Subscription Box Basics with Julie Ball

Pricing Strategies with Mario from Cratejoy

April 27, 2020 Julie Ball Episode 23
Subscription Box Basics with Julie Ball
Pricing Strategies with Mario from Cratejoy
Chapters
Subscription Box Basics with Julie Ball
Pricing Strategies with Mario from Cratejoy
Apr 27, 2020 Episode 23
Julie Ball

#023 - In this first of three-episode series, Julie chats with Mario Barrett from Cratejoy to talk about pricing strategies for your subscription box business.

Mario currently leads Seller Success at Cratejoy. Before Cratejoy, Mario spent time in management consulting and has experience starting, operating, scaling and selling subscription box businesses.

Links:

Sparkle Hustle Grow
Cratejoy
Free Subscription Commerce Tools
How to price your subscription box
Tips on pricing your subscription

Show Notes Transcript

#023 - In this first of three-episode series, Julie chats with Mario Barrett from Cratejoy to talk about pricing strategies for your subscription box business.

Mario currently leads Seller Success at Cratejoy. Before Cratejoy, Mario spent time in management consulting and has experience starting, operating, scaling and selling subscription box businesses.

Links:

Sparkle Hustle Grow
Cratejoy
Free Subscription Commerce Tools
How to price your subscription box
Tips on pricing your subscription

Julie:

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! Hey everyone, welcome back to Subscription Box Basics, a podcast for new and aspiring subscription box business owners. I'm your host Julie Ball and I cannot wait to welcome our guest today. I'll be talking to Mario Barrett who is the Senior Director of Seller Success at Cratejoy. And I think when following along, you know by now that Cratejoy is the all in one software platform that we use to run my multi-six-figure subscription box business Sparkle Hustle Grow. So we launched using Cratejoy in October of 2016 and we still use them to this day. So we're planning to do this three episode series where we're going to be talking about some really impactful topics. Today we are covering pricing strategies. Next we'll talk about the pitfall of over-complicating your product. And then finally we'll chat about getting feedback and what to do with it. But you know, as I started talking to Mario, we thought maybe we should talk about some things that are really about what we're going through right now. So without further ado, Mario, welcome! I'm so excited to have you on the show.

Mario:

Thank you Julia. I really appreciate it and really appreciate the opportunity to get in front of a lot of like new subscription box owners cause I've definitely been in their shoes in the past and I know how overwhelmed it can feel with just the amount of information out there and just the amount of like, I think desire to be successful and not knowing what to do. So this is really exciting.

Julie:

Yeah, information is so scattered and that's why we have this podcast to try to kind of funnel in all the good stuff. So before we dive in, can you just give everyone a little bit about your background?

Mario:

Sure. So I, I think I have a nontraditional background, which hopefully resonates with most people. So I was in the army, um, fresh out of college for about five years and then decided to make a big change, went to business school and, um, fell into the subscription box world right as it was starting. And, uh, I was actually one of the very first subscription boxes on Cratejoy back in the day.

Julie:

Nice!

Mario:

And ended up growing it and selling it, uh, did some, some consulting at Deloitte and then joined the Cratejoy team just over three years ago to help, um, build out a lot of programs and lead Seller Success. So I've kinda done it all. I, I've, I've been involved with starting and running six different subscription boxes. I've, uh, I've done some other businesses. I've been total failures, so, yeah.

Julie:

Same.

Mario:

Right. But it's good because I think with each thing you do, you learn like what steps you can skip and what's important, what's not important then really how to communicate with customers and how to find that market fit to become successful.

Julie:

Yeah. So before we dive into the topic of pricing, so let's just talk a little bit about what's going on right now. Um, you and I talked a little bit about the state of the subscription box industry amidst the chaos right now is still pretty healthy, right?

