On to the Main Course: Subscriptions
In a couple of weeks I'm heading to speak at SubSummit — in Dallas from September 25th to 28th. If you have a few days, you should come! Jesse Pujji and I will also be hosting a dinner there, so let me know if you're there. According to their site, it's the world's largest DTC subscriptions conference, and from what I know, a lot of smart people are going.
Everyone knows that subscription helps with lowering the overall cost per order (CPO) of a brand. It's why companies like Hint, Haus, Pill Club, Olipop and others focus so heavily on how to retain their subscribers, and lower overall churn. The lower the cost per order, the most they can scale how much they spend to acquire new customers. Shortly I'll explain how they can assign a higher cost per acquisition (CPA) of a customer, too.
If you go to most CPG eCommerce sites (whether they are digitally native brands, or not), they do a good job of explaining how to subscribe, why they have the option, the benefits that come with it, and more.
Usually the perks are something along the lines of:
- Conveniently shipped and delivered on a routine schedule — if it's a heavy item, then this becomes an even more convenient selling point.
- Cancel, change, pause, or skip any of your shipments — so whether you're selling protein bars, sports drinks, shaver blades, or anything with multiple variants, you can do all those things to it.
- A perk of access/exclusivity — typically with beverage brands, this might be new flavors; it could also be new colors, scents, weights, finishes, etc.
- Discount for subscribing — typically between 10-20% off the single purchase price, depending on the brand.
- VIP Support — many brands don't do this one, but it's an easy one. Customers love to know they will be taken care of first, and on the back end, you just tag subscribers in Shopify/Gorgias.
In most cases, these are all covered. Some have more features (maybe access to an in-house doctor for questions, a private forum, or access to local events that get hosted), and some have less.
One thing that I find many people don't focus on enough is the cohort analysis to understand why certain subscribers:
- lasted longer than others
- had a higher LTV
- ordered more frequently
- ordered exclusive/limited-time products on top of their existing subscription
- etc
If you sell a razor, maybe you're also wondering why they didn't buy the accessories, versus they did, when they came to subscribe. Depending on what you specifically sell, there are different actions to look at.
For a beverage company I worked with, we were digging into the subscriber data and we found that a certain set of subscribers had better metrics than the average subscriber. Immediately, I wanted to dig in and see what they all had in common. Was it a coupon code? Did they all sample first in store? Did they all try a specific flavor at first that led them to be more curious about the others?
Turns out we figured out the best subscribers all had 3 main things in common across the cohort:
- Their first purchase was a well-merchandised introduction to the brand — they tried a variety of the top-selling flavors with enough bottles to supply the household and essentially let everyone figure out their flavorite (favorite flavor).
- The best subscribers did NOT subscribe on their first purchase. In fact, 85% of them made a second one-time purchase before subscribing. Some made 3 single purchases before subscribing.
- They all came in from a piece of content/creative that told the brand story and answered the question of why the company had started in the first place. On the other hand, the worst subscribers were usually ones who's first purchase was not guided, and at a steep discount (either from a marketplace like Amazon, or the dot com site).
When you break this down, it makes sense. If you know what inputs someone saw along the way to lead them to become a longer-term subscriber and a better customer, then you can replicate that across the rest of your subscription acquisition campaigns, and also generally in your new customer advertising. That company eventually did 50% of its annual revenue through subscriptions.
This data allows you to be more agile with how you deploy dollars to acquire customers, because as we now see, not every customer should be valued the same. Some less, some more, and some like they are AMEX black card members. For example, we learned:
- A customer who comes in on the right first-time offer is worth 2x more than one who came in and bought 1 full-priced product.
- If a customer ordered a second time after the proper first-time offer, that now becomes a big prospect to subscribe. As a result, they become a part of a subscriber campaign with very direct messaging to get them to just pick flavors and start.
- If a customer didn't immediately make a second purchase after their first-time order, they would default to regular email promotions. But the second they made that purchase, they are now classified differently.
Depending on a customer's actions, you can treat them differently to ensure that you maximize their LTV with you. I challenge you to look into this data and see what you find. You might be looking over your biggest unlock to a higher LTV subscriber.
There is a whole other part 2 of subscription I want to do around:
- Why subscribers cancel & how you can respond different for each reason
- How to ensure that subscription is truly a convenient play for the customer, not something to help you, the merchant, lower your CPO.
- Subscription vs reorders
- The right apps for subscription and why
- Subscriber retention tactics that always work
- How to pixel your site specifically so paid media platforms understand how to optimize for subscribers
What else should I add? Please let me know what would be helpful. I'll either have the answer, or I'll find out and get it in this email for you.
