The subscription-based model that was widely embraced by SaaS companies and streaming services is now making its way to consumer goods.
Ordergroove, an e-commerce platform that helps consumer packaged goods companies with subscription services, announced on Thursday it raised $100 million in fresh funding led by growth equity firm Primus Capital Partners.
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The company works with consumer goods giants like The Honest Company, La Colombe, L’Oréal and PetSmart to create subscription strategies, making it easier to retain hard-to-acquire customers in an age where consumers aren’t tied to their local grocery store, drug store or Amazon.
Subscriptions = consistent revenue
Subscription services have long been heralded by the software-as-a-service companies like Adobe and entertainment services like YouTube and Netflix. But Amazon has also rolled out a subscription service for certain home goods such as toilet paper and cleaning supplies — things consumers need on a regular basis — at a discount.
“If people sign up on a subscription to get it on a monthly basis or every three months, the consumer pays less,” said Melinda Moore, an adviser at Coyote Ventures focused on women-centered DTC goods. “But investors like models that are SaaS models where there’s consistent revenue.”
This is key for getting venture investment in consumer packaged goods, a category that became popular with the rise of known, digital-native brands and has since fallen out of favor with the rising cost of customer acquisition and supply chain issues.
Venture funding in the space spiked in 2018 with $21.5 billion, per Crunchbase data. In the years following, that number dwindled to $8.8 billion and hasn’t fluctuated much since (except for the venture funding banner year that was 2021).
Popular direct-to-consumer brands like Casper and Allbirds once had the ability to market on social media at an affordable cost. But customer acquisition costs have risen due to policy changes at social media platforms like Facebook and companies like Apple which make it harder to track and market to specific consumers without spending insurmountable dollars.
Illustration: Dom Guzman
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