Subscription ecommerce businesses have had an incredible growth (100%!) over these past few years, hitting $2.6 B in sales.
That’s great news if you are a subscription ecommerce business. But it’s scary at the same time – how do you prepare yourself to leverage that massive growth spurt that’s just around the corner? Right from your tech stack to growth hacks and business strategies, you’ll need to be able to change the wheels while your race car is running.
That means you need to think beyond one-size-fits-all ecommerce platforms and strapped-on recurring billing solutions.
What seems like a “sufficient” fit when you get off the ground, could potentially become the spanner in the works that holds you back as you scale.
You need a solid subscription management foundation that enables you to predict and minimize operational bottlenecks, scale customer experience, and experiment rapidly.
This app probably works very well for a simple business that sells subscription boxes only. It is not as flexible as we need it to be for our business. I don’t know if it will suit our needs as we grow.
-Less than enthusiastic review of a basic billing application
Here are 12 areas where a powerful subscription management solution lets you scale your ecommerce business:
1. Order fulfillment integration
There are three major spokes that keep your ecommerce operational wheels spinning – subscriptions, order details, and fulfillment modes. And you need to set up systems to ensure that they talk with each other in perfect harmony. Managing reconciliations between the three manually, with exports and uploads of excel sheets, isn’t just about having more work to do – it sets you up for dropping the ball through human error and not even realizing the loss until it’s too late.
Powerful order fulfillment and inventory integrations allow you to project the right stocks and quantities in your store, and track every shipment all the way down to delivery.
2. Revenue Recognition
Recognizing revenue from physical goods adds an additional layer to the complexity. Often the revenue recognized is conditional on the order being delivered. And there needs to be an audit trail of cancellations, discounts, prorations, and refunds, because these need to be accounted for too.
For example, if you offer a yearly subscription package with monthly shipping, the payment you receive cannot be recognized upfront (depending on your accounting practices). It needs to be deferred across twelve months, and can only be recognized in your books when the order is ‘delivered’ each month. And what if the customer paused her subscription for two months in between? The revenue you recognize will need to account for that too.
3. Compliance, Tax, Currency, and Language
As you scale your markets and expand into new geographies, the intricacies of managing taxes and compliance issues grow exponentially. When do you shift from your finance team managing all these complexities each time a subscription is invoiced, to automating all the heavy-lifting through your underlying billing infrastructure?
Successful subscription ecommerce businesses ensure that they keep the personal touch even at scale. That means you need to have the systems in place to accommodate the little things – like localizing customer communications in their respective languages, billing across multiple currencies, and offering a choice of payment methods before they become a limiting factor to your growth.
4. Returns, Refunds, and Cancelations
Product returns and refunds are a great way to mitigate objections and get more prospects to try out your service. After all, Zappos claims its best customers to be the ones that return products the most.
But handling refunds on an ad-hoc customer-by-customer basis can get out of hand a lot sooner than you may anticipate. Not to mention the finance and accounting can of worms it’d end up opening. Whether it’s dissatisfaction, write-offs, upgrades or downgrades, or even just a good customer experience practice – ensuring that returns, refunds, and cancellations are deeply tied into your billing system allows your business policies to go all the way from the customer experience to the accounting ledger.
5. Checkout experience
The checkout flow for subscription box businesses needs to be kept simple and straightforward. A “Buy now” button which takes the user directly to the payment page is far more efficient than an elaborate “cart checkout” flow that creates unnecessary friction.
Some ecommerce platforms force you to use the stock checkout feature which cannot be easily customized. This checkout flow is usually optimized for the ecommerce platform rather than for your unique business needs. With powerful APIs, you can build a checkout flow that is best optimized for your identified user personas and your business.
6. Segmented Notification and Communication
Subscription ecommerce is all about the experience – the more your efforts are targeted and personalized, the better. Billing systems have evolved beyond record maintainers, into great tools for acquisition and retention. They let you segment your audience by location, card abandonment, purchase history, plans, and more, letting you proactively engage with your customer base through timely notifications.
