This is the sentence that opens the report, State of Subscription Commerce 2022.

• Who: Recharge, a company that specializes in products and services for companies in the subscription business.
• What: A study on how the subscription commerce industry transformed in 2021, subscription commerce trends, and key insights.
• How: An analysis that includes 12,000 merchants who are Recharge clients.

Before we jump into it, let's review some basic terms:

• Lifetime value (the average value/worth of a customer for a business over their ‘lifetime’ with that business
• Monthly recurring revenue(total monthly revenue from subscriptions)
• Average Order Value (Average value of each transaction a customer places)
• Lastly, Gross Merchandise Value or GMV (the total monetary value of the services and products sold by a company over a given period).

The analysis focuses on specific verticals such as cosmetics, food, and health & wellness, which represent 54% of the industry. Here are some key figures:

• In 2021, the industry saw an +31% increase in new subscribers on average, with Pets & Animals gaining +64% compared to only 13% for clothing, for example.
• When it comes to Monthly Recurring Revenue, the Health & Wellness industry really took off with a 138% increase between the two years, reaching $68m. But, food keeps the lead with $105m in monthly recurring revenue in 2021.
• For the Average Order Value, Food once again takes first place with an increase of 15%, but for the Lifetime Value, it comes in second, after Pets & Animals (+17%).

And the list goes on, but here’s what you need to understand:

• Subscription commerce experienced a major boom in 2020, which carried over into 2021.
• Recharge attributes this increase to the stability that a subscription provides to both the customer and the merchant. It's a win-win situation for both.
• Personally, I would add that people are getting more and more comfortable with subscriptions. It’s even widespread on the Internet. Brand, platforms, and even influencers have democratized this practice to a younger audience with streaming, gaming, sports and even social network subscriptions.

Now, what are the factors that contribute to this increase?

Recharge discovered that, across industries, efficiency and outstanding customer support play a major role. Email marketing also contributes (especially in the Home Goods industry), and surprisingly, SMS marketing as well.

According to Recharge, only 5% of businesses utilize SMS marketing. Yet, they were able to deduce that SMS marketing can increase the lifetime value of customers by up to 30%. No witchcraft here; customers simply enjoy being able to communicate with a company via SMS!

Moreover, when segmenting merchants byannual GMV (rather than by industry), the cohorts that were able to exceed $5 milion use SMS marketing 75% of the time, and email 100% of the time.

Another interesting point is the growth you can achieve depending on your position in the subscription industry.

For brand new subscription services, you can expect to gain an average of 2,800 regular customers in the first year. Companies that are already in the business, but that adapt their subscription model, gain an average of 4,684 more customers. That’s a difference of 1,900 people, which Recharge explains by these companies’ ability to adapt and grow their subscription plans based on customer feedback.

To wrap up, let’s look at the opportunities and challenges that each annual GMV cohort faces.

The $100 to $100k cohort

Recharge believes that this cohort has lower recurring revenues than the others, which limits their ability to finance and invest.

However, there’s opportunity for these companies toward the end of the year, when growth is at its highest. They just need to know how to capitalize on it effectively.

The $100k to $500k cohort

Companies in this cohort struggle with retention. In fact, they have the second lowest retention rate in the industry.

Opportunities lie in retaining prospects after they’ve taken advantage of the welcome offer. Recharge also suggests investing in solutions to solve the problem of failed payments, a reality that plagues this cohort.

The $500k to $1m cohort

This cohort’s primary challenge is securing annual subscriptions.

The opportunity here is to work on bridging this gap and implementing an effective referral system.

The $1m to $5m cohort

Companies in this cohort need to work on both, and Recharge recommends making subscriptions more flexible and customer service more accessible. In fact, a good way to increase retention is to continue nurturing your new customers even after their first purchase.

Last cohort: +$5m in annual GMV

The challenge for companies in this cohort is keeping customers engaged. Recharge strongly recommends having processes in place to collect feedback from your most engaged customers and to constantly improve subscriptions according to this feedback.

Check out our latest coverage on the Commerce Elite podcast.