The future is bright for health and beauty merchants: The industry, which brought in $430 billion in revenue in 2022, is steadily growing. Fragrance, makeup, skincare and hair care products are big with younger consumers who prioritize spending on luxury goods and self-care. And these shoppers are slowly moving purchases online; around 20% of revenue now comes in through ecommerce.
As competition for market share heats up, legacy brands and direct-to-consumer startups alike are investing in premium online experiences to capture loyalty and grow revenue. In particular, many merchants are starting to compare subscriptions vs. one-time purchases to determine which offers the best opportunity for growth. Here’s how the two sales methods stack up for health and beauty sellers.
Health and beauty ecommerce subscriptions aren’t exactly new — one of the first major subscription boxes, Ipsy, launched in 2011. It became a quick success, inspiring similar products like Sephora’s Auto-Replenish subscriptions, Liberty Beauty Drop, BeautyFix by Dermstore and more.
Consumers across the globe are pouring nearly $1 billion into these products, with more to come. The compound annual growth rate (CAGR) for the beauty subscription market exceeds 25% over the next decade, according to FutureMarketInsights. This industry is a uniquely good fit for subscription commerce because stores can constantly replenish consumers’ favorite products or offer them the luxury of trying a curated set of new products each month.
Consider health and beauty merchant SkinnyFit, which started with subscribe-and-save options to keep buyers in their favorite supplements and drink mixes. Over time, the brand wanted to experiment with different offers and marketing campaigns to better cater to its target audience. With sticky.io, SkinnyFit has seen a 40% YOY growth in subscriptions and a 31% increase in average order value. This sort of growth is available to merchants within the health and beauty market that follow SkinnyFit’s lead in tailoring subscriptions to customer needs.
Just because subscriptions are all the rage doesn’t mean one-time sales are dying. While considering whether you want to move to a subscription model, consider the pros and cons of the traditional commerce model.
One-time sales can be easier for both consumers and merchants. They require less buy-in and take less for you to ship, which may be best for newcomers to the ecommerce space.
Signing up for a subscription is a big step, and it’s one buyers may not be ready to take, especially with something that feels as personal as cosmetic products. Someone new to a particular brand or product may not want to subscribe right away; they need to make sure it’s the right fit for them. One-time purchases may be the best way to win over prospective new buyers who aren’t sold on a subscription but will come back if they like your goods.
From a logistics viewpoint, it’s also much easier to handle one-time sales than it is to set up a subscription service. Most payment gateways and processors can’t automate recurring billing, meaning you need to invest in software to track your subscription orders and coordinate your fulfillment.
The health and beauty industry also calls for more complex subscription setups. Most buyers have a unique set of preferences you can only cater to by offering personalization or tailored, curated boxes for each buyer. Merchants who can’t offer this experience may do better with one-time sales.
One of the reasons health and beauty ecommerce merchants have shifted away from one-time sales is because of the financial instability inherent to the model.
If your only consumers are those who actively go to the store or search out your products online, you never know who will be buying each month or how much they’re going to buy. It can be harder to plan for your inventory and staffing needs when your monthly revenue fluctuates heavily. Plus, you’ll need to spend heavily on advertising to bring in new buyers each month.
Shoppers who don’t have an ongoing relationship with your brand are also harder to fully monetize. Your retention efforts will likely rely on (costly) email and text marketing that most of your buyers don’t respond to. It’s also difficult to upsell or cross-sell buyers who make one-time purchases. Trying to do so during your first sale to a customer could make you seem pushy and turn them off of your brand entirely.
So, are subscription sales the answer to the challenges you’ll face if you base your business model on one-time sales? Yes…as long as you do them well. Subscription offerings come with their challenges, and merchants switching from one model to the other often find they have to make big adjustments.
Subscription sales are a great way to increase customer loyalty while stabilizing your company’s revenue (and setting yourself up for growth).
Consumers are constantly replenishing their supplies of their preferred cosmetics. Subscriptions make it easy for you to lock in their brand loyalty. Online shopping is already easier than going to a store; automatically receiving certain products is nearly effortless for consumers. When you allow buyers to personalize their subscription box or request items curated around specific interests and preferences, you’re saving them time and keeping them satisfied with a never-ending stream of the products they use.
Subscription revenue is also easier for you to forecast once you know basic metrics like your gross profits and revenue churn rate. Companies can use this data to forecast their profits and make hiring and other expansion decisions based on what they learn. Additionally, small companies looking for investors often have more luck when they can prove a stable source of recurring revenue.
If you’re not prepared to handle subscription sales, you could end up losing your customers and harming your brand’s reputation.
Subscription billing typically requires a dedicated app or platform to handle and some planning to implement. Before offering a subscription, you’ll need to determine which recurring revenue model will be the best fit for your buyers. Then, you need to find a subscription billing app that supports this setup.
Subscription sellers also face different threats to their revenue; this business type is more likely to face fraud and chargebacks. And you’ll have to start thinking about churn. Churn (both voluntary and involuntary) stems from problems one-time sellers don’t have to think about, so you’ll need to build new strategies to combat each. Thankfully, the right subscription solution will come with tools to help you manage these challenges. Just make sure you have the time and resources to use them.
The number one difference between subscription and traditional ecommerce is that the former requires you to focus heavily on customer experience. To benefit from the increased retention potential of a subscription model, you need to focus on building relationships with your customers. That may mean offering a unique online shopping experience, a membership program or other perks. Whatever it is, it will take time to implement and manage. Subscription sellers typically need to hire more support staff than one-time merchants and be especially diligent about shipping and fulfillment — if you don’t live up to the promise of hassle-free ecommerce, you’ll start losing subscribers. However, if you meet or exceed customer experience expectations, you’ll likely win customers (and their recurring sales) for life.
Because both subscriptions and one-time sales have their pros and cons, the most successful health and beauty ecommerce merchants will think of them as complementary strategies rather than competing business models. One-time sales may be the best approach for smaller brands that are just getting started. But, they can also be used by established sellers who are hoping to win over new customers or launch new products that would-be buyers will want to test before adding to their daily beauty regimen.
Subscription sales, on the other hand, can help SMBs bring in more consistent revenue and give themselves a cushion for expansion — either to other markets or other products. Larger brands can bring in and monetize new audiences by offering a premium subscription experience because they’ll have the infrastructure to build and support a truly unique experience for buyers.
Most consumers build relationships with their favorite health and beauty brands through repeated use of the same items. So, give people an “in” with your brand via one-time sales, and then convert them to loyal buyers by offering subscriptions that regularly replenish the items they use every day. It’s best to work with a platform (like sticky.io) that offers mixed-cart checkout, so customers can make subscription and one-time purchases in the same transaction. With this one-two approach to subscription beauty ecommerce, you’ll have the best chance of competing in this fast-growing industry.