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How to Grow Your eCommerce Business with Recurring Revenue

Recurring revenue models have taken the hearts of eCommerce business owners across the industry. It is one of the major topics in 2014. Yes, even we at LemonStand have added a recurring revenue model to our business.

A regular almost-guaranteed income that grows every month sounds pretty good, doesn’t it? Recurring revenue represents predictable revenue, lower costs of acquisition, and the ability to scale revenues with expenses.

However, adding a recurring revenue model to your eCommerce business isn’t just as simple as slapping together a pricing plan, emails, and monthly billing. You need to develop competencies in providing additional value in your products, customer support, communications, and customer management. In this guide, we’ll show you the steps to take towards growing your eCommerce business with recurring revenue.

Step 1: Determining the right recurring revenue model

For eCommerce businesses, there is largely just one option for recurring revenue and that is subscription billing. You charge a fixed amount of money for the purchase of a product, every specified period of time. For example, a disposable razor company could charge $10 every month to send you refills. It sounds simple, and it is. However, there are some magical variables that can be tweaked that will seriously improve the effectiveness of your subscription model.

For instance, consider what the time frames should be for your subscription model. Weekly? Monthly? Bi-Monthly? Quarterly? With different time frames, you could customize your offers and segment your customers. For the customer who shaves daily, it would make sense for them to buy monthly refills. For the customer who doesn’t mind growing a beard, perhaps quarterly refills would make more sense.

And what about bundling? What other products in your current product line or new products can you add to a bundled package? Creating bundles packages helps you to provide higher value and earn more revenue per order.

Step 2: Adding the subscriptions technology

Once the specifics of your recurring revenue model have been determined, your next step is to create an experience that quickly captures, converts, and manages individual customers. This is where your eCommerce platform comes into play.

The specific capability to look for in your ecommerce platform is subscription management. The feature allows you to create and manage different subscription plans. Tasks such as trials, upgrades, cancellations, pausing, and restarting subscriptions can be completed with a subscription management feature.

Step 3: Building the recurring revenue side of your ecommerce business

Acquiring and implementing the subscriptions in your ecommerce business are only the initial simple steps. Retaining them and growing them are significantly harder.

Retaining subscriptions

If you have been working with recurring revenue for an amount of time, then you must be familiar with the term “churn”. In the sense of recurring revenue, churn is the rate at which customers cancel their subscriptions in a given time period.

Churn gives a strong signal of how your recurring revenue is doing. Are you adding more customers or losing more customers every month? If your churn is increasing every month, it may be an indicator that there is a problem. Churn is not necessarily bad. It is a natural part of a subscription business model. You need to first identify what is a normal rate of churn. Look at the industry average and your data for a few months to set a baseline. Then create initiatives to reduce that churn rate.

Gaining subscriptions

Growing subscriptions is the fun part. This is where you can be creative with marketing through email, promotions, and advertising.

A great way to gain new subscribers is through word of mouth and referrals, also known as the viral co-efficient. The viral co-efficient measures the average number of new customers that every additional new customer brings in. More simply, how many friends will Joe bring to your business after he has joined?

The higher your viral co-efficient, the more help you get from every additional customer, and the less you need to work on just acquiring new customers.

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I like to explore topics on eCommerce, zen, tech, and happiness. Follow me on Google +Toan Dang.

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