#170: Unlocking the Secrets of Successful Subscription Box Businesses

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Claus Lauter: Hello and welcome to another episode of the e-Commerce Coffee Break. Today we wanna revisit a topic that we had in the past. We wanna talk about subscription and the reasons why that is a good way for a Shopify merchants to increase the customer lifetime value. on the website of my guest today, I found a sentence, which really makes sense saying customers don't want a subscription.

They want the product when they need it. And that's basically the core what we are talking about today. I have Ben Fisher with me. He's the co-founder and technical c e o of Rodeo. hey.rodeo.com. Ben started his first business selling strawberries in fifth grade and worked as a designer and programmer in a tech startup during the first.com boom.

So he's in the business for quite some time. He co-founder car took at checkout optimization platform for DTC e-commerce brands. It has processed more than 1 billion on behalf of merchants and health brands at an additional 250 million in revenue in the past five years. Currently, he runs Rodeo, a platform for eight figure B T C brands with subscription-based models that offer personalization features to maximize customer retention and lifetime value.

And that's what we are talking about today. Let's welcome back to the show. Hi Ben. How are you?

Ben Fisher: Hey, I'm doing well. Thanks for having me. , we come up with the abbreviated version of my background, which is I'm a tech nerd. I'm a designer and programmer, and I've been working in e-commerce, , for the last eight years.

, really focused on how to boost a o v and subscriptions and stuff. I'd say that's the condensed version.

Claus Lauter: That's the condensed version. , people are struggling or merchants are struggling with increasing at cost, , to make a profit from the first sale.

So everyone is looking into customer lifetime value, into getting customers coming back, buy more now. Subscription bot based models are the perfect business model for that. Give you a bit of a background, why does not so important and, , what's the best start to get into a subscription based.

Ben Fisher: For some context, subscriptions have been one of , the fastest growing segments of e-commerce over the last, seven years.

And the reason behind that is on average, the l like customer lifetime value substantially higher. How much depends on the brand, obviously, but I've seen, north of three to 10 times as much. Value on average we'll call it a one time customer. As more and more brands have been offering subscriptions, , it's become a bit of a catch 22, 75% of brands, , directing consumer brands offer some sort of subscription.

So now what you have is a lot. Brands trying to get a subscription commitment from more or less the same number of consumers. The challenge there becomes, people can only subscribe to so many products in parallel. And so there's, I'd say less and less, maybe it's more selective around which branch you'll keep a subscription for.

One of the things that. Really important for any brand to keep in mind is that subscriptions are like a really powerful model. Like on average, yes, like lifetime value, higher. But we've gone down this road where by pushing your subscription program, you're actually pushing people who don't wanna subscribe to your product you're having a fairly high churn number because there's just so much competition for the same dollars. If you think about it, it's like some people will oftentimes discount their subscription by 30% to make it attractive. The problem is that by making it so attractive, you're basically giving a 30% discount to pe to a lot of people who only buy once.

, so it might look like you are acquiring a bunch of subscribers. But if you look into your data, after six months you're gonna notice, wow, my churn is really high. There's this important, I'd say delicate balance or really nuances, like the best brands that I've seen, leveraging subscriptions.

, they're not blindly pursuing a subscription model. What they are recognizing is that subscription is a great tool, but there's a lot of consumers where they'll spend a lot more. If you offer them a consumption method that matches their lifestyle. So for some people it's buying in bulk. For other ones, it's offering in more, we'll call it a, flexible subscription, where you send a reminder to the, consumer saying, Hey, do you need more?

As opposed to automatically charging them. There's a bunch of different, mechanisms that, I've seen work with brands. It was important and it's not just blindly following a subscription. Strategy because , it's one piece of the puzzle,

does that make sense?

Claus Lauter: Makes perfectly sense. You need to know your customer very well to come up with a subscription model that works. When it comes to the interval, how often do they need something? What's your experience there? What's the best approach to understand? How often do you provide a product to them?

Ben Fisher: This actually goes back to the hardest part around subscriptions. If you have a shelf stable product, like any food and drink it's not a medication. It's not like you're taking a certain number of units per day you can basically predict, oh, I need every 30 days.

But a shelf stable product. Part of the challenge is that a person's consumption will vary by month given what's going on for them. So you're drinking coffee, how much coffee you drink will probably vary depending off of how many people are in your household, how sleepy you are.

The best brands I've looked at is, one thing they do is when they're first creating their, , subscription program, designing it, they'll look at their repeat, one-time customers and look at what's the interval around consumption patterns. For most products, do have some sort of idea of like, this probably should last someone 30 days, but is it 30 days if it's one person in a household about three days in a household?

So I've seen some brands be really smart around doing surveys, once someone's buying a product to help them gauge the amount of product that they need. The other piece of that though, Regularly checking in with your customers to understand, are they going through their product faster than they expect?

