Many brands add a subscription because the app makes it easy and the investor deck likes recurring revenue. The better question comes first: would your customers be better off, and would you make more than you would from the same customers buying when they choose?

Three kinds of subscription

A McKinsey survey of 5,093 US online shoppers in late 2017 sorted ecommerce subscriptions into three kinds Reported:

ReportedMcKinsey & Company, “Thinking inside the subscription box,” February 2018. The survey data is from 2017; use it for the shape, not as a benchmark.

The survey also asked why people cancel. The answers that stand out for replenishment are practical: customers are much more likely to cancel when product piles up, or when they can’t adjust what they get. That’s a cadence problem, and a fixable one. It’s the subject of chapter 9.

Curation is harder to sustain. A surprise box sells novelty, and novelty wears off on a schedule of its own. The box has to get better every month to stay as interesting as it was in month one. Access programs, like paid memberships, live or die on whether members use the perks. This guide is mostly about replenishment, where the math is kindest, with notes where the other two differ.

The fit test

1. Is it used up at a steady rate?A dog eats the same amount every day. A candle burns at whatever pace its owner lights it. The steadier the rate, the easier it is to set a cadence that doesn’t pile up.
2. Does running out hurt?Running out of dog food on a Sunday is a crisis. Running out of hand cream is a shrug. The more it hurts, the more the subscription is worth to the customer.
3. Is the reorder a chore?Heavy, bulky, easy to forget, bought on a schedule nobody enjoys tracking. Subscriptions thrive on chores.
4. Can the margin carry a discount?Most programs discount recurring orders. If a 10% discount leaves a subscriber’s 12-month contribution below what the same customer would earn you without subscribing, the program costs you money. Chapter 6 has the tool.
5. Can the customer steer it?Skip, delay, change frequency and swap, in two taps. If your billing setup can’t do this, fix that before launch.

Yes to three of the other four questions, plus a margin that passes question 4, makes a candidate. Fewer than that and you may be better served by a well-timed replenishment reminder, an email or text sent when a one-time buyer is about to run out, which costs no discount and captures much of the convenience.

The cannibalization question

A subscription doesn’t only create orders. It also discounts orders you’d have gotten anyway. Picture a supplement brand whose one-time buyers already reorder about every 35 days, reliably, at full price. Putting them on a 30-day subscription at 15% off buys about 17% more orders and gives up 15% of the price on every one. At a 45% margin, that’s a third of each order’s contribution. For that brand the subscription might lose money on the customers who were already loyal, and make it back only on those it keeps who would otherwise have drifted.

A subscription pays for itself on the customers it keeps who would have drifted, not on the ones who would have come back anyway.

That’s why the only fair comparison is subscribers against one-time buyers of the same first product, over the same period. Subscribers almost always look better on a dashboard, partly because the most committed customers are the ones who choose to subscribe. Some of the gap is the subscription. Some is just who signed up.

Do this

• For your five best-selling products, pull the share of one-time buyers who reorder within 120 days, and the median days between their first and second orders. Products with high repeat and a tight interval are candidates for subscription. Products with high repeat and a loose interval want a reminder flow. Products with low repeat want a better product or a better first order before they want either.