#161: Subscription programs: How Successful Brands Launch, Scale, and Innovate

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Claus Lauter: Hello and welcome to another episode of the e-Commerce Coffee Break, convenience and Service. These are two keywords that you might keep in mind as a Shopify merchant when it becomes, , , a part of your business to get people back to your business and maybe get them into a subscription , program because that's where really money is.

So that's also what we want to talk about today, subscription programs, how brands can launch scale and being innovative with them. I have Matthew Holman on the show today. He's the head of growth at QPilot.cloud. Matthews perspective reaches across the spectrum from marketing to operations to shipping.

He worked directly with hundreds of brands to transform the acquisition, shipping, and subscriptions, and he understands the balance that must be struck when developing a successful business and making choices about how resources should be allocated at his core. Met is a problem solver, so he is the right person to talk about subscription programs.

Hi Matthew. How are you today?

Matthew Holman: I'm doing well class. Thanks for having me on.

Claus Lauter: Sure. You're welcome. Matt, tell me a little bit, what are the biggest issues when it comes to start a subscription program in your [00:02:00] business?

Matthew Holman: There's a couple of things that I see a lot of brands doing from a mistake standpoint.

, the first is, , often making things more complicated than they need to be. There's a lot of really big players out there in the world. We're talking Netflix or Dollar Shave Club, these types of brands that are crushing it in a subscription space. And so we often as, , brands want to emulate what we're seeing from a success standpoint, , other companies doing.

So that's the first thing. Is understanding that , you can't just run before you can walk, right? So you want to put some basic things in place. And so the other side of that is making sure you're putting in kind of a good experience, a basic experience. There's a lot of great Shopify apps that can make that happen.

, but you're doing data collection, that's the other big thing. You're collecting reasons why people cancel. You're collecting reasons why people subscribe in the first place. You're talking to customers about what they like or they don't like. , those are the two big things. The big mistake and the best way to get.

Okay. Now,

Claus Lauter: not every business is suitable for a subscription program, but a lot of them are, not aware of that they might be able to start a subscription program. Give a [00:03:00] bit of an idea of what kind of verticals or industry s niche, , are suitable to run a program.

Matthew Holman: There's some pretty obvious ones that are a good fit, right?

We're talking about supplements, , cosmetics, , consumables like, , pet food. CBDs is growing really strongly, , right now. , so those are like kind of your obvious ones. I think there's also a lot of ones related to. Replenishment. So like even if you're selling, like an air filter system and you want to put the filters on an autoship or a repeat delivery program, , can make a lot of sense.

I've even seen subscriptions for pillow cases because people don't switch out their sheets enough, right? So you can do an annual subscription to get new sheets every year. That's another one , the other thing that people should be thinking about, even if you're not necessarily a great, fit or you're unsure about it, I would still look at membership options.

So if you're still thinking about like, How you can engage with people, brands that are offering say like free shipping on for any member, ? Or access to exclusive content or other features that you can [00:04:00] offer in your business. Memberships give you a similar subscription revenue option that you can do, and it gives you greater engagement with your customers and anybody can do that.

Claus Lauter: Where are the main differences between a membership and a subscription based program? .

Matthew Holman: Most subscriptions I'm talking about are gonna be something that's a physical good that's getting shipped, a membership is gonna be an access to perks or benefits or content.

So it's almost like a paywall you're putting, like you could think of, I would call Netflix or Amazon Prime as a membership. , if. A member of a supplement company, I might not be putting products on a subscription, but I might be getting access to special discounts because I have the membership.

I might be getting free shipping because I have a membership, that kind of thing. So that's the difference between the two.

Claus Lauter: Okay. Now, , set convenience and service is one of the main reasons why people sign up for a subscription based delivery. Let's talk about frequency types. What kind of frequency , types are most common when it comes to subscriptions?

Matthew Holman: Yeah. The most common is gonna be every month. what's interesting is a couple, just a couple of years ago, it was actually [00:05:00] kind of hard to create custom frequencies, , around like getting shipments. And most subscriptions were kind of like you get it when you get it kind of mentality. , and so now that's changing.

So a lot of the apps , on Shopify now are making it really, really simple to. You can set it so that it's every third Thursday of the month, every other week. It could be whatever frequency your customers want. And so that's the whole idea with convenience, is you wanna make it so that it's really simple for customers to choose what works for them.

The monthly basis is really common. I would say, two to three weeks. And then quarterly is probably the next most common frequency, and that's for people that are selling like maybe a bigger item instead of getting. One can say, yes, candle subscription instead of getting one candle every month.

Cuz the shipping for that , is maybe a little prohibitive. You do three candles every quarter and that way you can lump three products in. The shipping is not quite the same, right? For spending three candles all at once versus three candles individually. So there's better margins there. You can play with that frequency depending on what works best for your customers and [00:06:00] for, your business, operat.

Okay.

Claus Lauter: Let's talk a little bit about communication and flows within a subscription. Keeping the customer in the loop , is quite important there, but also as a merchants, you need to keep in the loop. , for these both scenarios, , what's kind of the information workflow that a app like qpi, , provides?

