Summer is undoubtedly great! Better weather often leads to more time outside. This often coincides with a bit of a temporary revenue slump for subscription box owners in the summer months (unless there box is geared towards summer seasonal activities). Churn is typically the highest in the summer months for most subscription box owners. Things are always busy as an entrepreneur, but in this slower time it is important to step back and take a look at your business holistically. In this article we will look at the 5 things subscription box owners should be doing now.
1) Metric Deep Dive
It’s important to always have a pulse on your KPIs (key performance indicators), but it is often hard to focus on them in a meaningful way. With the slower shipping season upon many of us now is the time to dig deep. Let’s take a look at some of the metrics you should be evaluating closely.
- Maybe the single most important metric in all of subscription box management. Churn is defined as the rate of attrition in which customers stop doing business with you. If your churn is low your customers are staying with you and their lifetime value continues to go up. When your customers are ‘churning out’ consistently you are constantly having to find new customers to replace the revenue. This can be very costly as the acquisition costs for most businesses are rather high.
- Churn is pretty specific to each business so it is hard to have a universal bellwether. Things like price, perceived value, and seasonality can cause wildly different average churn numbers business to business. Putting a number range on it, the average is somewhere between 7-12%.
- Keep seasonal churn in mind. If you have previous years’ data you can map out trend lines so you know what to expect. Then, if your churn is up YOY you need to know the reasons why.
- Customer feedback surveys are an excellent way to get you the reasons of why your churn is up. You can do a couple types of surveys.
- Exit Survey: If a customer is going to cancel it is important you are collecting from them reasons on why they are cancelling, including a section to write in something specific. Then, you can take this data and summarize it at a high level to make informed decisions. You may see that a lot of customers that are cancelling are doing so due to price or not enough value. You can and should make business adjustments based on this feedback. It is so incredibly valuable.
- Periodic Feedback (Monthly, Quarterly, Annual): You should have a separate survey that goes to your entire mailing list that solicits feedback. You can ask more broad questions here to get important customer demographics and overall opinions from your customers. It is a good practice to incentivize your customers to fill out these more in-detail surveys. Doing a gift card or box giveaway is sure to provide you with more responses.
Customer Acquisition Cost (CAC)
- Acquiring customers is one of the most expensive marketing expense for any business (subscription or e-commerce). CAC is calculated by dividing your marketing dollars spent by your number of acquired customers.
- An alliterative example: Say you spend $2,000 on marketing for the month and that directly brings you 100 customers. Your CAC is $20 ($2,000/100)
- This is an important metric that you should always be looking to drive down. Regardless of your marketing channel, you should be continuously making tweaks to key words and campaigns to drive customers to your website and have them convert as cheaply as possible. This is a marathon, not a sprint. Often, you need to allow for months of testing and tweaks before you start to see better results.
Average Revenue Per User (ARPU)
- The ARPU is the average dollar amount you’re collecting from your customers. To determine it, divide total revenue by your active subscribers.
- An alliterative example: Say you have $30,000 in revenue for the month and 1,000 active subscribers. Your ARPU would be $30 ($30,000/1,000)
- The more promotional you are the lower your ARPU will be, especially if you are bringing in a lot of new customers each month relative to your overall customer base.
- If you can control your churn naturally your ARPU will continue to rise as you will have more existing customers renewing at full price vs newer customers which often are at a promotional price.
- A good way to raise your average revenue for your subscribers is having upsell opportunities. This can be done by providing a larger version of your current box or a monthly add-on item that is specific to your box. Also, if you are running a subscription box we highly suggest having an accompanying e-commerce store front to grab extra revenue. You can create your own little customer ecosystem with this approach.
- Be creative in this arena. You already have the customer. It is your job to monetize.
Customer Lifetime Value (LTV)
- The three above metrics all tie into the final one we will look at today. LTV looks at how much an average customer is worth over his/her spending lifetime.
- An alliterative example: If your ARPU is $30 as mentioned in the above example and your average customer stays subscribed for 4 months, then your LTV for that customer is $120. You can take it a step further and subtract your CAC out of this to get your Net Customer Value ($120 – $20 = $100)
- You need to continuously keep your customers happy with the value they are receiving to increase their LTV. It is quite simple; the longer your customer stays subscribed the higher the average LTV becomes. This is why driving churn down is so important.
2) Sourcing Strategy Review
Have you been growing and increasing your buying power as you add new subscribers and scale your business? If so, it may be time to flex your muscle and ask for better wholesale/distribution pricing. A lot of owners think they are tied to the traditional, keystone 50% off MSRP wholesale relationships. However, volume speaks in these relationships. Don’t be afraid to ask for 60 or 70% off or ensure free shipping. You never know if you don’t ask!
