There are two common business models when addressing e-commerce. They are the one-off sale and the subscription model. They each have their strengths and weaknesses and are more appropriate for some products more so than others. A merchant must put a good bit of consideration into what business model will be best for himself and his business.
A one-off sale is a one time purchase of a product. The customer may or may not come back at some point in the future to purchase more products.
In this case the merchant should keep the customer’s info in a customer management system for future marketing purposes. A merchant needs to reach out to past customers occasionally to try to entice them to come back. It’s often likely that if someone buys a typical retail product they will need it again and if they received good service and are reminded of the site, they’ll come back for the same product or related products.
This does mean that a merchant must focus on two aspects heavily. Marketing for new business and marketing for retention. To perform well the merchant must form a relationship with their customers to keep them coming back. The downside is that cash flow can be a problem if a slow month comes along and sales aren’t necessarily predictable.
Subscription Models are different in that it’s essentially a repeating sale that the merchant can count on for some long period of time. Within this are two common types of sales.
One is a recurring product sale, such as with comic book subscriptions where a customer says to send and bill them for a specific comic each month. There are also “of the month” clubs that follow this model. Coffee of the month, bacon of the month, book of the month, etc. The other type are service sales, such as Software as a Service (or SAAS as it’s sometimes called), where a customer pays monthly for access to a service or has a service performed for them.
In either case there is less effort put into retention marketing than in the one-off sale model because the customer has already committed to paying for the long term. The focus is on constantly acquiring new customers, and perhaps putting some retention marketing in when a group of customer’s subscriptions are about to run out (assuming they do run out). The revenue stream from subscription models are more consistent and reliable from month to month, which guarantees cash flow and reduces risk and uncertainty for the merchant.
These are just some of the features and differences between the two business models. Merchants should put careful thought and consideration into how each would affect their business to decide which one is more appropriate. What other pros and cons have you seen for these business models? When would you recommend one over the other?
Note: This post was originally featured on November 14, 2013.