Matthew Holman: Yeah, so the first thing is you wanna be able to send regular notifications around orders that when they're about to process, to let people know. , I know that there are some brands that like turning those off. you're almost like prompting someone to cancel, so it's easier to drive better retention numbers by turning that off.

Yeah. , you had the same response. I do. Depending on where you are though. This is illegal. So be careful. In the US , California's past laws that are very prohibitive of this type of thing. If you're a small business, maybe they won't come after you, but I would recommend against doing that.

I think it's just about being more creative. You first wanna make sure you're having a good process related to check-ins. So instead of just letting somebody know, Hey, your order's about to process, do you wanna cancel? How many people are gonna say yes to that? It's, it's, Hey, your order's about the pro, how are things going?

Your next [00:07:00] order's about the process. And it's a quick check-in, like , how's it going? How much do you have? And if somebody says they have too much, you can always ask them, Hey, well, do you want to, , postpone or skip an order? , or if you want to change your order in any way, you log in. So that way you're at least communicating with them.

You're engaging with them, but you're also not suggesting that they cancel. It's really important to onboard people to subscriptions. So if they subscribe to a product they're getting put into their own, cla flow related to subscriptions that they understand, like expectations around the product, what they're gonna get, how they manage it within the account portal.

I know a lot of this seems really obvious. A lot of people maybe are new to it or they're new to your website. , so you wanna make sure you're always overcommunicating and, and over educating people on how they can manage stuff. , so those are kind of the biggest things. For me, I really like the idea of like more exclusive content for subscribers.

So if you can invest in, , specific email flows for them each month, special offers for subscribers, those are your best customers. , that's who I would be marketing to.

Claus Lauter: Okay, so you're basically [00:08:00] saying not only sell them what they have subscribed to, but also throw in other products. Is that right?

Absolutely, a hundred percent. Okay. Now from the merchant side, obviously you have to manage all these subscriptions and a lot of merchants might try as a test with subscriptions, so they don't have a subscription based model, , in the normal business, set up, what do they need to look, , for when it comes to scaling a subscription based program in the backend?

Matthew Holman: Yeah, the backend is Shopify's making it pretty easy in the way the apps works so that it's easy to take orders and manage orders because you're gonna see orders that are gonna hit your, fulfillment window, basically like an, like a normal order would. So it's gonna go through your normal fulfillment process.

The tricky part, , is making sure that you're doing correct inventory planning related to subscription orders. If you have a thousand. , and that a thousand subscriber growths grow. Maybe it's growing 10% a month. So over the next six months, do I have 6,600 products or whatever to fulfill all those orders and if not, I need to reserve that product and maybe turn off the one time option [00:09:00] on the site so that the subscribers keep their products.

That's the biggest, , backend issue that I see. , the rest is related to just setting up specific segmenting and flows within Clavio. For, , anything like specific around messaging and onboarding you wanna do? , most apps, , like ours is gonna, , manage the notification part around the order coming up and the order processing stuff.

, the way it's syncing in is you're gonna still get, take advantage of like the tracking emails and everything else is gonna work the way it would normally work because of your fulfillment process. from a backup, that's the biggest thing is like product planning and making sure you have inventory available.

For the other part of scale, which is like, how do I figure out how to grow this? , from the initial question around the initial, what you should be doing related to data collection, you wanna start marrying this information you're getting around churn and acquisition stuff. So I have a quick little anecdote related to this.

So one of our customers is, , iHeart dogs and they sell pet food and they do a portion of all their sales go to feeding shelter pets. So it's a great mission. It's a great. They were running subscriptions for about two years, kind of on [00:10:00] autopilot while they were focusing on other parts of the business, which is natural E-commerce we're constantly bouncing to whatever buyer we need to put out, right?

Matthew Holman: So they ran that, but they were collecting data. So one of the things that they were uncovering with data related to cancellations is that they had customers were canceling cuz they had too much product, [00:11:00] which, , as you can imagine, is actually the most common reason people cancel subscriptions, like across the board.

. People end up with too much, they canceled. But what's important to get at is like why? Why do people have too much product? And as they dig deeper. They found out the reason people had too much product is because dogs come in very different sizes. They weren't sure about how much product to order, So scale at this point isn't about. A better discount or better copy necessarily. It's not about like giving gifts, which is a common subscription tactic to try to get people to stick around longer. They love the product, they just had too much. So scale at this point is taking that churn reason. People have too much product because they don't know what to buy, and they went back and they redesigned their product page.

So now their product page, if you go to it, iHeart dogs.com, is you select the estimated size of your dock, small, medium, large, and based on what you pick. Options to an amount on a preset frequency. And so now that way people are told how much they should buy and on what frequency. And I can [00:12:00] tell you what happened was is their conversions like went up 40% on the initial page.

So they started converting higher and retention increased as well. And so this is something I calls like the subscription flywheel. You start to underst. Why people are canceling. And if you can go back to the beginning of the process and make that simpler or easier to understand, maybe you need to change the frequency or change how people understand how your product works.