Mario:

Yeah. I mean it's pretty remarkable. So what we're seeing on Cratejoy right now, like just some raw data. So we look at data on two sides. So we look at how does the marketplace do because that's our direct to consumer side. It's business to consumer side and we look at the business to business side. So that's all other subscription boxes that are hosting on their storefronts and selling directly on their sites. Both are up dramatically right now. It definitely depends on what you're selling. I mean like certain products just aren't selling, but most products are because there's a huge shift to online. So people are buying e-commerce, they're actually looking at like we're looking online to buy stuff. It's crazy, which is not crazy. It's, it's a definitely a direction we're going, but it's like way more pronounced right now and like some of the categories are really seeing like grow, like grow or anything to do with like hanging out with your family at home.

Julie:

That makes sense.

Mario:

Educational activities or kids, um, you'd be surprised and not maybe not surprised alcohol boxes, I mean, but like things that have to do with like crafting or like doing an act activity or hobby, those are really skyrocketing right now because people are, they're forced to stay at home and they've got to find like a new way to work. They're concerned about their self care or their mental health. Like how do I actually engage with the product in my home and either distract my kids or learn a new, um, new skill or just treat yourself.

Julie:

Yeah, and I feel like as some subscription box business owners, we kind of have a leg up because we are already online selling, you know, most of us aren't in brick and mortar stores. Most of us are online and whereas a lot of other businesses had had to pivot to go online.

Mario:

Yes,

Julie:

So it's good to hear that it's healthy. Um, so I guess what I would want to ask you is, you know, some of our subscription box business owners might have excess inventory or see their numbers going down. What are some of the ways that they can drum up those sales right now? Um, you and I had talked a little bit about the marketplace, which is a huge component of our business strategy. For those who aren't familiar, the marketplace, I like to liken it to how Etsy is for handmade goods. This is a marketplace. Cratejoy marketplace is a marketplace, a website to discover new brands of subscription boxes. It's been huge for us. So tell us what they can do with the marketplace then.

Mario:

Yeah, so the marketplace is super unique in the way you just mentioned. These are their shoppers coming to cratejoy.com because they're actually looking for a subscription box. So they're already coming to the right place to buy you a product. It's like going to Amazon and stumbling on when they were coming there with an intent. And we do anywhere between 600,000 and a million shoppers a month coming in to buy these boxes. And they're looking at specifically, well, there's two types of customers, some know exactly what they want to come, and get others are actually just browsing. And so when they're browsing, they're trying to, okay, so what is the exact product I want? And the, you don't really have a lot of space in the marketplace to describe what you're doing. I mean that's a marketplace in general. You have some photos, you have a description, you maybe have some features you can put about your box and we go above and beyond on that.

Mario:

We allow you to put like an unboxing video on there so you can actually show the shopper the experience they should expect. We allow you to put a current box or they can, like the buyer has like an expectation of what they will actually be receiving in the mail because a lot of buyers that are new to subscription boxes aren't aware of that. Sometimes it's a big surprise, like they just want to know but they're going to get and they like the experience of like of the, of the frequency, which they get it every month and we allow you to put pass boxes up so you can actually show what you send. So it starts to like build this case for a buyer. Really set that expectation and build a value proposition. And the thing that you can do, like let's say you're out there and like you said, like you're not getting shoppers that come in and buy your product, that is usually because your listing just hasn't been invested in so you don't have great photos.

Mario:

Photos are like the number one thing people look at. We try to say you have at least eight photos, do some flat lays, do some standups, show some lifestyle photos so the shopper can actually see how they will experience and feel with that product and then be really clear about like who is that box for? Like why should I buy this box and is it for a parent with a kid that's two to four years old that wants to read and engage with that child like that. That is like very specific. You should be telling people about that. And also having very clear shipping information because you have to remember this is a marketplace and a lot of these shoppers are new to the model, so they're not always aware that, "Oh, I'll buy the box today and then I'll get it at some point in the future." You want to be like very specific and always update, "Hey, if you buy today, this box will ship in two weeks or this box will ship on one week or this box ships on the fourth of every month."

