Subscription Box Basics

Back To the Basics (4/6): Speaking the Language of the Sub Box Industry

August 14, 2023 Episode 175
Subscription Box Basics
Back To the Basics (4/6): Speaking the Language of the Sub Box Industry
Show Notes Transcript

Welcome to the Back to the Basics series! (4 of 6)

In this episode, we are going to talk about how to make money with a subscription box business model! First, host Julie Ball will bust a few myths, then she’ll dish the secrets…like how to buy products at massive discounts. She'll walk through a sample scenario, explaining how to put together your product selection in a way that makes a profit.

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Hey everybody. And welcome back to subscription. And Box basics I'm your head coach Julie ball and this is episode number four and he's six part back to the basics series We're so excited to bring you this series because we thought after several years of talking to lots of different guests and talking about lots of different topics But we needed to get back to the basics There's so many of you who have a subscription box idea but just don't know where to start and this is a great place to do it so if you haven't already listened to the last three episodes Go back and do that and today we're talking about the language of subscription box yes we are talking about the terminology So let's get started. box industry to help reduce the overwhelm that you may be experiencing as you try to navigate the ins and outs of it all. So today, I'm going to cover my top key terms for the subscription box industry that you might not have seen in other business models or maybe other industries. You might want to grab a pen and paper, but also this might be one of those episodes that. You listen to once and then maybe you have to refer back to it when you are approaching your launch date. So I'll keep it short, but jam packed. In any case, let's dive in and just go one by one through the terminology. So the first word I want to talk about is pre launch. Pre launch is the early phase of launching your box before you have anything actually to say. It's this way to generate buzz and excitement around it. It's a way to start getting the word out there and actually to gather feedback for launch. So now that you know what prelaunch is, why do you even need one? So I feel like there's three big reasons that you need a prelaunch. So first and foremost, often the most important thing is to fund your box. So many of us launch a business with a 0 budget, or even just a really small budget. But this pre launch gives you an opportunity to earn some income to pay for those first month's boxes. When I launched Sparkle Hustle Grow, I used my business credit card to register the business and to get the domain name. But with a successful pre launch where I included a pre sale to my VIPs, I was able to raise over 1, 500 in just startup funds, and it really got me to where I could order my custom boxes, and I could buy the products for that first box without going in the red. So the second reason I believe you need a prelaunch is for validation. This is so important. so important. So often we think we know what our customers want, but we really need to ask them. Be surprised what information that they're willing to give you. And you need to listen to them. You'll be able to validate your business idea or figure out potentially where you need to tweak it before you put all of your eggs in one basket and before you actually launch. And the third reason I feel you need a pre launch is to build an audience. When you're launching your business, you can't just launch to no one and expect to earn revenue and expect to be successful. So by building an audience in advance, you actually have someone to tell about your progress. Tell them when you're launching, tell them where you are in the progress. All that good stuff. If you don't build that audience at the beginning and you really can't expect to have a successful launch. So we'll talk about pre launches in depth in a future episode, but I just wanted to put the pre launch concept on your radar. Okay, moving on. Let's talk a little bit about some e commerce terms, and then I'll dig more into terms that are specific to subscription boxes. A pre-launch or a waitlist page is just a basic landing page, meaning it's just a one page website, and it's used during a pre launch campaign to build your audience, like what we just talked about. A lot of times with a launch page, you're just going to have one goal, and that is to gather email addresses. So on this page, It's a one page website. You tell them a little bit of information about what you're doing. Maybe when you're launching, maybe if you have , a great image to draw them in and if they want more information and they want to be on that list, then they can submit their email address right there on that landing page. Sometimes people will use some sort of giveaway. So in other words, enter your email for a chance to win a three month subscription. And this landing page allows you to build your email list so that you do have that audience that's interested, that's eager for more information, and eventually, if you nurture them well throughout that pre launch phase, then they'll be primed to buy on launch day. That's exactly what we're going for, right? The next term I want to talk about is payment processor. You want to get paid, right? So, you have to have a payment processor to actually handle the transactions. When someone uses a debit card or a credit card, they're actually going through a third party on the website. We use Stripe and we use PayPal. So if you're familiar with, say, how PayPal works, it accepts payments on your behalf. And then it makes that money available to you. So that's what a payment processor is. Once you decide which payment processor you want to use, you get set up with an account. Then you have to integrate it with your shopping cart software. So , Stripe or PayPal takes care of the actual money transaction. That's payment processor. The next term I want to talk about is a conversion rate. This is a really common e commerce term. It's essentially the percent of people who are going to actually subscribe Or convert once they visit your website or if they hit a certain page. So there's a lot of statistics out there and I would say probably around that 1% conversion rate. is what you can expect for a well designed e commerce website. Of course, that changes based off of a lot of different reasons. You certainly can get higher than that with the right tactics in place, with the right, right design elements and user experience. But for our purposes now, we're going to shoot for that 1%. This number can help you plan and project. So for example, if you gather 1, 000 people on your email list, or say you get 1, 000 visitors on your website, then there's a pretty good chance that statistically, you'll convert 1% of them. And 1% of 1, 000 is 10. So don't let that conversion rate, that 1%, scare you though. And you can certainly achieve... Higher than 1% if you're super clear on your target audience, if you serve them really well, have great design, great user experience, and then make offers that they can't resist. Alright, so what we've talked about so far has been pretty basic to e commerce. That's really important for you to know from the start. But