, that's how you unlock scale and start to really, really

Claus Lauter: grow. That's an awesome example of how to do it right. And I think that's what a lot of merchants should do. , really get a better feeling about , their client or in that case, about whoever to talk, whoever gets it, the product at the end of the day.

But, it's an awesome, , Idea of really, , get a bigger picture of what's happening on the other side, not as said, not only throwing in discounts or anything , to keep people longer on board. Now, from your experience, what is a negative, or what is a churn rate that basically backfires on you?

What kind of percentage should you avoid on churn rate? Because there is no way that you completely can avoid turns.

Matthew Holman: It depends [00:13:00] on the month. So like month one to month two is the most common, biggest drop off point. If you're at 10 or 15%, , that's decent. , if you're at 25, 30%, , there's some work to be done still.

, and if you're at 50% shrm, that's really, really bad. , so if you think about, if you're doing like 10% churn, you're gonna turn over everybody. basically every 10. , that's pretty decent. The problem with the comparison is you don't wanna get too far into the comparison of like, oh, I'm at 7% and I need to be at six, kind of thing.

, but I would always say , , if you're in the 10 to 20% range from month one to month two, month two to month three, You just maybe need to improve some of the offer related to like what people are expecting and getting. It's like maybe the unboxing experience needs to be a little bit better.

If you're higher than that, then you have an acquisition problem. It's not a churn problem, it's a, people are getting something they don't expect or they're not getting something they expect. And so you have a problem with the type of customer you're bringing in. that's a really common, , another quick story of that is like a, , gentleman's box.

A friend of mine was running that. They were doing a [00:14:00] monthly box of like, just curated goods, and they were finding out that they were okay on churn, but they're finding out the top reasons for churn, where people would get a little bit of product fatigue. They were getting so many products every month, they couldn't use 'em all.

And then, , the expense was one thing. what they did was they shifted gears. Instead of doing a monthly box, they started doing a quarterly box and they, started kind of charging for three boxes in one. What's interesting is they raised their prices, but their conversions actually went up because they started going at, they were finding a customer that could afford to buy three boxes all at once, and so it changed kind of like their business.

So again, if you have really high churn numbers, it's often an acquisition issue. It's not a subscription retention issue, if that makes sense.

Claus Lauter: No, sounds good. Your app qpi, , solves that problem of how to deal with all of that. Give me a bit of an overview of about the app itself.

Matthew Holman: Yeah, absolutely. I mean, qpi, we, we price flexibility above any everything else.

We have data to support this, that. The best customers are gonna stick around the longest, and that your best customers have slightly different needs than others. Whether they're going on vacation or they [00:15:00] want to change what they're getting, they wanna pause, they need a different frequency, , whether they wanna add products or takeout products.

So we think that QPI is built to be as flexible as possible for the end user. While making sure that your backend operations are not thrown into, chaos, right? It works really, really seamlessly with how you would normally fulfill orders, and that way you can drive better retention, better customer experiences for your end users, , and keeping them around longer.

Okay.

Claus Lauter: Provided is a Shopify app. Give me a bit of an idea about the pricing s.

Matthew Holman: We're a little bit different. , we're releasing on Shopify right now actually. We started on WooCommerce first. , but, , most subscription apps charge a percentage of sale.

we're not fans of that model, so we charge kind of more like a typical usage model. So there's a SAS fee depending on your size, whether that's like 50 bucks a month, 150 bucks a month kind of thing. And then we charge just a flat fee for the number of subscriptions that are on our platform at a given time.

Okay.

Claus Lauter: Are there any kind of homework that's, , the immersion needs to do before they, , start working with you?

Matthew Holman: It comes down to there's a lot of different apps, so you should definitely do some due diligence [00:16:00] related to what fits best for , your business. We do really, really well with, subscriptions that need to change.

So if you have a really static flat box that goes out every month and there's nothing too fancy about it, we might actually be overkill for you. You really wanna evaluate software based on what your core business needs are. So you can do pretty apt comparison. So that's what I would say is homework, and that's the technologist in me saying you should make sure you evaluate software the right way,

Claus Lauter: Okay. , how does the onboarding

Matthew Holman: process. , it's pretty quick. It's a couple clicks to set up and install, , and then turn on what products you wanna make available. , there's some customizations you can do related to emails and processing. so it's something you can plug in and just poke around with.

, but I would always suggest depending on, like, again, if you wanna make sure it does X, y, Z or wanna make sure it works the way you expect, you can always do a demo or a call with us. Okay, sounds

Claus Lauter: great. Where can people find out more about you guys?

Matthew Holman: Yeah, I definitely, you could go to qpi.com, , or qpi.cloud.

, we're migrating websites right now as well. , I do a lot of subscription, just chat consulting and content too. So if you wanna connect with me on LinkedIn, Matthew [00:17:00] Holman, qpi, , would love to talk more about subscriptions. Okay,

Claus Lauter: great. Thanks Matt for this overview about subscription programs.

I, specifically like the, , examples that you gave on how people really solve a problem and revisit if there is a problem. So great content there. Thanks so much for your time. Okay, thank you Class.