Julie:

Right.

Mario:

That way they'd have that expectation management that you're setting in. It really helps you in the buyer experience.

Julie:

that's so important because of Amazon. Right now, you know what? There are two day offerings. If you're not familiar with the subscription box model and you might not know that you, you might have to wait two to three weeks to get that first box. So that's really good advice. And you know what I love about the marketplace too is the reviews. Um, now would be a good time to reach out to some of your loyal fans to some of those subscribers that have been with you three, four, five, six months and say, would you leave us a review? This will be really helpful for us to gain business because social proof is so important. And um, does it, does it impact the conversion rates? Do you see the reviews impacting the conversion rates?

Mario:

Yeah, I'll let you peek behind the uh, the, the curtain real quick. So we definitely are, so we're a technology company. Like we are product engineering people and what we care about is understanding user experience. And so we definitely review every single thing that happens on this website. And when we watch shoppers shop, the very first thing they do is go to review section and they, they will read every single review. We have boxes that have a half a thousand reviews. You will see a shopper go 50 pages deep. They just want to know what people are experiencing. Like what will I experience and that, that's why it's so important to try to like really answer everything up top that you can. And provide the visuals and the videos because that helps communicate with the shopper even more so than the reviews can. So reviews are super important.

Julie:

That is so interesting that they're going so deep into those reviews. Okay. Last question I want to ask about this is then, you know, do you, how do you feel about bad reviews? Because you know, you can, we can respond to a bad review and show really good customer service.

Mario:

Yes. So bad reviews definitely happen. And so we've, we've done a lot of work on this and we're still, we still have a long way to go to make sure the reviews are really instructive. Um, and so if you have been with Cratejoy for a while, like you have, you know, the review used to just be like, Hey, rate this like one to five stars and that was it. And then we'd split it out to say, okay, rate the different pieces of your experience. So maybe the shipping, maybe the product, maybe the curation. The next step of reviews will actually be at the box level. And so you can have reviewers actually reviewing, Hey, I got the December box and this is what I experienced with that box. And so there are some things we're working on to make it better. But back to your question on bad reviews, we always tell sellers, if you get a bad review, we understand it's not great.

Mario:

You don't like it because it does hurt or I've been in the business. Trust me, even when you get like the customer is upset and they write you a mean email, you're like, I didn't, I didn't want to hurt you. Like I didn't intend to have let you have a best spirits. Let me help solve this. And it's hard to really make customers happy all the time. But it's, it's good to use that space to actually write, Hey, I'm so sorry. This is the experience that I wanted you to have and this is what I'm doing to fix it. And this is what we've done as a company to fix it. And, uh, for the most part, our shoppers, a bad review doesn't turn the shopper off. They read it because they're gonna read a bad review and say, Oh man, this person had a terrible review.

Mario:

And then they read the sellers like, Hey actually your tracking number said that the box stop there who've contacted you a few times. I tried to follow up, we'd love to make a you whole, we'll send you another box. So it shows that the seller is very engage.

Julie:

Yeah!

Mario:

And they want it to make it right. And that gives the purchaser a good experience because if they want your product, they want to know that you're an engaged business owner, you're going to make it right when something goes wrong for them. And they, you can see through bad views and we do log it. So if you click on someone's name and they leave all bad reviews, just kind of like, like Yelp, you can look and see, Oh well this person just leaves bad reviews.

Julie:

They're just cranky.

:

Yeah, cranky person. So we try to tell sellers don't fixate on the reviews. I know I would because it's like a rating, but it, it reviews have nothing to do with how we sort on the categories or anything like that. It's just like we want to provide content that is hopefully a representation of the experience of that shopper. And it can say if it's a blatantly like if the review actually say that we'll take it down like we do, we aren't authoritative. Like to that degree, like we don't read everything up. Like if there is actual, you've communicated with that shopper and you can prove to us that they're actually being malicious and they're not accurate, we will take it down.

