I don’t want to call anyone out here, but man, Cratejoy sellers take a lot of awesome vacations. I first noticed this while flipping through the Cratejoy Instagram
On reflection, it’s obvious why Cratejoy sellers are able to take so many awesome vacations:
Subscription businesses are the perfect lifestyle business.
1. Subscriptions are bootstrappable
In a traditional eCommerce business your customers expect to receive their product immediately. That means you have to keep all your product on-hand (or use drop-shippers). That means expense. Buying and storing product up-front. This means you’ll need cash on hand before you start your business. Up-front cash requirements make bootstrapping much harder.
With subscriptions, your customers are expecting to wait weeks or even a month to receive their first shipment. That means that you have time to order your products with the money they paid you, rather than dipping into savings or credit cards. This allows you to start a business with little cash in the beginning. Then you work to grow revenue through customer acquisition. You use that revenue to cover the now existing product and operations costs.
These sorts of positive cash flow businesses are the holy grail of lifestyle businesses: The Power of Positive Cash Flow
2. Subscriptions are profit machines
When building a normal eCommerce business, you generally have one interaction with a customer. