The Challenges Involved in Operating an Ecommerce Subscription Business

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Running a subscription box ecommerce business has many advantages, including reducing inventory risk, boosting the lifetime value of each customer, and an overall boost to ROI. Customers love them, and the growth in the subscription box industry over the past 4-5 years shows that.

Just like any other business, the subscription box business model does have its own unique challenges and obstacles. Some of these include changes in payment processing, enhanced cyber security procedures, managing different membership levels, handling customized orders, and providing regular timely deliveries.

You also need to have fulfillment capabilities or a partner to handle subscription box order fulfillment that is ready to scale up when you are. Handling 100 subscription customers is not too difficult, but what happens when you get to 10,000? 20,000? And what if those deliveries are segmented based on different membership levels?

Here are a few of the challenges you may face in operating a subscription based online business:

Payment Processing Changes

One of the advantages of a subscription model is that customers often stay signed up for months or even years without even really thinking about it all that much. Unless they are really unhappy with the product or service or the subscription is fairly expensive, customers are unlikely to make the effort to cancel.

But what happens if you decide to change payment processors? Will the new processor be able to migrate over the payment data or will customers have to sign up again? What kind of attrition could that cause to your customer base? What sort of marketing efforts will you need to put in place to minimize those potential losses and retain the customers?

You will also want to put into place a plan for dealing with expired credit and debit cards. Perhaps an email sequence that goes out ahead of time to customers to remind them that their payment method is soon expiring. The reminder could also offer them some sort of discount for the next month if they update their payment information now.

Payment Security

Again, one of the benefits of a subscription model is having that customer base you can rely on month after month. However, that also brings a pretty significant downside with it.

Subscription businesses store credit card data, making it easier to provide an excellent customer experience and less likely the customer will cancel their subscription. When you start storing information on thousands of credit cards you become a potential target for hackers and cyber thieves.

This means an added expense for effective security to protect your customer data.

In the United States, maintaining a credit card number database also means you must register with the Payment Card Industry Data Security Standards. In order to register, you must put into place risk assessments and action plans around your cyber security practices.

Packaging

For subscription box companies, the unboxing of their order is often an event for customers. It’s a chance to make your brand shine and is not something that should be overlooked. The presentation should be unique with each order.

As an example, BarkBox, which offers dog treats and toys delivered to your home each month, does this exceptionally well. Each month their treats and toys will have a theme. For example they have used Secrets of the Rain Furrest, The Muttcracker, Shakespear in the Dog Park, The Knights of the Hound Table, and an Autumn Tail in the past.

All the treats and toys inside the box fit into the theme and they include a pamphlet telling stories about each.

Presentation matters and you are going to need extra labor to plan and package your orders month after month.

Delivery Timing

Some subscription box services ship orders based on when the customer signed up or based on the customer’s preference. Other companies send all of their orders at the same time each month. Having a regular and uniform arrival date for orders can increase anticipation, but it can also greatly help in generating buzz on social media and strengthening customer loyalty.

Many customers love the surprise of seeing what is in their box each month. Because of this, it makes it important to time your deliveries so that subscribers are receiving them at about the same time. This means you have to take into consideration how shipping destinations will impact delivery time.

Managing Demand Volume

Trends, fashions, and what’s hot and what’s not change over time. It’s important for subscription box companies to be prepared for fluctuations in demand for their service.

Your ecommerce platform should provide you with an easy to use interface that will allow you to track monthly recurring revenue (MRR), new subscriptions, cancelled subscriptions, membership level changes, and your overall profitability.

Furthermore, partnering with a 3rd party logistics company will allow you some flexibility. For one thing, you can leverage their labor force to handle your customized packing and not have to package inventory as far ahead of time as you might have to if you were handling it in house.

Working with a logistics company will help you to manage the risks associated with changes in demand.

Managing Membership Levels

Many subscription services allow their customers to manage their membership level, which can greatly increase the difficulty of inventory management and order fulfillment, especially with services that send different products each month like a wine or beer of the month club.

Some services also allow for some customization on orders each month. A customer can add products to their order just for that month. A popular example is Dollar Shave Club. Each month customers are getting a shipment of razor blades, but Dollar Shave Club also encourages customers to add additional products to their shipment through an email marketing campaign. One month someone might decide to add some shave butter or maybe it is time for a new razor.

These customized orders can put a real strain on an order fulfillment team not agile enough to handle them.

There is no doubt that the subscription box business model is here to stay and these can be great businesses to run, but they also come with unique challenges. Working with a reliable fulfillment partner can help you to navigate those challenges and focus on growing your subscribers.

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