Updated:
August 2, 2023
Enhance your marketing efforts by building a customer retention strategy that counteracts growing acquisition costs. Adding subscription revenue can aid ecommerce businesses.
Skyrocketing customer acquisition costs (CAC) are impacting merchants’ long-term goals. As the world faces increased uncertainty — due in large part to the pandemic — and consumers shift their spending behavior, ecommerce businesses face the challenging task of attracting and retaining the right customer. With a growing number of channels and recent changes to privacy laws that limit how brands are able to collect consumer data, a customer’s journey is more challenging to track compared to a few years ago. This makes it more difficult for merchants to not only optimize CAC but convert key audience members to help grow revenue.
Retention is (and should be) top of mind for ecommerce businesses. As industry indicators highlight the rising costs in acquiring buyers, retaining existing customers is helping to fix profit margins to improve ROI. Earning customer loyalty, however, requires strategic planning. Bringing someone into your ecommerce brand’s ecosystem means evaluating methods to keep them engaged and reduce the possibility of churn.
Subscription commerce is a clear-cut solution that helps solve a multitude of customer pain points that derive from one-time purchase models. Subscription services can offer an automated experience for both merchant and consumer. Consider how merchants onboard new customers and the methods deployed to keep products and services top of mind. Subscriptions can establish recurring revenue and help provide direction to merchants on improving systems that ultimately retain and scale business. Here’s how:
The pandemic's massive upheaval of the global supply chain has profoundly impacted consumer brand loyalty worldwide. A McKinsey study found that 65% of consumers plan to continue shifting their buying behaviors after the pandemic. With a broad spectrum of ecommerce brands to choose from, today's sophisticated consumers know how to make smarter purchases and are increasingly loyal to value over brand. As a result, ecommerce businesses are looking to build on strategy that lowers acquisition costs, as well as time spent to keep customers returning. Subscriptions offer value for consumers, while returning investment to merchants. The result is significantly lower costs for acquisitions and long-term recurring revenue growth. Subscription models can help you capitalize on compounding values of customer relationships, leading to greater retention.
Unsurprisingly, the price of acquiring a new customer is growing. Digital ad spending is expected to reach over 60% of total global advertising spend for the first time ever after having rebounded since 2020. This increase in demand for consumer attention paves the way for painstakingly high marketing costs, compromising ecommerce companies' CAC.
The quest to stand out in a saturated sea of options has ecommerce merchants looking to the other side of a successful marketing strategy: customer retention.
Subscription businesses offer a bottom line of monthly recurring revenue (MRR). As a major driving factor in scalability, it can help merchants create and maintain long-term profitability. Converting subscription sales starts with simplifying how customers make online purchases. Rather than one-time deals, subscriptions promote repeat business, as long as merchants regularly deliver a good experience. Adopting a subscription business model enables:
Additionally, merchants are able to lean on other subscription-related metrics for achieving business success. Beyond CAC, a subscription business model can extend customer lifetime value (CLTV) — driving compounding revenue and increased brand loyalty.
Customer lifetime value is a crucial KPI and one of the most effective ways to predict the potential revenue each customer will generate in their lifespan. Knowing and understanding CLTV helps ecommerce businesses increase customer retention. Costs of acquiring new customers far exceed efforts and likely profit obtained from upselling to existing ones.
Evaluating CLTV helps brands determine their ROI. Between CAC and CLTV, a merchant can calculate how much profit is generated for every dollar the company spends on sales and marketing. To understand CLTV, merchants should begin analyzing and estimating the average amount of time that a subscriber will enroll before cancelling their subscription. Based on the costs of acquiring a new customer, merchants can determine break even points and time it takes to recover a lost subscriber.
Ultimately, your marketing strategy is a careful balancing act between investing in attracting new customers and nurturing existing ones through exclusive offers and enticing subscriptions. These factors, overall, can help increase retention.
Subscription reporting can help merchants more easily dissect critical KPIs and make appropriate decisions around marketing and sales spend to ensure that CAC remains low and CLTV increases over time.
There are some basics about subscription offers that make this model both profitable and scalable for ecommerce shops. First, it allows the end-user to replenish their product supply automatically, so customers continue a low maintenance, long-term relationship while still receiving an awesome customer experience.
It can also help merchants assess, evaluate and implement tools and processes to help increase overall customer loyalty.
A well-designed subscription offering for your ecommerce business can go a long way in lowering customer acquisition costs and enhancing customer retention. Be sure to focus on the following:
Customer retention is difficult to achieve. Focus on maintaining the company’s current customer base while increasing loyalty by providing better service or more benefits based on acquired data. Effective methods to help build retention through subscription model businesses include loyalty programs, upsell promotions, special offers and cross-selling initiatives.
In evaluating your subscription offering, you should brainstorm how your product or service can bring value to your customer on a regular basis. Whether replenishing a skincare cream monthly or getting new content in a digital course, consumers strive to obtain access to unique and valuable products. As an ecommerce brand, that means understanding your customer and creating the right ways for them to engage with you and your products during their lifecycle.
A crucial best practice in offering a subscription model is to give the customer control in managing their account by enabling the ability to skip, pause or cancel an order in an easy-to-use way.
Adding subscriptions to your catalog promotes value and prosperity of your business. It also provides your customers with flexibility in the ways they interact with products and services. Whether customers subscribe to save time on ordering new paper towels or to be surprised with a wellness treat, it's essential to meet their expectations. Additionally, subscription models can streamline order fulfillment processes, which are essential to scalability. The full model works to address retention and provide solutions that consumers are frequently searching for.
Creating a thoughtful subscription package can make your customers more likely to rave about products and make additional purchases in the future.
Many evolving tech solutions are helping merchants discover a better, faster way to integrate recurring revenue into their existing or new retention strategies.
The focus is to leverage technology in a way that help merchants evaluate key components of business operations to help them make better planning decisions for increased retention. Through sticky.io’s powerful subscription commerce platform, merchants can offer subscriptions that generate recurring revenue, reduce churn and extend customer lifetime value.
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