2023 in review

Average order value

AOV makes a great pulse check for the overall health of your business. Good news for our merchants: in most cases, AOV is up—considerably so, in many areas, even accounting for inflation.

What we found

Consumer preferences for certain products have fluctuated dramatically and often over the past few years. Here we see two of those trends in action.

First, growth in the home goods sector is slowing after a years-long boost during COVID. When most people suddenly started spending more of their time inside, online demand for home goods skyrocketed in 2020 and remained high for a few years.

Now, though, softening demand combined with financial pressure on consumers is creating headwinds for home goods, whose AOV just about kept pace with inflation this year. Retailers including Home Depot, Wayfair, and TJX reported slower sales, reduced their workforces, and even shuttered online stores at various times throughout 2023.

But that doesn’t mean spending is down everywhere. The second (and strongest) trend on display here is consumers’ increasing preference for Beauty & Personal Care items, whose AOV jumped 12%.

Why? Well, in a lot of ways, the beauty industry was already primed for growth. It proved resilient during COVID and subsequent periods of inflation, possibly thanks to the aptly-named lipstick effect that sees consumers splurging on everyday luxuries at times when truly big-ticket items feel out of reach.

And when new beauty trends and niches can seemingly pop up overnight, fueled by exposure on social media, the expansive array of brands now available online is just the thing for modern consumers hunting for highly specific products. There’s just about an option for everyone.

The same factors can explain the similar, if less dramatic, increases for Health & Wellness and Food & Beverage: 2023 was the year of small luxuries for a market obsessed with self-care.

In these tight-budget times, customers are smartly opting for affordable luxuries. Online stores can become sanctuaries of affordable indulgence, meeting this demand head-on with subscription models that offer convenience and a personalized touch.

Proven tactics

Even when you do everything right, your AOV may be slow to rise. That’s okay! It’s an important metric, but not the only one, and there’s more than one way to succeed—plenty of businesses balance lower AOVs with higher volume.

And even if that’s not your model, you can weather dips in order value by focusing on customer retention. In uncertain periods, the amount your customers spend is less important than the fact that they keep spending in the first place.

There’s no silver bullet to bumping your AOV (we would share it if we had one). Since multiple factors influence it, you can move the needle with an equally varied approach.

Lifetime value

Fulfilling orders and completing transactions is the baseline for a healthy business. But to build a base of dedicated subscribers and maximize their LTV, you’ll need to go well beyond the basics. Surprise and delight shoppers at every turn so they always have new reasons to come back.

What we found

In a sense, LTV represents the real value that customers place on certain products—the total amount they’re willing to invest in them over time. With that in mind, LTV in 2023 was a case study in the value of integrating products into customers’ day-to-day lives. Beauty & Personal Care again led the field with a gain of 15%, while fellow daily routine mainstay Health & Wellness posted a healthy 6% increase.

Home & Pets, meanwhile, lost 2% of its LTV as customers shifted focus away from the home—and in many cases, shifted their expenditure on the home from online shops to brick-and-mortar locations, opting to get to know their potential purchases better in person.

Customers have again recognized that in-person shopping provides try-before-you-buy capabilities and get-it-today fulfillment.

The home and pet industries should focus on supply and labor costs and fulfillment speed to amplify customer satisfaction.

And though the trend is stronger in other metrics, subscriber count was another indicator of shifts in LTV. While medium-to-large merchants experienced small to moderate gains, smaller operations were highly susceptible to shifts within the industry and lost nearly 15% of their customer LTV. Small adjustments in consumer behavior can be magnified among compact customer bases, leaving smaller merchants vulnerable to a changing environment—especially with fewer resources available to respond.

Proven tactics

Much like AOV, maximizing LTV requires a multipronged approach. Your more dedicated subscribers may stick around with little prompting, but getting the most out of a broad customer base is an exercise in appealing to every type of consumer.

If your segment is subject to fluctuation, now is a good time to cultivate relationships with your subscribers to make sure your products remain a priority.