That's an opportunity to upsell them or potentially, from a customer supports perspective, or service perspective. You're basically saying, Hey, I'm paying attention I'm offering to tailor the interval so you don't end up with too much. Getting too much product is the number one reason that people cancel subscriptions.

It's not because they don't like your business or don't like your product, it's cuz they've received too much of it. being able to, have a system that helps you. Not overfeed or force feed your customers is really important around subscription retention. But also having alternative ways for people to consume that aren't just a black and white subscription that automatically renews every single month.

Cuz you're basically playing a game of chicken. Where are you going to accidentally force feeded someone this month? Because eventually you will, if they're a customer long enough. And most people, once they've been force. And feel like they're wasting their money, they're just gonna cancel call it the knee jerk reaction, feeling like you're wasting too much product.

And that's a bad brand experience. Okay. Makes

Claus Lauter: perfect sense. I think that the points that you're overfilling them, is a very valid point. Now obviously, you can use marketing, strategies to remind them to use your product. One way so that they just do not forget about your product. And then was that obviously increasing?

The usage or the consumption of the product? And, churn rate, the most important thing there with an interval. So how can you tailor it with, when it comes to flexibility from a system perspective that the customer has full control on when he wants to get the next delivery?

Ben Fisher: Part of that comes down to the platform you're using as well as like the different tools. There's, the typical way of doing a subscription is it automatically just renews and they charge your card. One thing that we developed at Rodeo, is actually from a product we built before Rodeo called OneClick Pony, where basically what we called it a on-demand subscription where you could, as a consumer, rather than be automatically charged every single month, there's a segment of customers who just wanna be reminded and then they can either snooze that reminder or purchase,

that was something that we incorporated into Rodeo, from day one. That was just based off of this insight that people like the convenience of not having to remember to go out and buy something, but for a lot of people it's like you want to at least verify that you need it before you're charged.

That's the convenience piece is. I don't have to remind myself. Like I actually used to have a calendar reminder for my subscriptions. I wouldn't actually subscribe. What I did is I had a calendar reminder that every x number of days my calendar would go off and say, Hey, do you need to buy more coffee from Amazon?

And so I created my own sort of solution at the time just to track my subscription, or not even my subscriptions, the products that I would buy on a frequent interval, because I didn't wanna get too much of it, that was my personal system. How do you productize that?

There's other platforms out there or services that that will do different parts of the, consumption strategy. There are other apps out there that will focus specifically on reminding customers when next number of days have gone by since they last purchased.

From a design perspective like that absolutely resonates with what I've seen work. , it's not just subscription. It's not just people having , to buy when they think of it or in reaction to your marketing. It's more nuanced. You have to have a strategy that. Helps serve different segments of your customer base, cuz not every customer's the same.

And what you wanna do is find a way to do it, make it that's convenient, while also addressing concerns around, being force fed. That make sense?

Claus Lauter: Absolutely. Yeah. Now you're working with eight figure brands, how are they structured when it comes to stock shipping out intervals?

What kind of team members do they have just to get this whole subscription model working , in the best perfect

Ben Fisher: I would say that the brands that I've seen, in general, what you're looking at from a composition is, you have someone who's effectively like director of growth.

, you have your CX team, you have marketing product, and then you have your warehouse. What has struck me. By, what I've seen brands do really well is that they've invested in the consumer experience, like they have a good CX team, and so , they care a lot about the consumer experience and they do a lot of stuff by hand and like they're testing different ways of, adjusting people's intervals and checking in to see how they're doing and then offering solutions.

If people aren't, , satisfied, I think they also are proactive around looking at cancellation reasons and then reactivating people based off of the reasons someone canceled, or was expressed, desire or intent to cancel. in terms of just like the distribution or the composition of a team, that's what I've seen work well.

The growth role is unusual, but in the brands where I've seen them have an actual growth marketer, but I've seen them be really thoughtful and smart around, what are the different ways to tailor. what are the ways to maximize each individual customer in the way that matches their consumption pattern?

They're not just doing blanket marketing campaigns, trying to get everyone to buy the same discount or buy a subscription. A lot of the, marketers that I've seen in a growth position at dtc, they're very thoughtful about recognizing that different consumers have different needs, , around consumption pattern.

Claus Lauter: Give me some examples , of industries or niche or verticals that are uncommon. Everyone thinks about consumables, about food, about supplements are basically the main things that everyone thinks about when it comes to subscriptions. But there might be other businesses that you would not necessary think of.

Ben Fisher: I've seen some ridiculous stuff, and some really interesting ones. But, so going back to , what's something that's not a consumable product? Board games is an interesting one. So there's a brand called Hunter Killer that, basically sends you like a mystery board game that you need to solve.

