In this article we'll go through what prepaid subscriptions are, the benefits of introducing them to your subscription, and common questions we get. If you want to preview the steps to install prepaid subscriptions to your store, take a look at Enabling Prepaid Subscriptions from start to finish.
What are prepaid subscriptions?
Prepaid subscriptions are a type of subscription where a customer pays once upfront, then receives multiple shipments over time. In exchange for locking in, subscribers are usually offered a steeper discount compared to subscribing monthly or weekly.
Prepaid benefits
Customers benefit from the steeper discount, and store owners benefit from the consistent income. Revenue is locked in up front, and depending on the length of the prepaid subscription, could help boost lifetime value (LTV) and drop the cost of customer acquisition (CAC.)
You can set any frequency for prepaid subscriptions, but for maximum benefit, we recommend offering at a minimum 6-month timeframes; in general, the longer the better. It's true you may have one or two less customers, but the overall benefits are worth it. During beta, a subscriber's LTV on a 3-month frequency only saw a 30% bump while subscribers on a 6-month had their LTV double, or increase 100%.
FAQ
How should I account for prepaid subscription revenue?
A subscriber pays for their entire prepaid subscription up front, but we recommend you account for prepaid revenue on the order placement dates of each order and not on the initial purchase/payment date. This is for refund potential, in case you need to refund the customer, and also in case you go out of stock for a product and aren't able to fulfill that order.
Can I combine prepaid subscriptions with 'Buy X Subscribe Y'?
Yes, you can use a Shopify Function to apply an automatic discount to both the checkout item and the recurring subscription item. Here's an example of a prepaid subscription where a customer buys a coffee maker, and then receives several shipments of coffee bags as part of the upfront cost:
- Customer adds coffee maker to the cart, which also adds prepaid coffee bags
- Shopify Functions discounts 100% of the coffee bag prepaid subscription, and even some part of the coffee maker if desired
- When the prepaid subscription cycle for the coffee bags ends, it will charge the price of the normal coffee bag subscription