7. Multiple Payment Methods
As you scale and bring on a more heterogeneous base of customers, you’d realize that different customer segments are more comfortable with different payment options. Digital wallets like Amazon Pay and Apple Pay are great for customers who want to shop on the go, while Paypal lets you provide a flexible payment method to global consumers. You’d also need to support credit card payments, and perhaps as you move into higher value purchases, let customers pay with direct debit.
But bringing on multiple payment methods is just one of those things that can’t be bolted on as an afterthought. You wouldn’t want to rip out your entire billing setup and operations just to provide an additional payment method, would you?
8. Complex Subscription Management
You don’t have to get millions of customers to start hitting scale issues. And no matter what you do, when the first customer cancels their account and churns away, it is going to hurt. A lot.
But with complex subscription management capabilities like pausing a subscription, extending subscription periods, and letting customers upgrade, downgrade, or manage their accounts themselves can at least give you a few more levers to prevent churn.
9. Experiments with Pricing
Nobody gets their pricing right in the first go. In the first year of business, you’d probably be running at least two pricing experiments. By the second, you’d be running one every quarter. Whether it’s changing the amount or the pricing structure itself, the first rule to pricing is – Experiment. Iterate. Learn.
And every experiment potentially brings new issues you need to account for. Should your new pricing affect existing customers, or should you grandfather them? How fast can you test multiple pricing models, tiers, and pricing structures? And, most importantly, how soon should you be able to roll back?
10. Bundle one-off products with Subscriptions
The first step to setting up a subscription management system is to integrate your website with their backend. You do this by mapping everything in your product catalog as plans and addons in your billing system. The classification of these products might be a lot – some could be one-time products, while others subscriptions.
Bundling and associating these one-time addons and plans are simplified with advanced billing systems. It even adds a layer of intelligence by recommending certain addons, that you know, would sell well with specific plans.
And since all the one-time and subscription payments are housed in the same place, you’ll be minimizing potential bookkeeping nightmares.
11. Complex Billing Scenarios
You’re going to be constantly surprised by what your customers ask of you. At times, you may not be able to oblige simply because your billing system can’t take on the complexity. Advanced billing systems are structured to handle even the most intricate of billing scenarios. Here are just a few:
1. A replenishment business bills once a month, and ships once in two weeks. They make exceptions and ship early when their customers request an earlier shipping date.
The billing and shipping frequency is going to differ for different businesses. Providing just a few combinations of billing and shipping frequencies (Billed annually and shipped monthly, billed half-yearly and shipped monthly) is not going to cut it for all types of businesses.
2. A university covers the expenses of their faculty’s online courses and certifications. The ability to manage their own subscriptions should remain with the faculty members, but the billing and invoicing have to go through to the single person with the payment authority.
This is what we call a parent-child relationship, and it involves setting rules on who has to pay for the subscriptions, who gets invoiced, and who gets to manage them. This calls for a deep-layered billing infrastructure that maps customer, subscription, and payment relationships.
12. Marketing Campaigns
Are your customers unsubscribing after their first month of discount? Maybe a month isn’t enough for them to fall in love with your product, a monthly discount for a limited period perhaps could work then.
Or do you want to expand your customer base, by employing what is potentially an easy way to garner more customers – Gift Subscriptions?
Coupons, discounts, gift subscriptions, and other marketing campaigns need to be looped back into the billing system and be included in the reports. And the performances of these campaigns also need to be measured.
There’s much more to subscription ecommerce billing than what meets the eye. It’s important to spot them before you make a decision to buy.
But, like most things, billing complexities that come with scale are often unpredictable. Subscription and billing systems are built and reiterated based on this very premise – to foresee billing problems that businesses can’t and have a solution handy for when it occurs.
At Chargebee, we understand your billing needs and that good subscription experience should not wait until you scale. That’s why your first $50k is on us. Take Chargebee for a spin, and see if it helps solve your unique use cases.