And then it's a subscription rule. They'll send you different games, over some sort of time interval and so that you're basically unlocking mysteries. I came across an apocalypse. Preparation, subscription box where every month they mail you things to prepare for an apocalypse. That was strange.

And another one that I came across was, for feeding chicken, , and taking care of your chickens, I grew up on a tree farm, so I actually had chickens growing up. And so when I saw that, it stuck out to me. I was like, wow, that's so niche. But it actually kinda useful. But living in New York City, all my friends, if I were to describe that to anyone, it'd be like, that's absolutely bananas.

Claus Lauter: I like this example. It shows you that you have to think out of the box, and if there's Indonesia, you can make money out of it. Now, tell me a little bit more about Rodeo, about the solution that you have developed. , where does it differ to other, , solutions on the market and who's the target market

Ben Fisher: With Rodeo, , the. Focus from day one was really around the nuance, around the subscription experience. , going back to the original product we had where what we would do is we would remind people , to buy again. Our thesis was, combining that strategy along with a traditional subscription strategy.

There's a lot of middle ground, , and a lot of we'll call like intermediate steps in between those two that you can do to capture, , More repeat customers. , that flexibility is unique to us. I joke that we're an antis subscription platform where we certainly offer subscription functionality, but ultimately the goal here is not to force feed subscriptions.

It's about, pairing your consumers with the most effective. Way for them to consume your product so that they can keep on buying. You mentioned at the beginning of the show was like the job to be done or the thing that consumers want is not a subscription per se, but they want the product when they need it.

And similarly for a brand, a brand loves subscription models because has, some of the dynamics of compound growth are really attractive. , but ultimately what a brand cares about is once you acquire a customer, You want to keep them coming back and buying more. It doesn't necessarily come down to a subscription.

Just subscriptions are a mechanism that have been really successful. But as with anything, you can't apply the exact same strategy to your entire consumer, base it shouldn't be binary where the person either needs to remember on their own to come back and buy in response to seeing your email marketing or they just randomly realize they need to buy it.

And then on the other side of the spectrum, it's people who opt into an automatically renewing subscription. Like there is that middle ground with some people wanna just be reminded, or they want some sort of flexibility so it's that nuance is really, and I think that recognition, that nuance is a big part.

It makes us different. The other piece is cuz we typically work with larger brands. That was something I had taken away from my experience. , when we were building cart hook was, our team's really experienced on the engineering and brand side. And so we have approached this from day one , as being a partner rather than just a vendor.

And I know a lot of people say that, but for us it's really true. Like my business partner has been the CTO of a number of d TOC brands for the last 10 years. We both have a lot of experience working with an insider brands. And so for us, a lot of what we enjoy doing is working with a brand around their strategy, around subscription and being able to afford to help them, personalize the implementation of certain features in a way that actually helps their business rather than getting into a numbers game where we have to acquire 10,000 brands in order for us to have a business.

So by focusing on, we'll call brands that already have product market. We're able to be, provide a whole lot more value, because we can work with fewer brands and provide more of a, consultative relationship. , it's a lot of fun too. , we're working with people who are really smart and talented marketers and operators of brands.

We're able to compliment them with our experience on the tech side, which a lot of brands, they're very good at marketing and like operations and supply chain, but they typically are fairly light on technology. And so just having a technical resource to talk through and gut check some of.

Questions of like, Hey, how might we accomplish this goal? It's like, if you tell us your goal, we can tell you exactly , how to leverage our platform to accomplish that or figure out, Hey, actually there's a better way for you to do that using another app. Or, a lot of different ways to accomplish a goal.

But, you gotta first make sure that the goal is, worthy to solve.

Claus Lauter: I can totally relate to that. I'm, in the industry for 20 plus years, and I've always seen myself, there's a lot of projects that I did in the past, the translator, the middleman, between the tech department and the marketing of sales department.

They speak two different languages and sometimes things just do not match. So you need to have someone in the middle who has. Capability to talk to both teams. I really like that approach. Now, if somebody is interested in implementing subscription and wants to work with you, what are the usual process steps to get started?

Ben Fisher: The simple thing is for us to jump on the call and to talk through their business. So first thing I'll do is understand what are your business goals? Where are you today and what are you trying to accomplish? And then understand to what extent are we the right partner for you?

To get in touch, they can go to our website, hey.rodeo. , That's h e y, , not hay, like for a horse or you can find me on Twitter and my username is skinny and bald. Cause I'm skinny, bald. I'm also on LinkedIn as well. Maybe you can have these links in the show notes.

But yeah, going to our website and reaching out, , you can request a demo or a consultation directly through our website, or you can reach out to me on Twitter or LinkedIn. What

Claus Lauter: kind of timeline does it need to get started?

Ben Fisher: So most brands that we work with, they're already itching to solve these problems.