Depending on what industry you are in may determine your leverage here. If the vendor has a ton of purchase orders from other buyers, then it is less likely that they will provide pricing flexibility. Conversely, if you have a more niche box that has unique products you should have more buying power leverage. Also, working with more ‘Mom and Pop’ shops vs. large distributors typically provides more sourcing flexibility.
3) Shipping Review
This is an area near and dear to my heart. I have been lucky enough to be in career roles where I was procuring shipping for 15 million packages a year. There is so much room for opportunity to make sure your shipping is optimized. Most subscription boxes are not time sensitive. I am a strong believer that customers are fine as long as you communicate when the box is shipping and the expected delivery date. Don’t get fooled into thinking you need to compete with Amazon on speedy delivery. These are two totally different business models.
Now, if you want to have a different service used for a welcome/starter box that is one thing. But, if you are doing your normal renewal cycle (say it is the 15th) and ship with a USPS Consolidator that takes an extra day or two the cost savings are usually is worth it. The consolidator relationship is a shared one between the company that picks up and does the linehaul for your shipments and USPS who does the final mile delivery. This is a win-win-win for all involved. The carrier picking up doesn’t want to do the residential delivery and USPS doesn’t want to do the nationwide linehaul. USPS is already contractually going to your address to deliver mail six days a week (seven in some areas now). Adding these packages to the mail volume is a cheaper option. And that is where the third ‘win’ comes in. You win by getting much cheaper shipping rates vs going direct with a national carrier like UPS or FedEx.
Lessgistics can certainly assist in this arena. You can use our deeply discounted consolidator rates to lower your shipping costs overnight!
4) Outsourcing Strategy
Virtual Assistants are becoming more common for subscription box owners. Essentially, you just farm out repetitive tasks that you are doing daily/weekly/monthly and pay someone else to perform the functions. The most common item that is outsourced is customer service (cause it never ends!). If you can find a good Virtual Assistant individual can become an extension of your brand. This can open up more free time for you to grow your brand.
Other areas that should be looked at for outsourcing are Marketing and Logistics. We find that marketing is such an important but niche craft these days. There is so much to be aware of with Google, Facebook, and Amazon constantly changing what they charge and how their ads operate. Unless you have the direct background it will be more than you can individually keep up with most likely. If you do decide to go external interview several agencies. The pricing and strategy can vary greatly company to company. Ask for referrals and read online reviews to get a better feel for the company.
In regards to Logistics, if you are a subscription box owner that is growing you will 100% hit the period where you have to decide to outsource or buy/lease your own warehouse. Usually, the latter is cost prohibitive and is just not something owners want to take on. We start to see this occur around 400-500 subscribers per month, but definitely by 1,000 you will be feeling the fulfilment pain if you are doing internally. Partnering with a 3PL that understands subscription boxes is crucial if you decide to outsource. We would estimate 80% of 3PLs have no idea on how to accurately quote, manage and kit subscription boxes. At Lessgistics, we have years of direct subscription box management. We have the built out processes that most other 3PLs simply don’t have (and don’t know how to get there!).
5) Market Expansion
They say, “Location, location, location!” is the most important part of real estate. Similarly, for e-commerce and subscription box brands where you sell is wildly important. Luckily, there are several options out there for us sub owners. Cratejoy and Subbly offer the most out of the box plug and play comprehensive platforms. Shopify paired with the Recharge app is very common, as well. One of our valued customers (Crochet Surprise) even built a subscription platform (Subamplify) for them and other sub boxes to use — so freaking cool!
Even if you are not using Cratejoy as your website backend you can sell your box as a standalone listing on their marketplace. Their marketplace has a pretty wide reach so being on there makes sense. It is worth the 11.25% commission fee they take. Look at it as customer acquisition cost.
Amazon has recently entered into the subscription box space (imagine that). You are not guaranteed to be accepted but they have an application you can fill out to be considered. Talk about a wide audience!
Finally, don’t ignore the old school brick-n-mortar opportunities. These are harder to land and are usually only available to certain niches (think beauty boxes in a beauty store). If you could land a regional opportunity that could eventually go national that changes the entire narrative for your brand.
Running a subscription box is both rewarding and exhausting. You get to see your brand come alive when your customers experience what you have curated. However, the next month is always right around the corner and comes on so quickly! When you find pockets where your business is not as busy day-to-day it is important to strategically review your business. Make sure you are checking off the 5 things a subscription box owner should be doing NOW rather waiting for your busy season.
Would you like to set up your subscription box for further success? Reach out to us. Lessgistics isn’t your normal 3PL. With one conversation you will see the difference.