When we hear the word “subscription,” our minds often jump to B2C companies like Netflix and Dollar Shave Club. However, subscription commerce isn’t limited to B2C applications. By 2024, B2B subscription services are expected to reach an astounding $344.3 billion, with a 24% compound annual growth rate (CAGR).
Subscriptions allow B2B businesses to simplify the buying process and build long-term relationships with their customers. By making the process easier on both buyer and seller, it’s easy to see why subscriptions have gained so much popularity.
For B2B executives looking to get into subscription commerce, here’s what you need to know.
What Is Subscription Commerce?
Subscription commerce is different from traditional commerce. In the past, you made a sale and moved on. Now, businesses are realizing they don’t have to settle for one-time sales; they can establish long-term relationships and make recurring sales over a long period of time.
Subscription commerce is when a customer makes an automatic recurring purchase for products, services, or access to information.
- Services – customers have access to services when they need them. For example, an IT company might offer unlimited help desk services for a monthly fee.
- Products – recurring automatic shipments of items.
- Access – customers log in to access information for a recurring fee. Premium memberships are a common access-type subscription.
How are traditional businesses using new technologies alongside subscription services to create new products? Michelin has a great example of an access B2B subscription service. They’re installing sensors in their products that can gather data about tire wear and usage. They then offer a paid subscription to access the data so businesses can better learn to maximize tire usage.
- Subscriptions are an automatic recurring transaction with the ability to generate ongoing, long-term revenue for companies.
- Subscription commerce generally falls into one of three categories: services, products, or access.
- Using subscription commerce to reduce transaction costs, customer acquisition costs and create new product and business opportunities is a win for the business and it’s customers.
How Subscription Commerce Benefits B2B Companies
Subscription commerce offers B2B businesses several benefits that can help them succeed:
- Increase customer longevity
- More long-term revenue
- Reduce customer workload
- Less time, effort, and cost to close sales
- Creates more consistent and predictable revenue streams
A sale is a one-time action. You provide a product or service, the customer pays you, and you both go on your way. If they need something else down the road, you hope they return, but nothing is guaranteed. In fact, businesses are going to incur costs (time and dollars) to retarget that customer—even if they buy the exact same products.
When a customer signs up for a subscription, they’re in it for the long haul. They’re not going to find another supplier because their needs are being satisfied automatically. This helps create long-lasting customer relationships.
Subscription commerce is also much easier for both the supplier and the customer. Everything is automatic, so they don’t need to worry about making sales, checking up on customer needs, or making orders can be shifted to finding new customers or selling other complementary products and services. Everything is already done month after month.
This reduces the customer workload (which makes them happy) and cuts down on time, effort, and money to close sales (which makes you happy). Your salespeople can focus on attracting new customers, selling additional larger ticket orders or doing customer education.
Subscription commerce will also make your accounting department happy. Since subscriptions are recurring, it’s easy to predict revenue and costs. They’ll create more accurate financial plans to help your business succeed in the future.
- Subscription commerce increases customer satisfaction and longevity because their needs are automatically filled.
- You’ll make more money in the long run with a subscription service versus traditional sales methods.
- Everything is predictable with subscription commerce. You’ll be able to predict costs and revenues for more accurate financial planning.
Challenges with Subscription Commerce
When most people hear “subscription commerce,” they think of recurring payment options and different pricing models. The truth is that subscription commerce requires a completely different company mindset. It affects everything from sales and marketing to lifecycle management and customer support.
Before you make the jump, ask yourself these questions to make sure your company infrastructure can support subscription commerce:
Are Your Services and Products Right for Subscription Commerce?
Not every product or service is right for a subscription. Do some research and identify which products offer the best opportunity as a subscription. Whatever they are, they need to have a recurring need.
A printer manufacturer probably wouldn’t find success with a subscription for mechanical parts because one purchase will solve the problem. An ink subscription, however, would likely find success.
Products that have a reuse or replenishment component to them are the perfect subscription product. For example, a Ultra Commerce client of ours sells components to the machine tool industry. The products they sell are used up over time by their customers. They know roughly how long a particular product will take to be consumed and when a resupply order will be necessary.
How Will You Handle Pricing?
Subscription pricing isn’t as straightforward as traditional pricing. There are four different pricing methods used by subscription companies:
- Flat rate – fixed rate, usually paid either monthly or annually.
- Tiered – various packages that offer different levels of service.
- Per unit – price based on number of users (mostly used for SaaS companies)
- Usage-based – price based on how much product is consumed.
Pricing models aren’t one-size-fits-all. Which one is right for your business depends on the product or service, your customers, and your business goals.
Is Your Customer Support Up for the Task?
Subscription services are all about building long-term relationships with your customers. The most important part of any relationship is communication, so make sure your customer service is ready to handle the increased workload. They’ll have to answer questions unique to subscription commerce like customer onboarding, account management, recurring shipments and billing, user preferences, and much more.
The importance of your digital communication strategy can’t be overstated. The amount of communication that needs to be developed, planned, and automated to account for the increased number of interactions including subscription replenishment messages, confirmation messages, and order tracking notifications is significant.
You’ll need to completely rethink your customer service strategy and create new ways to communicate with customers to make the process go smoothly.
Can Your Commerce Platform Overcome the Challenges?
Subscription commerce is handled much differently than traditional commerce, and your commerce platform needs to be able to handle the unique challenges:
- Handle recurring payments, both monthly and annually.
- Process automatic transactions
- Support increased customer communication
- Long-term profit reporting
- Integrate recurring orders into back-office systems
- Integration into the eCommerce flow and process
Many B2B businesses that manage subscriptions use headless commerce systems. Headless systems are much more flexible than traditional sales platforms and can handle all the changes brought on by subscription commerce.
In terms of selling, the main challenge is integrating subscriptions into your normal eCommerce process. For example, you might need to add a “subscribe” option on product detail pages or offer a subscription option for parts and supplies when viewing the main or parent product.
- Not all products and services are right for a subscription. Pick and choose offerings that are both timeless and have a recurring need. We recommend targeting products like supplies that need to be replenished or parts that will wear out in predictable timeframes.
- There are four subscription pricing models: flat rate, tiered, per unit, and usage-based.
- Subscription commerce requires better customer service to foster long-term relationships. Make sure your customer service department is prepared for the increased workload.
- Headless commerce platforms offer a flexible way to set up and manage your storefront for both one-time and subscription-based sales.
Are You Ready to Take on Subscription Commerce?
There’s no doubt that subscription commerce is the future of B2B business. It can help you retain customers for longer and boost revenue over time, but it’s not right for every product or service. To make sure your B2B company is prepared to handle subscriptions successfully, research effective pricing models, shore up your customer service, and get a sales platform that can handle the unique challenges.
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The maturation process when embracing digital commerce is different for every B2B company. For those rooted in traditional commerce it takes time to go from offline selling to online to finding not just any customer but the right customer to technology-focused automated selling across multiple channels.
If you’re ready to learn more, schedule a demo or get started – let’s talk!