Feeling hemmed in by tight profit margins in your subscription box business? This episode could be a game changer for you! I’m sharing my personal experiences from running Busterbox and giving you insights into how we significantly ramped up the profitability of our business. The secret? We focussed on increasing the average revenue per user. I'll break down this essential metric, explain why it's a crucial factor in your profitability, and show you how to track it using tools like ChartMogul, Bare Metrics, Sublytics or Profitwell.
In this pursuit of boosting profits, we implemented some clever strategies - from strategic pricing to offering subscription upgrades. But remember, complexity is not a prerequisite for success. Sometimes, selling more of the same can be your golden ticket. I’ll walk you through our journey, the tests we ran, the upgrades we offered, and how we managed it all without causing a logistical nightmare. By the end of this episode, you'll have a clear roadmap to turn those tight profit margins in your subscription box business into substantial earnings. Don't miss out on this chance to learn how to make your business more profitable!
If you have a questions you want answered on the show, make sure you head over to www.SubscriptionBoxResources.com and join the free facebook group and post them there.
Feeling hemmed in by tight profit margins in your subscription box business? This episode could be a game changer for you! I’m sharing my personal experiences from running Busterbox and giving you insights into how we significantly ramped up the profitability of our business. The secret? We focussed on increasing the average revenue per user. I'll break down this essential metric, explain why it's a crucial factor in your profitability, and show you how to track it using tools like ChartMogul, Bare Metrics, Sublytics or Profitwell.
In this pursuit of boosting profits, we implemented some clever strategies - from strategic pricing to offering subscription upgrades. But remember, complexity is not a prerequisite for success. Sometimes, selling more of the same can be your golden ticket. I’ll walk you through our journey, the tests we ran, the upgrades we offered, and how we managed it all without causing a logistical nightmare. By the end of this episode, you'll have a clear roadmap to turn those tight profit margins in your subscription box business into substantial earnings. Don't miss out on this chance to learn how to make your business more profitable!
If you have a questions you want answered on the show, make sure you head over to www.SubscriptionBoxResources.com and join the free facebook group and post them there.
Welcome to Subscription Box Answers with your host, liam Brennan. You're no rubbish, no crap. Straight to the point podcast with real, actionable tips, real strategies and insights from the industry which will help you start and grow your own successful subscription box business. You ask the question, you ask the questions, liam gives the answers. It's as simple as that.
Speaker 2:Welcome back to a brand new episode of Subscription Box Answers. I hope your day is going really good. On today's episode, we are talking about making more money in your subscription box business. So a question came in during the week and I'm going to answer on today's episode, because I think this answer will probably help a lot of people who are listening. So the question was let me load it up here.
Speaker 2:Hello, I feel as if our profit margins are too tight. We only make about 30% gross profit. We would love to figure out a way to earn more profit in our business. Do you have any advice? Very good question. Okay, there's a couple of different ways this can be approached. The first thing you can do would be to drive down the casks in your box. Come up with a way to get things for cheaper. That may be going to manufacturers directly or manufacturing stuff yourself. The more people who touch your products before they get to your box, the less cash you're actually going to make, and that is a viable way of increasing your profit margins.
Speaker 2:But for the purpose of this episode, we are not going to focus on that and that's mainly because I don't actually know where you are in your business and sometimes to drive down the casks. You have to reach a certain number of subscribers before economies of scale actually kick in. On this episode, we are going to focus on something called your average revenue per user, and I'm going to explain why this metric is so important when it comes to actually making money in your subscription box business. Because if you drive up your average revenue per user, you're actually going to make a lot more money and you don't normally need economies of scale to actually kick in. It's something you can do right now and your business would be so much more sustainable and healthy if you have a grasp on this metric. So what is your average revenue per user? Well, your average revenue per user measures the amount of money that a company can expect to generate from a individual subscriber. That was pulled directly from Google and that is 100% correct. So in your subscription box business, it's highly likely you are going to offer different prices depending on what plan a customer actually signs up to. So if they sign up for a one month plan, it will usually be your most expensive plan. If they sign up for a six month, it will be a bit cheaper. If they sign up for a three month, it's going to be a different price. If they sign up for a 12 month, it's going to be a different price again. So your average revenue per user allows you to see what is the average amount you are generating from each box sold.
Speaker 2:Now I definitely don't recommend trying to figure this out yourself. The calculation to actually do it is your monthly recurring revenue divided by how many active subscribers you have. But we don't calculate it. We are signed up to ChartMogul. We can see all of our metrics. I'm always going on about this, but it's actually really, really important. If you don't want to use ChartMogul, check out Bear Metrics or Sublitix or Profitwell. Any of them will be able to give you your average revenue per user, plus a lot of other riggy, important and critical metrics. Now, to put it in the simplest way possible, if you drive up your average revenue per user across all of your plans, well then you're going to be making more money and that will solve your problem. And you can control that to some degree because you can test different things, you can come up with ideas and if you come across the right idea, you can significantly drive up your average revenue per user and, yeah, your business will just produce a lot more profit.
Speaker 2:Now there's a few different ways you can drive up your average revenue per user. The most obvious way of doing it is to increase your prices. You increase your prices, people are paying more and your average revenue per user rises up across all of your plans. Now I have a couple of podcasts recorded on this already, and if you haven't listened to them, I highly recommend going back and checking them out, because we increased our prices in Busterbox towards the end of last year and I document the entire process across those podcasts, so you'll definitely find value in them. It's highly likely that you probably can increase your prices by a bit and it won't have any effect on your business whatsoever, apart from you actually earning more money, because when people get involved in this industry, we were the exact same. It's highly likely you never did price testing correctly at the start and you're probably leaving a bit of money on the table, so definitely go back and check out those podcasts Now.
