The trend of subscription services has been strong for years, and it continues to be one of the fastest growing categories of e-commerce. Shopify, as a leading platform for e-comm businesses to launch on, doesn’t natively support subscription services, and so requires a secondary app. One of the most popular apps for this purpose is Recharge. Last week, Recharge released a report on the state of physical product subscriptions in e-commerce and in this blog post we’ll share the highlights of that report.
Most subscribers choose monthly subscriptions
There are some types of subscriptions that work best on a weekly or biweekly basis, such as food delivery or coffee. Others, such as air filters, may be less common. Recharge supports that 57% of subscribers choose the period of a month, however. This is a common default that works well for many categories of items.
Additionally, custom timeframes are increasingly gaining traction. 35% of subscribers choose a custom “other” plan that falls outside of the typical patterns available.
This includes stores that offer automated or predictive refills. For instance, Bottomless Coffee uses a scale that tracks their customers’ consumption of beans and automatically sends more at the right time so the customer never has too many beans (they’ll go stale!) or too few (no coffee).
Average Order Volumes
Beverages has the highest AOV of any vertical tracked, according to the report, coming in at almost $70. This likely includes stores that sell subscription wine boxes or other alcoholic content, which may help to explain why AOV is higher in this category. Additionally, beverages tend to be heavy and expensive to ship, so in order to make the economics work many services may require higher monthly orders or offer perks such as free shipping at those higher price points. For instance, Firstleaf is a popular direct-to-consumer wine subscription club with monthly prices around $80 per month.
At the other end of the spectrum is the home category at just $19. Grove Collaborative, for instance, offers a custom box filled with whatever items customers want. They sell mostly sustainable-focused cleaning products, so $20 per order here is quite reasonable. Another example is Art Crate, which sends boxes of framed art each month for $29. These discretionary boxes must remain cheap and useful for customers to stay interested, but the cost of goods sold must also stay under control in order for the merchant to turn a profit.
Analyzing Churn Rate
Average Order Volume can be a very useful metric, but isn’t an exclusive metric when analyzing the success of a subscription service. If AOV is high, but the churn rate is also high, the merchant has what’s known as the “leaky bucket” effect, where it becomes necessary to continuously acquire new customers at a more and more expensive rate. (It is always cheaper to maintain existing customers than acquire new ones, particularly in the realm of e-commerce subscription boxes.)
There will always be customers who choose to cancel their subscription, so a churn rate of zero is impractical. The best takeaway from high churn rates is data on why sub subscribers are cancelling. Recharge advises merchants to offer a list of cancellation reasons so that the company can refine their offerings and improve any churn problem as time goes on.
At the top of the list for churn by vertical is food. This is unsurprising with companies like BlueApron springing to mind, which capitalized on the early days of direct-to-consumer trends and high-value funding and began offering promotions like “5 Meals For Free!” while these meals would regularly sell for $70. This was an unsustainable model that put pressure on the vertical, since other startups had to offer similar incentives in order to compete, but consumers would regularly take advantage of the free or deeply discounted options and then discontinue their subscription.
Recharge’s report data is comprised of over 4,000 merchants across 12 verticals. Each company included in the analytics of this report has at least ten subscribers, so the newest startups that haven’t gotten off the ground are filtered out. Recharge is a leading subscription application for Shopify and is frequently used by direct-to-consumer companies. Our team members have worked with Recharge on stores such as Tiege-Hanley and Sustain Natural, which is now owned by Grove Collaborative.