TrueShip (http://www.trueship.com) — the leading provider of ecommerce shipping software (ReadyShipper) and automated returns management solutions (ReadyReturns) – is taking an in-depth look at the booming ecommerce subscription box business.

With recent subscription services being bought for large sums of money, and with plenty of contenders already existing within this industry, the room for growth is only limited by the creativity of innovators and entrepreneurs. Seemingly, this cash cow has grown far beyond that of just being a momentary trendsetter.

But what logistics do these purveyors face, and what can newcomers to the arena expect?

Here’s a key passage from the TrueShip report.

The experts at Econsultancy dug deeper into the worries that ecommerce monthly subscription services providers would have to fester when it comes to risk versus reward.

  • Discount entry points can really cut into profit margins, and can leave a retailer breaking even or losing money on the first sale.

  • Spend versus return can sometimes even out, especially when costly marketing campaigns are being used.

  • Cross-channel selling can deplete profit margins, and can make it hard to turn around cost in the long term if acquisition is too heavy.

  • Stock on-hand can become an issue when supplies are short, resulting in an exodus of subscribers.

  • Risk of cancellation, returns and long term viability of customers as well as chargebacks and fraud always need to be considered in the long term.

Another set of key points from the True Ship report:

The services that do take off are using the right model, HubSpot infers. They explain how the successful subscription model works in a nutshell. It involves knowing your LTV, or the lifetime value of your customer, versus existing subscriptions, which is the first place that you’d want to start.

“For example, if your subscription is $100/month (and it’s all pure profit, in a real scenario you’d factor out costs of goods and services and retention etc.) and 1% of your customers cancel each month, your customer life time value (CLTV or just LTV) is $100/1% (100/0.01) which is $10,000.”

Other advice that can be offered includes:

  • Offer minimal choices: Limit the choices that consumers have with your subscription boxes so that you can prevent a logistics nightmare, and can more easily maintain stock while easing fulfillment.

  • Feature simple shipping plans: Make your shipping plans simple and easy to understand. Most online subscription boxes do not weigh that much and qualify for expedited USPS Priority Mail shipping, which saves you and your subscribers a lot of money.

  • Do the work of buyer: The greatest value that you have to offer to the subscriber is by doing a lot of tedious work for them that they would otherwise have to do. With convenience and consistency, you can win over subscribers in the long term.

 

Read the entire TrueShip report here.

We also recently published a wonderful infographic summarizing the state of the subscription box industry.