Julie:

That's good. Good. Well this is all really great feedback. So guys, if you're listening and you've got a marketplace listing on Cratejoy, go to that now. Take some time and like tighten it up. Put some new pictures on there and take the time to reach out to some of your subscribers to get some of those really, really good reviews. Um, okay, so let's move on to our original topic. Um, which was not pricing correctly. So the pricing strategies are so important and this one's really personal. Me as I've changed my pricing for Sparkle Hustle Grow twice since I launched in 2016 and I had to otherwise I couldn't carry out my core mission, um, at the level of quality that I wanted and still pay myself as an employee cause I'm not doing this as a hobby, you know? So where do you, where do you want to begin on this pricing topic and you're like, how do we even unpack it?

Mario:

Yeah. So this is always a really tough one to unpack. As a rule of thumb. You know, USPS is going to increase shipping every single year.

Julie:

Every January, right?

Mario:

Every January. Be ready for that. And the other thing that I, so let's start at the beginning. So when, and I bet this resonates with every single person who will be listening to this. When you go to price your box, where you going to start your box, you probably think I have a great idea and you Google it and you say, Oh, I'm going to do a box that sends X, Y, and Z in it. And Oh my gosh, five other people do the same thing. How do they price their box? And then I guarantee you're going to probably price right around with their pricing and you're maybe undercut it by a dollar cause like, Oh if I have a better price, people are going to buy my product.

Julie:

It's like the price is right strategy.

Mario:

Right. And, and I'm not saying people, everyone does that, but we see this as a trap. People get caught in because then you're not actually selling a value proposition or like why someone's buying your product. You're just trying to price competitively with everyone else saying we're the exact same product. You should buy mine because I'm a little cheaper. But what that does, and you don't know the other person's margins, you don't know how they're sourcing. You don't know their volumes and they might be getting way better pricing than you. You actually see people price themselves out of making any net income. So they don't leave any margin for marketing expenses, for paying other employees if they start to scale or for even paying themselves.

Julie:

Right.

Mario:

And so what you end up doing is having a box that you operate and let's say you're set, you have, you've been really successful in your first year of you have 500 subscribers and you're making, Oh I don't know, a dollar-fifty a shipment.

Mario:

Is that worth your time? And that's where like it's like, Oh my gosh, I'm so successful but I priced so low that it's not like your contribution margin is not worth it. And so you want, we always say like you should always have at least 40% gross margin leftover and with that 40% you should be able to have some budget for marketing and some budget for yourself. And it doesn't sound like a lot of the beginning, but as you start to scale and you can actually find other ways to make money. I, once you build an audience, you are selling one time products, you can do a lot of things actually increase the lifetime value of those customers. But the most important thing is if you don't have margin in that box, have another way to make money or have margin in that box. And don't sell yourself short because you will just go out of business or you'll have to raise prices.

Julie:

Like I did.

Mario:

and then, yeah, and then you'll have a lot of upset customers unless you grandfather them in and it just, it can be scary.

Mario:

Um, so I, I talk to sellers all the time who are in the thousands of subscriber range and they're like, Hey, we've got to raise prices and we are really nervous about what it does. And they are right to be nervous because it depends on the type of product. A lot of people will cancel like, Oh, you're, you're trying to fleece me out of another dollar a month. Like, well, it's my costs go up, costs do go up. And you have to make sure you can pay yourself. Like no one's in this run for free. This isn't a charity, it's a business. And you have to actually believe in yourself and the product and price appropriately. Don't be embarrassed about making money with this business because you're providing a value, a value in a service to people.

