Subscription Box Terminology

#004 - In this episode, Julie discusses in-depth the top key terms for the subscription box industry that you may not have seen in other business models. She also talks about the key performance indicators for subscription box business and why you need to keep an eye on them. This will help you with building the foundation in preparation for when you're ready to launch your own subscription box idea.

If you are ready to keep moving forward with your subscription box idea, you can get FREE access to Julie's basic training course. Just go to SubscriptionBoxBootcamp.com/basics and register for free!

Links:

Sparkle Hustle Grow
Stripe
Paypal
Cratejoy

Get all the details and your ticket at SubSummit.com, THE conference for sub box businesses. We'll see you in Dallas this June!

Transcript

(00:01): So you want to launch a subscription box and don't know where to start? Girl, you are in the right place. I'm Julie Ball, a subscription box coach and your host here at Subscription Box Basics, a podcast for new and aspiring subscription box entrepreneurs that want to avoid overwhelm. So grab a coffee, some pen and paper and let's have some fun!

(00:20): Hey guys and welcome back to Subscription Box Basics! Each episode, it's my goal to provide you with the clarity on the subscription box industry to help reduce the overwhelm that you may be experiencing as you try to navigate the ins and outs of it all.

(00:38): 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. So you might want to grab a pen and paper, but also you can go to subscriptionboxbootcamp.com/basics to access my free basic training course that includes all of these industry terms and more.

(01:01): 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.

(01:15): The first word I want to talk about is prelaunch. Prelaunch is the early phase of launching your box before you have anything actually to sell yet. It's this way to generate buzz and excitement around it. So we just 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.

(01:42): 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 prelaunch gives you an opportunity to earn some income to pay for those first months boxes.

(02:00): 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 prelaunch where I included a presale to my VIPs, I was able to raise over $1,500 in just start up 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.

(02:24): So the second reason I believe you need a prelaunch is for validation. This is so important. So often we think we know what our customers want, but we really need to ask them. You'd 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.

(02:51): And the third reason I feel you need a prelaunch 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, then you really can't expect to have a successful launch.

(03:19): So we'll talk about prelaunches in depth in a future episode, but I just wanted to put the prelaunch 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.

(03:37): So a launch page is just a basic landing page, meaning it's just a one page website and it's used during a prelaunch 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 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, on that launch page.

(04:15): Sometimes people will use some sort of giveaway. So in other words, enter your email for a chance to win a three months 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 prelaunch phase, then there'll be primed to buy on launch day. That's exactly what we're going for, right?

(04:40): 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. So here at Sparkle Hustle Grow, we use Stripe and we use PayPal. So if you're familiar with say how Paypal works it accepts payments on your behalf then it makes that money available to you. So that's what a payment processor is.

(05:12): Once you decide which payment processor you wanna use, you get set up with an account, then you have to integrate it with your shopping cart software. So for us, that's Cratejoy software. So while Cratejoy takes the order, Stripe or PayPal takes care of the actual money transaction. So that's payment processor.

(05:33): 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.

(05:48): 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 eCommerce 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 design elements and user experience. But for our purposes now we're going to shoot for that 1%.

(06:13): This number can help you plan and project. So for example, if you gather 1000 people on your email list or say you get a thousand visitors on your website, then there's a pretty good chance that statistically you'll convert 1% of them and 1% of 1000 is 10 so don't let that conversion rate that 1% scare you though. 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.

(06:50): All right, 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.

(07:01): 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.

(07:23): 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.

(07:51): After that renewal, your active subscriptions will then adjust removing any orders that were not on auto-renew like those, some of those gifts subscriptions, and also removing any customers that didn't renew, whether it was from a cancellation or maybe their credit card failed or whatever.

(08:06): 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.

(08:42): So let's talk about sales cycle. You heard me talk about a few things like renewals and whatnot. So let's talk about some of the important dates in your sales cycle. This is really unique to any recurring payment because there's a specific start date and an end date to your product. So you need to understand the subscription box sales cycle.

(09:03): 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.

(09:39): And we call that the cut-off date. That is the last day for your customers to subscribe to your box. So for example, if it's March and your cutoff date is March 31st if someone were to subscribe on April 1st then they'll get the April box. Meaning that they just missed the cutoff date for March, March 31st.

(09:59): The next date you need to know in your sales cycle is your renewal date, or you could call it your rebilling 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.

(10:20): For example, with Sparkle Hustle Grow, we renew all of our subscribers on the 30th of the month. We send them an email the day before to remind them, we post it in social media. We want to make sure that they are aware that the billing happens automatically through our eCommerce system and when it's going to hit, when it goes through the renewal date, it generates a new shipment for the following month's product.

(10:47): 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 cut-off 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.

(11:07): 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.

(11:18): 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.

(11:34): For a frame kind of 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.

(11:55): 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 math works there.

(12:29): Another term, 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?

(12:45): 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 three months and you're making $10 a month on them, your lifetime profit on that customer is going to be $30 so three 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.

(13:40): 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.

(14:00): 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.

(14:17): So if you've loved these first few 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 me a five star review, it really goes a long way in helping me reach more and more people just like you. And for that, I am grateful. Thanks as always for spending this time with me and I'll see you in the next episode.