Why start a subscription service in 2023?
By Christian Wilkens
Over the recent years there has been a remarkable shift from ownership to usership.
According to a McKinsey research study the subscription e-commerce market has grown by more than 100 percent a year over the past five years. In fact, the subscription ecommerce market is projected to reach 477 billion Euros by 2025, up from 15,1 billion Euros in 2019—which makes it an extremely interesting opportunity for existing and aspiring business owners, too.
What’s new is the speed that normal businesses can transition from a traditional business to a subscription based one.
Subscription is not a new concept. The idea of recurring revenue has been around for over a decade but mostly in the media and software business with Spotify and Netflix as two great examples. But at Sharefox we started to see a huge need for subscriptions in tangible products as well, such as in the children’s segment. Clothing and strollers are only used in a short term period and therefore perfectly suited for this kind of business model. Another paramount example is in the mobility business where cars and e- scooters swiftly can be rented on a monthly basis.
What’s new is the speed that normal businesses can transition from a traditional business to a subscription based one. This is clearly made possible with smarter digital solutions of rental ecommerce.
To further understand the market of the subscription economy versus the more traditional S&P 500 index, look at the graph below. We are observing the story of two types of economies. The SEI (Subscription economy index) has experienced a 17.5% 10-year CAGR versus a 3.8% for the S&P 500, and the distance between those two figures is increasing. In other words, the Subscription economy is here to stay.
Subscriptions builds loyalty and loyalty creates revenue
The subscription economy is a superb way for companies to build stronger and longer-lasting relationships with their clients. Instead of traditional sales where you as a business owner have to spend lots and lots of cash on acquisition costs, only to hope to maybe see that customer return for a second purchase, the subscription sales model with recurring revenue, offers a lot more predictability in the business transactions, because there’s a much deeper level of customer engagement.
Regular purchases offer more and deeper insights into your customers’ behavior, which allows you to continually improve the personalized experience you offer and, in turn, keeps customers coming back. If done well, subscription businesses create extremely loyal, repeat customers—and repeat customers spend, according to Shopify, 67% more than new customers..
Technology drives changes for new generations demand for usership
If you are thinking about starting your own subscription service you may already know the tremendous advantages of Subscription e-commerce. But listed here these should get most business owners to consider the sales model transition.
- Predictable revenue
- More cash on hand
- Spend less to acquire customers
- Loyalty of the user lasts longer
- Collect data on users to improve customer experience
- Makes upselling and cross-selling easier
‘’New technology now enables businesses from virtually all economic sectors to offer membership services to their customers.’’
According to the globally renowned investment company Robeco, they expect this trend to continue in the coming decades, essentially driven by the ongoing digitalization of the economy. New technology now enables businesses from virtually all economic sectors to offer membership services to their customers.
A huge part of the fast rise and development in this model is the generational transition, as millennials and generation-Zs tend to be keener on subscription and userships over ownership. The newer generations do not see it as necessary to own tools, small machinery, cars, music instruments or even clothes and wigs.
Green transition to circular economy
We have at this point been able to conclude that it is profitable for small, midsize and even big retailers to start a rental subscription service but another more important thing is, that it is very beneficial for the planet and the limited resources we have each year. Instead of producing new materials, transporting goods across the planet, polluting and stretching the capabilities of the earth’s resources, you as a business owner, will now take an active role in becoming an important part of the circular economy.
We see new business pop up all the time, companies like Bergans, the Norwegian outdoor clothing company, just launched their new subscription service, where parents can subscribe to their kids outdoor clothing needs. When the kids grow out of the garments, the parents can just change the size without the need to buy larger clothes and sell or throw away the old ones.
Playgear is another fine example of a business that made the transition. They deliver a platform where subscribers can rent musical instruments as long as needed. They understood the need to make the customer journey way shorter and easier than it previously was. With the advances in new technology in rental ecommerce, they made renting as easy as shopping.
The personal mobility business is also an area of products that you will find has become even more accessible and subject to subscription. With e-bikes and e-scooters available in every big city on the planet for rent, the need for ownership of bikes has decreased exponentially.
Breaking down an old myth
With all the positives from better customer loyalty, bigger and more predictable cash flow, one would think that everyone is jumping on the subscription bandwagon. So why is not everyone doing this? The main concerns our clients mention, is always the cost, time and ramifications of starting a new sales funnel. At first glance it may not be appealing to all investors or business owners, as they seem to incur customer acquisition costs – such as sales and marketing, or software development, which means that for smaller and midsize companies the cost of doing this transition, can be too expensive to implement.
At Sharefox we are breaking down old myths almost every day. We show and demonstrate to new customers how easily they can start a subscription service at a very low cost without having to do much work themself.
If you want to know how to launch a subscription please read our blog ‘’How to launch a subscription-based service for your business in 2022’’
What are you going to do now?
When you are ready… Here are 4 ways we can help you expand your rental business!
- Do you want to grow your business today? Try Sharefox rental system for free – or book a demo and get a personal expert to analyze your company’s situation, come up with solutions on how you can streamline your methods and create a more profitable company.
- To learn more about the Sharefox rental system, read about trends and news for free, visit our blog or visit our resources section in the main menu.
- If you want to work with the circular economy and Saas and want to be part of the Sharefox team or find out why we are one of the fastest growing rental platforms in the rental industry, see our job postings here .
- If you have a good friend or know someone who would have found this article interesting, then feel free to share it with them via email, Linkedin or Facebook .