Speaker 2:The other way to drive up your average revenue per user is actually just to sell more things to your subscribers and get them to opt in for subscription upgrades. Now I'll explain to you what we do in Busterbox around this. So if you sign up to Busterbox, you have the opportunity to sign up for a one month, a six month or a 12 month subscription, but before you complete your purchase, you're then given the opportunity to no matter what subscription you've picked. By the way, you are given the opportunity to pay a additional $7.99 per month to add an extra toy to every single box. So a good proportion of people actually go for this upgrade and it drives up our average revenue per user. Now, after you complete your purchase and you've put in your car details and your shipping details and all of this information, you then move into our post purchase funnel and in this post purchase funnel we are selling a number of subscription upgrades and even a extra subscription. So when you reach this part of the sales process, you're then given the opportunity to add even more toys to your box each month. Then you're given the opportunity to add even more treats to your box each month and finally, before you complete the purchase, you're given the opportunity to actually add a extra Bust a box to your order each month, in case you have a second dog or you want to buy a box for a friend's dog. So we've all these options going through our sales process and a lot of people take different options, and that compounds and drives up our average revenue per user quite substantially.
Speaker 2:Now we're testing things all the time in here. We've so many different ideas, other upgrades that can actually go into this sequence. Some of them are easy to implement and some of them require time and planning to make sure it's done correctly and does not become a logistical nightmare. And that's really important. When you're doing something like this, you have to ensure it's streamlined and does not become a logistical nightmare, because if it's a logistical nightmare very quickly, that will create problems in your company. Trust me, we've been there looking back at the very early days of Bust a box. We did some very crazy things, we tested some very crazy things and we never really had the logistics set up properly. This has gone back a long time ago and it came back and caused us some issues. So nowadays we're very careful and we're setting something up to ensure that the logistics are 100%. Now I'm challenging everybody who is listening to this podcast to start testing different ways of driving up your average revenue per user.
Speaker 2:Come up with some other subscriptions that you can add in your sales process, whether it's a pre-checkout or post-purchase checkout, that are complete no-brainers for your customers. And the easiest way to do this is usually to sell more of the same stuff. So say, you do a makeup subscription. Well, give the customer the opportunity to purchase more makeup from you, different kinds of makeup. If you sell craft beer, give them the opportunity to add more craft beer to their subscription. If you sell educational stuff for kids, give them the opportunity to add more of that to their subscription. You know that they're already interested in these kind of products, otherwise they wouldn't be signing up to your subscription in the first place. So give them the opportunity to buy more of the same from you. You'll be pleasantly surprised by how many people decide to take this from you. Look at us in both their box. We haven't reinvented the wheel. We're just giving people the opportunity to add more toys and more treats to their box, and a lot of people are going for this opportunity. Now there's more complicated stuff you can do, but before you even think of trying any of that stuff, keep it as simple as possible and just give them the chance to add more of the same stuff and see what the take rate is.
Speaker 2:Nowadays, it's really not a good idea to just focus on selling one subscription with no kind of upsets or add-ons. Custom acquisition costs are going up all the time and we can't control them. We literally have no control over the CPM prices across different platforms. That's something that's just completely out of our scope. But the one thing we can control, if we're clever, is our average revenue per user. We can influence our average revenue per user by coming up with more offers and add-ons along the sales process. Think about it this way If you have a higher average revenue per user, well then you can pay more to acquire a customer and you're not too worried about your ad costs increasing, and that's a mindset that everybody in this industry needs to have going forward. If you're in the mindset where you're like, oh, the ad costs are going up, we can't afford to advertise, we don't know what to do, well, if you can't afford to advertise, you won't be able to get customers, and if you don't have customers, you don't really have a business. So this is a challenge that needs to be overcome, and it can be overcome by increasing your average revenue per user. Pay more to sign somebody up and you'll earn more money from your business.
Speaker 2:I'll give you an example. You may have a number of competitors who offer something very similar. Their subscription box and their subscription boxes may be very, very similar and from the outside, looking in, everything looks pretty equal. You offer a similar product, you have a similar website, so you probably have a similar conversion rate and you probably have similar businesses. But behind the scenes, it's actually completely different, because you've put a lot of effort into building out a backend and you sell these add-ons and upgrades, so you have a much higher average revenue per user and your business is a lot more sustainable and a lot more healthy. And that puts you in a very great position, because you're able to actually spend more to acquire a customer than any of your competitors. And that's really where you want to be with this business model.
Speaker 2:So yet, take up the challenge, do what we covered in this podcast and come up with a few different add-ons that you can add to drive up that metric, because, trust me, it will make a massive difference. Even if you can only raise your average revenue per user by a few dollars, that can have massive effects on your business over a number of months, especially if you're a growing company. I hope this helps. As always, we'll be back next week at the exact same time. If you have any other questions at all about increasing your average revenue per user, your profit margin, anything to do with your subscription box business, then head over to the free Facebook group at subscriptionboxresourcescom. Join there, post your question and it will be answered in a future episode. Thanks very much for tuning in and speak to you next week, bye, bye.