long will it take for someone to see the benefits of your product), time and money costs, and the effect the trial length may have on your sales cycle.
You can offer a risk-free trial, and either take on the shipping cost yourself or have the customer pay for shipping only. It’s common to offer a smaller size product as the trial product, and then ship the full-size product when the trial is over and the subscription begins.
This is likely the type of business you’re a part of, and it’s a model that has taken off in recent years. Subscription-model businesses are successful because they tap into some of our tendencies as human beings: namely desire for convenience, positive biological and emotional reactions to surprise and delight experiences, increased likelihood to make a purchase with fewer options, and of course ‘set it and forget it.’
You can offer a single product on a self-recurring basis, or you can offer a custom recurring subscription, where a customer can receive a different product of set of products every month.
Some products naturally go together, like shaving blades, razors, and shaving cream, so why not offer them all in one package? This saves the customer time and improves their shopping experience.
You can offer pre-set bundles at a fixed price (either the sum of the individual products or offer a discounted price for buying the bundle). You can also let customers personalize their bundle and pick and choose which items they want to receive in one package.
Upsells and Cross-sells
These are great offers both to bring in extra revenue and provide extra value to your customers – a win-win situation!
Upselling is convincing a customer to buy a more expensive or upgraded version of the product they’re already purchasing. For example, if a customer is purchasing a mobile phone case, offering a more protective, higher-grade phone case.
Cross-selling is offering new, complementary products to the one they’re already purchasing. For example, if a customer is purchasing a mobile phone, offering them a case, earbuds, etc.
If you are offering truly useful upgrades and complementary products they likely expected already, you are improving the customer’s experience, saving them time buying everything they need in one place.
There are many eCommerce promotions — more than we could list here. That said, there are a few types of promotional offers that are most effective. They are:
Save with a Subscription
We’ve all seen this with Amazon – if you sign up for a subscription instead of just doing a one-time buy, you get a percentage discount. This works well for products that customers will likely be buying on an ongoing basis, including groceries, household items, and pet food.
Let customers pre-pay for a subscription of a certain length, and offer them a discount for paying upfront. The most common are 3, 6, and 12 month pre-paid offers.
One-time paired product
Everyone loves free stuff! Offer your customers a one-time free product when they sign up for your subscription box as a ‘thank you!’ For example, if you’re offering a monthly shaving kit, throw in a free razor.
Promo coupons (dollar amount or percent)
Everyone loves to buy things that are “on sale” – featuring a sale price on your product pages can definitely increase conversions. You can feature percentage or dollar-based discounts. Showcase the retail price and the sale price side by side for maximum effectiveness.
This is not a promotion per say, but it is a great way to get new customers! Let your existing customers gift a subscription, get the giftee hooked with your awesome products, and you’ve got a new subscriber!
Best practices for creating offers
Know your customer: In order to deliver a personalized offer, you have to know your customers’ needs and what will resonate with them.
Be strategic with your pricing: A/B test different price points and set differentiated pricing for different customer segments based on value. Ultimately, you want to align your pricing strategy with how customers consume your products.
Package your offers: Upsell customers with add-ons or bundle offers at discounted rates for maximum ROI.
Sell where your customers are: Promote your offers through channels that are targeted towards your customers and maximize ROI.
Get the timing right: Whether it’s a one-time holiday offer, or an offer to thank a loyal customer or an offer to a customer who is at risk of leaving – choose your timing and duration wisely.
Make it easy for customers to make changes: If you’re running subscription offers, increase LTV by enabling customers to easily manage and make changes to their subscriptions without having to contact customer service.
Getting personalized offers right: tracking performance with the right metrics
So now we know how to create offers and the most common types — but the work certainly isn’t done. Now it’s time to track and measure your offers’ performance so you can determine which are working, and which aren’t. The best way to do it is to use your data wisely — and that starts with determining which metrics to track.
Key metrics to track offer performance:
- Trial Conversion – this is the conversion rate % from a free trial to a paid customer
- In-trial cancellation – the opposite of trial conversion, this is the % of customers that canceled while in trial before the first recurring charge
- AOR – average order value tracks the average dollar amount spent each time a customer places an order. To calculate your company’s average order value, simply divide total revenue by the number of orders.
- MRR – monthly recurring revenue is probably one of the most important metrics for a subscription business
- LTV – customer lifetime value represents the total net profit from any given customer across the entire relationship
- CAC/CPA – customer acquisition cost is the total sales and marketing cost required to earn a new customer
- ROAS – return on ad spend shows the profit (return) on your investment in ads relative to the cost
- Churn – the percentage of your customers or subscribers who cancel or don’t renew their subscriptions
The importance of personalization
There’s no doubt about it – personalizing your offers will lead to higher conversions, increased ROI, and substantial growth for your subscription business. In this day and age when consumers have so many options, you can’t afford to not personalize. Now that you know the different ways you can sell, take a look at your business strategy, goals, products and figure out what makes the most sense for you (and don’t be afraid to test).
LimeLight’s got you covered! Sell anyway your customers want to buy with FlexBilling and FlexOffers.
Be it fixed, recurring, or a hybrid, FlexBilling makes creating and delivering any billing model simple and scalable – no custom code required. You can easily create, deliver, and iterate various billing models, and see which work best for your business and the various offers you provide.
You have the flexibility to create over 16 different types of offers, including pre-fix and custom product bundles, subscribe and save, prepay, gift subscriptions and more. Plus, it’s easy to scale – spin up different offers in minutes, no custom code required. Plus, you can easily launch multiple campaigns to sell the same offer, with reporting that allows you to track the success of each traffic channel.
With FlexBilling and FlexOffers, there are no limitations. Deliver personalized offers to each customer segment, at scale.
WATCH OUR WEBINAR: 16 Ways To Sell: Creating Offers that Drive Customer Acquisition (And Reduce Churn)