Julie:

I agree. And you're connecting other people that have common interests and it's a mindset thing. So often, you know what I mean? It's, we're scared to charge our worth and um, it's definitely something that I've been challenged with in the past. But the fact is, you're right, that prices do go up and you have to think about the scalability. Are you going to be able to continue this a year later, two years later, three years later, knowing that shipping costs have gone up? A lot of times paper products go up and just general inflation, like product, the cost of goods rise consistently. And so you want to look ahead and think, okay, I don't want to have to change my pricing every year. Like USPS does. I want to build that in and out and I want to pay myself. So yeah, it's, it's so important, but there's, I feel like there's no like, right answer because every market is different. Every category is different. Sometimes a luxury product versus a product for your kids, they're going to be priced so differently.

Mario:

Yeah. And so I would throw out some things I've seen. If you look at margins, everyone wants to know margins are good, where should I be? How do I know I'm successful? If you can do 40% minimum on gross, and then if you can make between, I don't want to go too low, but if you're like a 12 to 18% net income on your box, I think you're doing a great job because that shows that you've been able to control your prices like that. You're able to control like what you're spending on growth, you're able to acquire customers through cheaper channels, you're able to retain customers, you're able to do a lot of things that you know, and maybe you're paying yourself a little bit out of the gross, but at the end of the day that netting comes yours. That's your like, that's your money, run that box. And you know, I don't know everyone's scale out there, but yeah, I mean, you can have a healthy business with 500 to a thousand subscribers and pay yourself a decent amount of money that you know, can either help you quit your job or help supplement something else as a side hustle, but you have to make sure the margins there or you're just going to get burnout.

Julie:

Yeah. One of the things that's really helped me is knowing exactly what my product budget is. So I've got my fixed costs, I've got some contract workers, I know what the cost to ship my boxes. I know what I, what it costs to actually print my box. And then I've got my product budget. And so that's what varies from month to month. I know what my cap is. I never spend over that cap. And that's a conversation that I've had with my husband as he is newer in the subscription box world is I asked him, you know, do you know what your budget is for products? And um, if you know what that is, don't go over it. In fact, challenge yourself to ask your vendors for better pricing. Ask your vendors for free shipping. And they could say no and you can still make the, you know, place the order.

Julie:

But it's really helped me to have that cap. And then every year as I continued to grow, I am able to get products at better prices because you know the economies of scale, if I'm gonna buy a thousand books versus a hundred books, I'm going to get a better price. And so I've been able, it's almost like a game for me as I have all these ideas to put them in my box. I've got my products, I've got, you know, office supplies and books and tech gadgets and stuff, and then it's all about manipulating them to find which ones I want to pair up together and that are still gonna fall act or under that product budget.

Mario:

Yeah, absolutely. And you're right to have those budgets. It's, I, I've definitely had conversations where people don't and they're like, well I want to spend between 10 and $15 on product. Well, and I know you have to be like $10 is your max. Yeah. If this vendor won't do it, call the other call the other. Someone will meet that or adjust what you're selling. We're raising your price. Like you have to make sure you don't overspend.

Julie:

Exactly. There has been so many products that I've just had to say no to because either one, they didn't fit the budget or two, they didn't fit the box cause our boxes are only six by nine by three. And so a lot of people say, well why don't you just send a bigger box? And I said, well it costs a lot more to build a bigger box and to ship a bigger box. So having those restrictions, I could look at those as limitations or I could look at it as it's like a game. I've got to find what fits, what fits the box, what fits the budget.

Mario:

Yeah, you bring up a good point with the box size. I often forget that, that it's like that is the limitation that is your, that's your shelf space in the box and like what? How can you maximize the value of that shelf space while staying on budget? And that's, that's a very difficult thing to do and it's, I think it's really hard at the beginning because you just don't know where to start or who to reach out to. As you grow, you get better processes and better connections, but it's, it's daunting. And I'm, I'm not gonna just like gloss it, like Oh yeah, I have a good budget. And it's just like you have to commit some like real brain power and some real goal like roll up those sleeves and like start like smiling and dialing.

Julie:

Yeah, it's like a discipline.

Mario:

You'll be talking to a lot of vendors out there.

