D2C Subscriptions Must Find Alternative Revenue Streams This Year

In 2023, D2C companies relying on recurring payments may need to rethink their business model.

In an interview with PYMNTS, Matthew Berk, CEO and co-founder of direct-to-consumer (D2C) coffee company Bean Box, which offers both subscriptions and products available for one-time purchase, argued that companies that depend on the former will be facing a harsh reality, as economic challenges continue.

“Based on what I’ve seen around new services and new technology to help consumers identify and limit subscription risk for themselves,” Berk said, “I think in 2023, you’re going to find that direct-to-consumer companies that do not also sell under other modes — say a la carte or gift-based — are going to have a hard time maintaining subscription revenue.”

He added that this dependence will be a “major liability” for those firms.

Indeed, PYMNTS research reveals that consumers are becoming more conservative in their subscription spending. Findings from the latest edition of the Subscription Commerce Conversion Index study, “The Subscription Commerce Conversion Index: Subscribers Seek Affordability and Convenience,” created in collaboration with sticky.io, which draws from a survey of more than 2,100 U.S. consumers, reveal that the average number of subscriptions is on the decline. In the September, the most recent month on record, the figure was down 29% from the previous survey in July.

Additionally, when it comes to minimizing the damage to existing subscription services, Berk argued that it is important not so much to offer consumers a wide range of choices but rather to give the impression of that choice while streamlining offerings.

“What we’ve learned is that if we limit choice to products that have lower churn and higher LTV [lifetime value], that’s the best way to protect the revenue stream,” Berk said. “And then we coupled that with what I call the strong illusion of choice.”

He noted that, once consumers are subscribed, the company offers the ability to change things such as the type of coffee one receives, options that consumers rarely take advantage of but that serve as “a great way to keep them engaged.”

One place where Bean Box calculated that offering more choice would not in fact be a worthwhile investment is in payment capabilities. While the company offers the chance to pay via stored credentials and via SMS, it has found that there is a point of diminishing returns on payment capabilities. Deciding not to offer mobile wallet options, Amazon Pay or buy now, pay later (BNPL) capabilities, the company has chosen simplicity over choice.

These kinds of choices can be make or break for D2C companies, as smooth checkout experiences are one of the key differentiators for these brands relative to other digital competitors.

Research from “Building A Better Online Checkout Experience: The Key Features That Matter To Customers,” created in collaboration with Checkout.com, which draws from a survey of 2,030 U.S. consumers, shows only 11% of shoppers experienced a frustrating checkout process for their most recent purchase directly from a brand. In contrast, 13% were frustrated with the checkout process when purchasing from a merchant’s app or website, 16% when purchasing from a digital marketplace and a whopping 38% when purchasing from a social media platform’s marketplace.

“What we found is that — this kind of sounds old school, but — the less complexity you put in the checkout, the higher the conversion,” Berk said. “And so, where we’ve tested those alternate models of payment, we’ve always pulled back from them.”