let's get a little deeper here into the subscription box terms. So the most basic term that we're going to talk about When it comes to subscriptions is active subscriptions. Active subscriptions are all of the subscriptions that are paid for and that have generated a future shipment in your software. Basically, these customers are on auto renewal most of the time, but it can also refer to one time gift subscriptions. So to put that in perspective, say you have 10 subscribers and they are on auto renew, but you also have two gift orders that are for a gift subscription. Most of the time, gift subscriptions are not going to renew. So in this case, you would have 12. active subscriptions, that's 10 plus two, because that's what you're actually going to ship. Those have been paid for and those will be in your next batch shipment. After that renewal, your active subscriptions will then adjust, removing any orders that were not on auto renew, like those, some of those gift subscriptions, and also removing any customers that didn't renew, whether it was from a cancellation or maybe their credit card failed or whatever. If a subscription isn't active, other statuses that it might be are paused. So if someone maybe skips a month, another status would be canceled. If they physically went into their account and clicked cancel or expired. And typically expired means that the system tried to renew it. To keep it active, but for whatever reason it couldn't renew it. So maybe that credit card failed and they never updated it. So again, active subscriptions are all the subscriptions that are paid for and that have generated a future shipment in your software for your next batch. So let's talk about sales cycle. You heard me talk about a few things like renewals and what not. So let's talk about some of the important dates in your sales cycle. This is really unique to any recurring payment product because there's a specific start date and an end date to your product, so you need to understand the subscription box sales cycle. In the last episode, we talked a little bit about different types of shipping, whether you're going to do ongoing shipping or batch shipping. Either way, you still will need to know your start and end date of each sales cycle. And the first date of your sales cycle is when new product is available. So a lot of times we'll think of this as the first through the 31st as a sales cycle to keep it simple. And I think that's a really good idea. So looking at the first day of the sales cycle, you need to then think about what is the last day of the sales cycle, and we call that the cutoff date. That is the last day for your customers to subscribe to your box. The next date you need to know in your sales cycle is your renewal date, or you could call it your re billing date. This essentially refers to the fact that your product has a recurring billing date. It's going to hit at a certain time. And it means renewing active subscribers on this set timetable. It's the date which you renew all of your subscribers. It's best practice to send them an email the day before to remind them. Post it in social media. We want to make sure that they are aware that the billing happens automatically through our e commerce system and when it's going to hit. When it goes through the renewal, It generates a new shipment for the following month's product. So to recap that sales cycle, you're going to have the first day of your sales cycle, you're going to have the last day of your sales cycle, which we call the cutoff date, and then somewhere in between we're going to have the renewal date. Of course there's shipping date as well but we're not going to dive too far into that today. So I'm going to bring it home with three important KPIs, key performance indicators, which essentially is really important data that you will need to understand and keep an eye on. So the first is something that I look at almost every single day. It's called churn. Churn is the percent of subscribers that cancel each month. Clearly that's important. So obviously the lower the better because you want fewer cancellations. For a frame kind of a reference, I typically shoot for 10% or less. And so that would mean if you have a hundred subscribers. And you have 10% churn, that means you, on average, you will renew 90 subscribers and you'll lose 10 subscribers, 10%. Pretty simple, right? Well, the opposite of that is retention. Retention is the percent of customers that you retain, that remain active with subscriptions during each sales cycle. In other words, it's basically customers that you keep. So to look at the big picture churn is the percent that you lose and retention is the percent that you keep. So obviously with retention, the higher the better. And in the example earlier we talked about a 10% churn, so that 10% churn would then equal a 90% retention rate. You see how the, the math works there. Another KPI that is really important in the subscription box industry is average duration. That is the average number of days your subscriber stays active. So again, obviously the longer the better. But why is this important? This is important because you can figure out The lifetime value of a customer, or you can figure out how much profit you're going to make on that customer in the long term. And it also can help you determine how much you're willing to spend on advertising to acquire that customer. So for example, if the average customer says, let's just say three months as a subscriber, and you make 10 profit every single month on them, you know that their lifetime profit Because they're going to stay for 3 months and you're making 10 a month on them, your lifetime profit on that customer is going to be 30. So, 3 months times 10. So that's the way I like to look at average duration. It'll really help you continue to grow, and it will help you try and strategize to get people to stay for longer and longer. It's a great data point for you to keep your thumb on. Well guys, I think that's enough for today. To recap, we talked about some e commerce terms like landing pages and prelaunch. Then we dove a little deeper and learned about the subscription box sales cycle, like renewal dates and cutoff dates. And then we finished up with some important key performance indicators like churn and retention. I hope this episode helped you with building the foundation, preparing for when you're ready to launch your own subscription box idea. By listening to this podcast, I promise you that you'll gain confidence and clarity in this otherwise scary and very scattered landscape. If you've loved these episodes, if you feel like you've learned a lot and are one step closer to launching your subscription box, I will do a little happy dance if you subscribed to the podcast and left a five star review. It really goes a long way in helping reach more and more people just like you, and for that, I am grateful. Wanted to give you a quick reminder, too, that we have that free on demand. Video slash launch. You'll find it in the show notes and we'll help you get your mind wrapped around how to launch a profitable subscription box without the headache of piecing it all together from unreliable sources. So make sure you go check that slash launch. Thanks as always for spending this time with me. Renee, we'll be back in just a couple of weeks. And i'll see you in the next episode Bye.