Julie:

Yeah. Okay. So last question about pricing is do you have any advice for people who realize that they're like, Oh no, I priced way too low. Do you have any um, seen any trends or any advice for raising those prices?

Mario:

Yup. Yeah. So um, sometimes people do, so you can phase out a product and introduce a new product. And so what you do is basically, this is like the thing with price. If you need to raise prices, you can communicate with customers and let them know what happened. Like, Hey, we've got raise prices.

Mario:

That's one option.

:

Overcommunicate with them.

:

Right overcommunicate like, this is going to happen on this date. You can opt out. Like, I want you to opt out, I want you to be, or you offer them a grandfathered in pricing so they get to keep what they were doing, but you don't let anyone else in on that. And then you update pricing on your website for all new subscribers coming in.

Julie:

Yes, we have a minimum of three communications. Like if we're changing prices, we say to ourselves, okay, we're going to send three emails and then we're also going to share it in our Facebook group. Um, that way we can, and we do, we verify like we write it down. We said we sent an email on this date, this date and this date. So when people inevitably come to us and say, Hey, my charge was higher this month, what's up? We'll say, Oh yeah, we send, we communicated this on these three days, um, via email, um, about what the new product is or you know, the changes we were making to the product and the price.

Mario:

Right? Yeah. And, and I think it, you get it. If you don't over-communicate, you're going to miss a lot of people. And people don't read emails. People don't read. And that's just the thing, like you can even put it on an insert in your box for like before it happens. Like, Hey, by the way, next month this is going to be $3 more and this is why we really value you as a customer and one time only we're going to like grandfather you in for at least the next renewal. Like keep them around, you've already paid for them. So you want that lifetime value of that customer. But you cannot go broke by serving customers that are paying too little. Like that's just the thing, like don't do it, don't be embarrassed. Other things that I see people do are introduced, introduced other tiers of the same box. So they will introduce a premium box. I might have like one more product, but they can charge eight more dollars for it because there's more value in the box. And then they start to phase out the like the money losing box, like air quotes and they start to phase in the more expensive box. Um, but otherwise.

Mario:

if you have a free shipping option, you can always add shipping. That's another way to do it. Um, there is no silver bullet for pricing changes. It's just like brute force sometimes it's just like overcommunicate.

Julie:

Yeah. So the last thing I wanted to mention about pricing, and this was from our personal experience, is to do the math. If you're going to figure, say you have a hundred customers at a certain price and then you're going to raise it, if you lost, say 30 of 30 of those customers, do the math of the new price times how many customers you retain, you might be in a better situation to lose those customers at the higher price. You know what I mean? When you look at your total revenue.

Mario:

Yeah, no, you're so, one of the boxes that I ran, um, we did the same, that exact thing, math on international shipments because of how expensive it was actually serve an international customer because of the cost of shipping. And we had to make the decision of, okay, international shipping's just going to be a ton of money. We're, we're sorry. It's just that's like we can't lose money on these customers and only like 10% churm. It was just like they were just willing to pay it. Yeah. They'd even questioned it. It was just like, Hey, this is gonna go up on the state, and they're like, okay, thanks. But we were so scared of like doing it because we're so worried about unvalidated fears that we were like almost not going to do it, but it was like, Oh yeah, no one, they actually liked the product so they're going to keep paying for it.

Julie:

Awesome. Right. Yeah. If you have, inevitably if you have a really, really good product, you're not going to lose that many customers. It's still scary to change your prices, but yeah, you've got to work on that money mindset, so thank you so much. That was some really good information about pricing strategy and I'm sure we will drop some links to some blog articles that you guys already have on your blog. We'll put that in the show notes. Okay.

Mario:

Okay, great.

Julie:

Thanks guys so much for joining us for today's episode. I am so excited. You have to come back next week. Mario is going to be on again and we are going to be talking about product pitfalls and how to just keep it simple. So thanks again. Check the show notes for all those links to more resources and we'll see you in the next episode.