Whispers of a forthcoming recession have grown louder of late as companies weather increasing volatility in the form of inflation and a smattering of external pressures. A recent survey of American CEOs by KPMG found that 91% of respondents believe the U.S. is headed for a recession within the next 12 months. The possibility of an imminent recession isn’t certain, but businesses would do well to prepare for any possible outcome.
One of the best ways a business can prepare for potential fiscal uncertainty is by selling subscriptions. “Selling subscriptions can position your ecommerce business to survive economic challenges,” says our SVP of marketing Thomas Marks. “They create predictable revenue and can appeal to price-conscious consumers who seek cost savings and value the convenience of delivery.”
Subscription services are a must for businesses ahead of whatever’s next. Here are the three ways subscriptions will help your business weather a market downturn — and how to build a subscription offering that price-conscious customers will love.
Subscriptions provide merchants with a cash pipeline, which really comes in handy during times of economic turmoil. A recession leads customers to evaluate their spending in the face of potential layoffs and other financial hardships. At the height of the 2008 housing crisis, consumer spending dropped by a staggering $200 billion. And reduced consumer spending only exacerbates the problem, leading to further layoffs and even less money flowing into the economy.
Merchants that offer subscriptions can better forecast expenses and pinpoint growth opportunities. “Revenue is easier to predict for a subscription-based revenue stream,” says Marks. He suggests modeling average order value (AOV) and churn proactively over time for the best results. “In uncertain economic times, it’s best to be conservative with modeling. You’ll want to continuously tweak your AOV and churn modeling to maintain the most accurate predictability.”
Companies that require an immediate cash influx can tweak the formula and offer prepaid subscriptions. Many subscription offerings use a “pay-as-you-go” monthly approach, which ensures steady monthly recurring revenue (MRR). Prepaid subscriptions frontload the approach to give companies a larger surge of revenue immediately — an option that’s essential during a downturn.
Imagine offering a prepaid three-month book club subscription as a holiday gift offering. Your company would make $60 all at once as opposed to receiving three separate payments of $20. And prepaid gift subscriptions can even lead to monthly recurring revenue if the recipient decides to continue their subscription after the initial subscription period expires.
Customers will look to save money in whatever way they can during a recession, and subscriptions offer them a way to do just that. The best subscriptions offer initial discounts to attract customers, immediately revealing the offer’s value. The average subscriber holds about three subscriptions, and more than 86% of top-performing merchants offer some sort of discount as part of their offering, according to our June 2023 Subscription Commerce Readiness Report.
This consumer appetite for discount programs only figures to grow as customers tighten their purse strings ahead of a prospective downturn. Marks says companies looking to stabilize their revenue during a downturn must consider inventive discount programs to differentiate themselves from competitors. “Some merchants offer a discount on the next x deliveries or offer a bonus product as a reward for continuing. This can be presented as a one-time offer or combined with an existing loyalty program to provide bonus loyalty points for redemption.”
Other discount programs companies should consider include:
Marks highlights Truly Free, a toxin-free home cleaning product provider, as a discount success story:
Truly Free provides a volume-based discount based on the number of products ordered as well as free bonus products. Shipping is the largest cost for the business, and the cost of shipping more products doesn’t rise at a comparable rate to the cost of the product. Rather than pass additional profits on to shipping providers, Truly Free passes them on to consumers, who put additional products in the box. Consumers save up to 40% off list price with a subscription.
But saving customers money is only half of the battle, as they must be constantly reminded of the value of your product to ensure their continued patronage. Highlight the value of the cost-savings early and often to your customers to affirm the wisdom of their decision to subscribe. Include figures that detail the money saved through subscribing on the sign-up page to wow customers upfront, and send monthly emails detailing total savings over time to reinforce the value of your offering.
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Flexibility is an essential facet of a successful subscription plan in any economic climate, but it’s especially important in unsteady markets. Customers always want freedom of choice, with 78% of consumers desiring the ability to self-manage their subscription, and 80% of consumers consider no-cost cancellation at any point during their subscription a highly important feature.
“Churn is always a risk during a recession,” says Marks, but that flexibility in subscriptions only increases their value to consumers during trying economic times:
The best practices for reducing churn are providing the consumer with alternatives to canceling the subscription. Merchants should provide the consumer with the ability to modify the replenishment schedule. They should also include the option to modify the contents of the subscription, such as changing the quantity or the product mix if multiple products are involved.
This assertion is backed by 2022 survey data, which suggests that 78% of respondents pinpoint the ability to pause or skip payments as an important feature of any subscription program. And this kind of flexibility benefits businesses as well. Customers can pause for a brief period instead of canceling outright, extending a customer’s lifetime value.
Subscription flexibility extends to the companies that offer them. External events like a recession or a pandemic can wreak havoc on the supply chain, causing shipping delays — not great news for delivery-dependent retailers.
However, subscriptions enable merchants to react proactively. A business can anticipate demand because they know what orders they will need to fill in advance. This allows retailers to pivot to a different available item in the event of a product shortage and notify the customer ahead of time.
For instance, a skincare subscription box company may plan on including loofahs in their subscription box package, only to discover that the items won’t be available for next month’s deliveries. The company can easily switch to an available product like washcloths and notify the customers ahead of time about the change to head off confusion or frustration.
Subscriptions serve as a tonic for recession anxiety for both consumers and retailers. Customers appreciate their flexibility and ability to lower costs, and businesses enjoy the steady revenue subscriptions bring in at a time when customers are otherwise looking to cut spending.
Don’t wait for a recession to begin building your dependable subscription revenue stream. Plan for the future while profiting today using our powerful and comprehensive subscription services platform. Integrate easily with your existing tech stack to build subscription offerings, streamline your billing and payment process and give your customers the freedom of subscription self-management they crave.
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We’ve compared subscriptions vs. one-time purchases for health and beauty ecommerce to help merchants like you understand the pros and cons of each model.
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Discover the past year’s subscription trends to inform your 2024 ecommerce strategy. Our research with PYMNTS.com covered consumer behavior for each quarter of 2023.
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Watch episode eight of The Ecommerce Minute to learn the metrics you should measure to ensure long-term success for your ecommerce business.