Monthly recurring revenue

If the virtue of a subscription retail model is the steady, predictable sales it provides, MRR is the best way to measure exactly how well it’s delivering.

What we found

Shifts in MRR were highly localized by industry this year, a reflection of shoppers’ collective reassessment of their spending priorities. As in AOV and LTV, Home & Pets remained largely flat, and MRR for Food & Beverage merchants also contracted slightly.

On the other hand, Health & Wellness’s MRR grew at an impressive 28% clip, which would be the largest KPI gain among all of our KPIs and industries if not for Beauty & Personal Care’s incredible 82% gain—an exceptional figure even for an exceptional year and the strongest sign yet that customers consider personal care an indispensable part of their routines.

And looking at merchants by subscriber count, trends in MRR corroborate the story told by LTV: large merchants continued on track with moderate YoY gains, and mid-sized merchants experienced strong growth across the board, while smaller merchants lost over a fifth of their MRR in an uncertain landscape.

Proven tactics

Even when other metrics like AOV and LTV seem to lag, a lift in MRR can spell stability. Transform one-time purchases into dependable sources of revenue with these strategies:

Churn

Churn, or the portion of your subscribers lost each month, undercuts the stability provided by the subscription model. Some churn is inevitable, but if it floats too high, you may be losing customers faster than you can recoup your acquisition costs.

What we found

The Home & Pets industry’s difficulties this year continued with a 4% increase in churn, highest among our industries, but it still experienced the least churn overall. Customer stickiness among pet owners is one of the category’s strongest advantages: so long as a customer has pets to care for, they’re likely to maintain a subscription.

Most other industries actually reduced churn appreciably, with even Health & Wellness, the highest-churn industry, dipping below 10%.

Evaluating churn by merchant subscriber counts reveals a slight reversal to other KPI trends: while mid-size merchants made more improvements here, churn increased slightly for our largest merchants and actually decreased among smaller ones as they maintained steadier customer bases month-to-month.

How to respond

Every customer lost is revenue you need to make up elsewhere. The key to mitigating churn is flexibility—if a customer can’t get exactly the products they need when they need them, they’re more likely to drop off.

Retention

Retaining customers is one key to maximizing LTV and MRR—and to making sure you’re getting as much as possible out of your acquisition dollars. With acquisition costs having risen steadily for years, the relative return on retention efforts is increasing all the time; there’s never a bad time to make it a priority.

What we found

Unfortunately, retention was one of the most difficult metrics to manage this year. Only Beauty & Personal Care, continuing its strong across-the-board performance, gained more than a few percent, claiming the second slot overall behind leader Home & Pets.

Food & Beverage, already the industry with the most difficulty retaining customers, also sustained the sharpest drop this year. Given the relative ease of dropping and picking up food subscriptions, now may be a good time for merchants in the space to focus on strategies that maximize AOV and LTV and make the most of each subscription—or, depending on patterns within your customer base, to double down on retention and increase longevity.

In 2023, we improved retention with customer-centric enhancements: A dedicated landing page with real-time coffee selections, targeted communication through Klaviyo flows, and Recharge’s Active Churn Recovery feature.

We also implemented a Surprise & Delight gifting program to nurture different customer cohorts based on their subscription journey.

As in other areas, smaller merchants experienced precipitous drops in retention, falling to a shaky 22% at the 12-month mark.

Proven tactics

If it seems more difficult than usual to retain customers and you’re scrambling for new strategies, you’re not alone. Shoppers with more spending constraints are less likely to maintain set-and-forget subscriptions and will instead prioritize the options that best meet their needs each month.

The path to retention starts with personalization. Get to know your customer base inside and out, then develop nuanced responses to their needs and behavior.

Brands have to shift their mindset from the acquisition play of throwing “Subscribe & Save” on a product page to building a thoughtful experience that continues adding daily value to a consumer’s life.

Each part of that funnel requires its own investment of time and experience, but once you get past that initial learning curve, you’ll start to see powerful benefits.