Prepaid subscription plans have emerged as an effective way for eCommerce stores to generate predictable revenue streams and increase customer loyalty. By providing upfront payment options for subscribers, prepaid subscriptions can help businesses improve cash flow, reduce customer acquisition costs, and offer customers a better deal.
Not only do prepaid subscriptions offer business stability and predictable revenue forecasting, but they can increase customer value by 94%. Prepaid customers become incredibly valuable, as this group commits to longer-term engagements, instead of a month-to-month subscription.
In this blog post, we will explore what prepaid subscriptions are, how brands can use them, and why they should consider implementing them in their business.
What is a Prepaid Subscription?
A prepaid subscription is a type of subscription model where customers pay upfront for a predetermined number of deliveries. This is different from a traditional subscription model where customers are charged on a recurring basis, typically monthly.
In a prepaid subscription model, plans range from one to twelve months. Once the prepaid term is over, customers can choose to renew their subscription or let it expire.
Benefits of Prepaid Subscriptions
Prepaid subscription plans benefit both the merchant and the shopper. High-level benefits include but are not limited to increased customer loyalty, improved cash flow, and lower customer acquisition costs.
Subscriber benefits
Prepaid billing gives your subscribers the seamless customer experience they desire. It’s not only businesses that want to predict revenue and expenses. Customers want to be able to forecast their own expenses and predict their spending long-term as well. Allowing them to select a prepaid model gives them the opportunity to lock in pricing. In addition, prepaid subscriptions make it easier for shoppers to give a subscription as a gift. The gifters will only have to pay once but can rest assured the subscription will be delivered for the predetermined number of orders.
Merchant benefits
Prepaid subscription selling plans offer a predictable revenue stream since they receive payment upfront. This can help with cash flow management and investment in business growth.
Another benefit of prepaid selling plans is the ability to predict how much inventory brands will need to fill future orders. When brands can see their inventory levels more accurately, they can better plan for the future.
Overall, prepaid subscriptions can be an effective way for businesses to generate revenue and improve customer loyalty while providing customers with a convenient and cost-effective way to access products and services.
How Can Brands Use Prepaid Subscriptions?
Prepaid selling plans are incredibly versatile and can be applied to fit brands across different verticals. We put together a couple of different use cases to show you the various ways prepaid can benefit your business.
Use case 1: Offering customers the option to gift a subscription
Gifting might be the most obvious use case for prepaid subscriptions. Here’s what may not be as obvious, when a customer purchases a subscription as a gift for someone else, they tend to commit to a longer term than they would for themselves.
This creates a very unique opportunity for a brand to acquire a new customer for the long term. The shopper on the receiving end of this gift is getting acquainted with your brand and the products. If you’re a supplement or a skincare brand, don’t forget to stress the importance of continued usage. If you are in the food and beverage space, lean into what sets your brand apart from the rest of the competition and why your snack/beverage is one they won’t want to be without.
Regardless, subscription commerce businesses that don’t offer a prepaid option are likely leaving money on the table, especially around gifting seasons.
Use case 2: Offering deeper discounts to customers who subscribe to prepaid plans
Don’t underestimate the power of a good deal. There’s a reason the term “extreme couponers” exists. Offering deeper discounts to customers who subscribe to prepaid plans is a great way to get more shoppers through the virtual door.
Let’s say you’re a snack company and you offer a prepaid subscription to one of your snack boxes.
- Customers who prepay for 3 months get 10% off
- Customers who prepay for 6 months get 15% off
- Customers who prepay for 12 months get 25% off
By tiering discounts you incentivize customers to opt into the longer subscription and you have the added benefit of not needing to worry about churn since they are paying in advance.
Another way to entice shoppers with a prepaid subscription plan is to offer a BOGO, for example, subscribe for three months and we’ll give you one of those months for free. So if you’re a vitamin company selling vitamins for $30 a month, offering customers a three-month subscription for $60 is not only a great deal, but it reduces the barrier to entry. It also guarantees your customers stay around for at least three months. A traditional monthly subscription plan opens up the possibility for churn after the first order.
Why Should Brands Use Prepaid Subscriptions?
We covered the benefits of prepaid plans for both merchants and shoppers and we’ve addressed several ways brands can incorporate them into their business, but let’s talk about why brands should be using prepaid subscriptions.
Lower barriers to entry
Prepaid subscription plans give merchants the opportunity to lower the barrier to entry for new customer acquisition. Sometimes a traditional subscription plan feels like too great of a commitment for a shopper and it’s easier to commit to shorter subscription durations, especially if a consumer is trying out a new product.
A prepaid plan also gives the merchant more time with a new customer. Since the merchant doesn’t need to worry about churn immediately, they can focus on building customer loyalty.
Build customer loyalty
A loyal subscriber is a long-term subscriber. One of the best ways to build trust and loyalty with your customers is by giving them options. Shoppers don’t like to feel trapped in an agreement with a brand, they want options, they way flexibility, and by offering things like prepaid selling plans you are putting the shopper in control of their experience. They know their cost upfront and how many deliveries to expect. They also can choose to extend or renew their subscription with a brand.
Drive revenue
In business, growth requires cash. Collecting payment for a prepaid subscription upfront will result in an instant boost in available cash on hand that can be reinvested immediately into your business.
Brands like TestTube Beauty and Klever have successfully implemented prepaid subscription plans using Yotpo Subscriptions and are already seeing positive results. Customers love the option of choosing the duration of their subscription.
Prepaid subscription plans have become an increasingly popular way for eCommerce stores to drive revenue, improve customer loyalty, and reduce customer acquisition costs. By offering customers the option to pay for subscriptions upfront, businesses can generate predictable revenue streams and invest in growth initiatives, they can predict inventory, and lower the barrier to entry for subscriptions.
Whether you are a small startup or a large enterprise, prepaid subscriptions can be a powerful tool to help you achieve your business goals. If you’d like to get started with a prepaid subscription option our team would love to speak with you.
