Making Ecommerce Sustainable: Tapping Into the Power of Recurring IncomeReading Time: 5 minutes
Ecommerce is growing fast, and there’s plenty of reason for optimism in the space. But make no mistake: ecommerce companies are no more self-sustaining than any other type of business, online or off.
And ecommerce businesses that rely on individual sales to survive are facing near-certain doom right out of the gate.
When you’re only making money one customer decision at a time, you’re constantly under threat from competition, changing trends, and a host of internal issues that could rear their heads at any moment. Recurring revenue—from subscription sales or “continuity” products—is the key to growing a sustainable business.
Entrepreneurs in the information products vertical have known this for awhile, and it’s time that ecommerce operators started catching on.
New Customers Require a MUCH Higher Investment
First, a simple look at the numbers.
According to an intense bit of research by the folks at RJMetrics, there are over 100,000 individual ecommerce sites on the web that are actually generating an appreciable amount of income. Note that this estimate doesn’t even include ecommerce sellers who only operate on larger marketplaces, without their own websites.
In other words, there’s a whole lot of competition out there, no matter what your niche is and no matter how big your audience is.
Estimates vary widely, but even the most conservative analysis puts the cost of acquiring a new customer at more than five times the cost of making a sale to an existing customer.
If you’re constantly shelling out for new customers without putting subscription/recurring revenue opportunities in place, you’re burning through your resources and leaving piles of cash on the table.
Recurring Revenue Yields Higher Margins
Not only is it cheaper for you to make a repeat sale than to acquire a new customer, but you’ll also get more value out of repeat customers. In a study of over 18,000 ecommerce sites, Kissmetrics found that repeat customers spent more than twice as long on a site as first-time visitors, and viewed nearly 43% more pages per visit.
These metrics are not only encouraging from a direct sales perspective—the longer visitors stay on your site and the more pages they view, the more likely they are to purchase—but this user behavior will also boost your SEO (which lowers your new customer acquisition costs). Add in the fact that repeat customers are that much closer to becoming brand evangelists, and the returns you get from your repeat customers start to skyrocket.
Recurring customers have a lifespan ROI many times the value of the actual purchases they make, and you get all the benefits at a fifth (or less) the cost of acquiring new customers.
You’ll need new customers if you want to keep growing, of course, but recurring sales can provide the solid revenue streams you need to effectively tackle new customer acquisition. And once you have a sizable customer base, subscription revenue can really start to ramp up your profits.
Yes, You CAN Get Customers to Subscribe to Continuity Products
“That’s all great,” I hear you saying, “but I sell physical products, not something people would subscribe to! Even if I can get repeat business, there’s no way I can turn it into truly recurring revenue!”
And you’re right, recurring/subscription revenue is distinct from simple repeat business, and it’s far from the first type of “loyalty sales” most ecommerce entrepreneurs think of. But unless you know something Amazon doesn’t know, subscription sales can be big business, especially in the physical products world.
Read the fine print. That’s thousands of items Amazon thinks it can sell with a subscription; surely you can think of three or four?
The indisputable ecommerce king is staking a whole lot on subscription service products, even going so far as to have automatic ordering enabled for certain “smart” devices. Your washing machine senses you’re low on detergent? If you’re connected to Amazon Dash, your washer will order it for you—you never have to lift a finger!
Amazon is betting on subscription revenue because it knows subscriptions lock people in—it’s easier to let the subscription ride than it is to cancel, so as long as a competitor doesn’t come along with a truly irresistible offer Amazon has a laundry detergent customer for life.
To put it bluntly, people are lazy. The more effort they have to put into something—whether it’s making a purchase or cancelling a subscription—the less likely they are to do it.
For example, consider the most common causes for cart abandonment identified by Visual Web Optimizer in their most recent ecommerce survey:
Chart source: Kissmetrics
Other than not being able to find a coupon code—which only accounts for 8% of abandonments and is an easily solved problem—each of these issues relates to one more decision the customer has to make before clicking “buy.” Should I pay that shipping charge? Should I sign up? Should I buy this now, can I trust this business, should I take the time to figure this out?
Amazon and other savvy businesses know that every decision you force customers to make loses sales. Subscription purchases are choice-free after the initial signup; in fact, customers have to make an active decision to cancel a subscription, and that keeps them locked in even longer.
And the subscription model can work for smaller ecommerce retailers, too.
People who buy things also buy more things. And they’re more likely to buy more things from companies they’ve already bought things from.
It’s pretty simple, and the numbers bear it out. In an analysis of 10 million orders placed by 2.5 million unique customers, subscription sales came in more than 3x higher than retail sales.
So if you’ve already sold something to an ecommerce customer, find more products in your niche, and you can sell them on an ongoing basis with relative ease—earning a major boost to your margin in the bargain.
Some products, like vitamins and supplements, have an obvious alignment with subscription revenue models. They’re consumable, people take them on a regular basis and need refills on a predictable schedule, and it’s the kind of thing they love to be able to leave off their shopping lists—it just shows up when they need it, and the charge goes right on their credit card.
Other perishables like food staples—bread, rice, peanut butter, you name it—can also be enticing subscription items that not only keep the revenue flowing but that reinforce brand loyalty and entice future purchases for additional items.
But we’re still barely scratching the surface of possible subscription add-ons to ecommerce purchases.
You sell furniture? Offer a subscription to furniture polish or cleaner, or to your proprietary (white labeled) no-scratch cleaning cloths. Sell camping gear? Let your customers sign up for a once-a-month delivery of new portable foods to try—it’s not only revenue, it’ll make sure you’re the place they go when they really need to stock up.
Making Recurring Revenue a Part of YOUR Ecommerce Business
The point is, there’s a way to make subscription-based revenue work for ecommerce retailers in every conceivable niche. And there are effective ways to build your ecommerce site and your marketing efforts into funnels that feed your subscriptions at an ever-growing rate. Find the right products and set up the right system, and you’ll have a truly sustainable ecommerce business that’s built to last for years.
We ought to know. We’ve helped more than a few ecommerce businesses find their way through the wilderness and into profitability with the recurring revenue roadmap.
We have more tips in the pipeline on building out a subscription side to your ecommerce business—it’s a big topic, and we’ve got a lot to say. Want to be sure you get all the latest info? Then subscribe to this here blog, and get ready to take your ecommerce business as high as you want it go!