The subscription e-commerce market has grown by more than 100% a year over the past five years, according to McKinsey&Company. Recurring revenues are the new frontier, the new business model for many companies, for others the use of recurring revenue model is already well established as recent research by CFO Research showed:
Source & Copyright©2019 - CFO Research
Recurring revenues are important because:
- The initial sale is the starting point offering numerous opportunities to upsell
- The seller receives multiple payments over the products life instead of a single payment
- They are steadier and less likely to suffer major changes.
The issue now is how to maximise recurring revenues.
Recurly, one of the leading providers of subscription services, has developed benchmark data on the popularity and usage of the options in terms of subscription plan length and product mix. The findings from their two-year study of over 900 B2C e-commerce sites showed that:
- Plan Length and Structure: The majority of businesses—68%— offer more than one plan-length option to their subscribers and Recurly found that in:
- Industries where physical goods are more prevalent they tend to have a higher proportion of monthly-only plans. This is also true of the healthcare segment
- Industries with a higher proportion of monthly plans tend to experience higher churn
- Multiple revenue streams: as well as recurring revenue plans, it is also vital to offer one-time, non-recurring offerings, which offer your customers alternatives and can expand your business.
- Churn rates (subscribers cancel their subscription) vary by industry:
- Overall median is 7.02%, while digital services 6.63% and physical goods 10.11%
- Allowing subscribers to pause their subscription can be an effective way to reduce voluntary churn.
Recurly’s overall conclusions from the study were that e-commerce companies need to:
- Utilize options such as plan lengths and product mixes across a variety of segments
- Accept that different segments experience varying rates of churn.
CTMfile take: Recurring/subscription payments can change your business model and open up whole new revenue streams. To do this requires new ways of thinking about payment collection.
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