A subscription program can be a powerful strategy to make your business more valuable to investors and help make it easier to raise funding. Subscription models bring in more reliable, longer-term revenue, and can flatten out seasonal spikes, making forecasting easier and more accurate. However, it’s not easy to do eCommerce subscription programs right – it’s a delicate dance to optimize retention, churn, customer acquisition costs, revenue per customer and other factors.
With all this in mind, if you’re thinking about launching a Shopify Plus or Shopify subscription program or have one already, it’s critical to commit to optimizing it – not just letting it run on autopilot. To do so, you need a data analytics platform (trust us, it will save you a lot of headaches in the long run). A data analytics platform provides a single source of (data) truth that everyone can work from, leverages automation so you can get up-to-date metrics faster, and allows you to slice and dice data in many different ways to glean new insights. Stuff you really can’t do easily in Excel and is very expensive to do with homegrown tools.
Take a closer look
When we discuss ReCharge and subscription programs with our clients, the top two metrics they cite are number of subscribers and churn rate – how long customers stay with the subscription before opting out. This is good information to know. However, the discussion can be so much more nuanced! Ok, let’s talk about churn rate. But the churn rate for what? Which products? Which customers? On which channel? Using what device?
Furthermore, if we know the churn rate, what do we do with that information? What would it take to keep subscribers in the subscription program longer? How can we make them more valuable subscribers? Are we getting enough return on our marketing dollars? From these questions alone you can start to see how valuable a more granular view of the data can be.
To help illuminate for eCommerce brands which key metrics they should be analyzing to guide subscription program optimization, we talked to the folks at Daasity, a data analytics platform built specifically for DTC brands. The following is what they highlighted as the top things to look at to keep your subscription program performing well.
Evaluate overall eCommerce subscription program health
The health of your subscription program can’t be determined by revenue alone. It’s important to also look at the factors that affect profit, including customer retention, average profit per customer, customer acquisition costs (CAC), and monetization of existing customers (e.g., do your existing customers spend more or less than new customers?). A subscription program is supposed to increase profit via decreased customer acquisition/marketing costs, as well as increased purchase of higher cost/higher margin products (which are made more appealing by subscription incentives). Therefore, it can be helpful to compare transaction and subscription revenue and profit by month to see if your subscription program really is providing the value you thought it was and help you identify ways to improve.
Dive deeper into customer churn and retention
If you have a higher customer retention rate than your competitors, that can be a great selling point with investors. One number to have at your fingertips is average days to churn – the average number of days from subscription to cancellation. Looking at average churn in terms of days versus the more typical “months” metric can be really useful.
For example, if you see your average customer churn is 94 days, it falls into month three; but when we get into the weeds, you can see if they churn before or after they receive their third order. Knowing this helps you drill down into why they may have unsubscribed at this point (e.g., too much product? Not feeling the value?) and what you can do to get them to want to subscribe longer (e.g., add “skip next order” functionality?). With this information, you can test different promotions or marketing before the 94 days to determine what can prevent or delay an unsubscribe. Even extending a subscription a few months can make a big difference to your bottom line.
A useful way to visualize churn data is with a cohort analysis – see how many subscribers are still in the program, based on the month they subscribed. Daasity’s platform provides a visualization like a heat map; for example, for recent subscribers, you can see retention rates in the “green zone” (upwards of 90%); customers who subscribed 10 months ago might be in the “yellow zone” (20% retention rate). This sort of visualization makes it easier for you to proactively target a cohort of customers falling in the green-yellow zone with a marketing campaign before they unsubscribe.
Grow your most profitable customers
Who are your most valuable subscribers? Often a customer will subscribe to multiple products or offerings, and the more subscriptions they have, the more valuable they are (and typically the harder it is for them to leave). It’s important to identify these customers, their average revenue and profit, and understand what mix of products they’ve subscribed to. Not only is it smart to cultivate these customers with VIP treatment to increase customer lifetime value (CLTV), you can use this data to proactively grow the subscriptions of your VIPs – figure out how to get these customers to buy more and increase their payment each month. Showing investors that your profit per customer is higher than your competitors’ is another compelling data point.
Additionally, data about what your best eCommerce subscription customers subscribe to can provide insights around up-selling and cross-selling other customers to convert them to more valuable, multi-product-buying customers too.
Identify your most valuable products
In addition to knowing your most valuable subscribers, it’s important to understand which are your most profitable subscription products. You can determine this by looking at metrics like which high-margin products are the most popular, which products customers are subscribing to for the longest, and which have the highest churn (e.g., do subscribers churn more often from one product than another?). Also, which products are most subscribed to together? As well as helping you balance inventory, this data provides insights for product bundling and marketing strategies, including enabling one time purchase (OTP) products to be added to the next shipment of an existing subscription.
Get marketing insights
You also may want to look at marketing-side data to see which channels (e.g., social, email, paid search, affiliate sites, etc.) and messaging are most effective in driving people to subscribe, versus making a single transaction. Comparing how many customers who came to the site via a certain channel to subscribe versus one-time purchase can be really enlightening and help you determine how to get more return on your marketing investments.
“We worked with Kopari Beauty after they launched a Shopify subscription program. In the beginning, they drove first-time customers to sign up for a subscription because they wanted to drive as many customers as possible to their more profitable subscription program. Looking at the data, we found that they were actually losing money on customers who subscribed on their first purchase because they just wanted the subscription discount. After this first purchase, they would unsubscribe. We helped the brand discover that their customers who subscribed on a second purchase were far less likely to churn. They were able to use that information to not only increase revenue, but help them raise millions in funding.”
– Jeremy Horowitz, Partnerships, Daasity
When you want to know “why,” often the best thing to do is just ask. Therefore, it can be helpful to survey unsubscribing customers as to why they’re discontinuing their subscription – Recharge actually has this functionality built in, and Daasity’s platform can help you sort through the responses. ReCharge’s questions are limited, however; for example, there’s no option for answers related to UX like “because your customer service is bad” or “your website is really difficult to use.” Therefore, you may want to consider doing your own customized survey that’s sent to customers when they unsubscribe.
Analytics for eCommerce subscription success
Although eCommerce subscription businesses are becoming more popular, there’s still a wide open opportunity for you to build and optimize your own, if you’ve determined that a subscription program could provide value for your customers. According to Daasity, the DTC brands they work with that added subscriptions to their core business model are the brands that are seeing the biggest growth. Would a subscription program be right for your business? Do you have the right technology and tools in place to support it? We can help you figure it all out.