We'll have an initial conversation and then you can do the initial launch as soon as like a few days later, , or a few weeks depending on where the business is and, how, aggressive and open they are to, say embracing the solution to their problems and their.

Claus Lauter: Give me a bit of an idea of the pricing. What can I put into the budget? Start working with you guys?

Ben Fisher: It starts at 5 99 a month and then, there's a transaction fee for, , subscription orders. It's performance based let's listen on our website.

Okay. I will

Claus Lauter: put the links anyway in the show notes, so it will be just one click away. One question I have artificial intelligence, machine learning is the topic of 2023. I'm a big fan of ai, don't get me wrong. I wanna just , get your insights of what do you think, how does that change the industry from the site, either from technology or for the

Ben Fisher: I feel like in the last two months in particular, it's blown up. You see it everywhere. Chat, g p t, everything. Even though I'm an early adopter generally in life, I'd say fairly skeptical. Cause people have talked about machine learning and AI for a long time.

And frankly, what they often meant, If health statements, there wasn't actually necessarily any sort of intelligence, but the stuff that we've been seeing with any applications of ai, especially around writing, has really opened my eyes. what's interesting about it is it's not a replacement for people, we've been thinking a lot more.

It's efficiency booster. In speaking to people like my friends who really have gone deep into. Jasper AI or chat g p t, like, they have very sophisticated ways that they use those tools. They don't just enter a prompt, , or like a generic prompt to get the results they need. They really are thoughtful and they have backstory and like there's entire courses now around just how to write a good prompt.

But I think what's important here, I'll just use an example for copywriting if you're a marketer using chat. G p T. Chat g p t is necessarily the best one for copywriting. Jasper ai, it's AI is tailored much more towards content. Whereas chat, G B T is really around just like knowledge.

, chat G B T might be great around creating like an avatar around your target customer persona versus if you're generating blog posts or if you're trying to edit ads. Using Jasper's AI is probably a better fit. So even knowing when to use what AI versus another is important, but then also having the experience to be able.

Identify good work, you can't just come in and expect the tool to solve your problem in every situation. It comes down to , a feedback loop or, someone who has experience or has good, has the experience to have good taste, can go in tweak the input.

And then based off of that, they can judge whether or not the output is good, if you're like a brand new marketer who's never done copywriting or isn't strong at copywriting, has no experience, the result you're gonna get your taste as to what good looks like, is gonna be a lot different than someone who's been a copywriter for the last, like 15 years.

Nuance is going to be increasingly important to what extent ai. Helps you and your business. It's almost like Excel where people used to have that in their resume or cv. It's like, , can you sell Excel in Microsoft products?

I do think that there's easily an argument that AI and knowing how to leverage AI tools will be one of those things that we'll start putting into our, cvs. Although now no one mentions whether or not they know Excel. Cuz you do get to that other point where at some point it's so ubiquitous everyone has to do that or they can't even get a job.

might have been a lot more, , than you were expecting to hear from me on that, but I've been talking to people about AI for the last, five days, extensively about this.

Claus Lauter: We're on the same page. So that's perfect. And I think when we, going back to e-commerce, when we are going to rodeo, AI will at some point, Just help making things better and easier also for the shopper.

A lot of AI will work in the background and maybe just recommend a subscription when it is the right shopper. So you come to the store because of the profile and whatever tracking they can find out this is a person who likes subscriptions. , then it will automatically be more in front of them than for other shoppers.

So I think there's a huge potential there. Cool. Thanks so much.

Ben Fisher: I was just gonna say like that specific example is something we've talked about where there is that place where you can start trying to apply AI and maybe you're trying. use it where it's only incrementally better than having a good design.

So for example, like AI can't predict on any given month exactly how much I need and how when I need it, maybe sometimes the better solution is to actually stupid simple. Where it's like ask the person every 14 days problems can be solved through ai.

Some AI overcomplicates it, where in fact the better solution or the one that's gonna be accurate 95% of the time is a design solution where it's really. Understanding what's a convenient design as opposed to over-engineering it. Does that make sense? , I wanted to add that in there because that example you gave is one we've been thinking about a lot and like where is that line between AI is over complicating something that even if it were perfect, wouldn't be able to solve the problem entirely.

Claus Lauter: I agree. Makes total sense. At the end of the day, it's user experience. At the end of the day, it's your audience. If you have a older audience, , they might be overwhelmed. A younger audience might go easier with that. Something to test. I think the next couple of months will show what will take us.

Ben, thanks so much. Really good chat. I really enjoyed it. I will set, put the links in the show notes. Then people can reach you very, very quickly and I would recommend they should just go to your website and get in touch with you to find out more about rodeo.

Ben Fisher: Thanks so much. I really appreciate it.

Thanks for having me, Lynn.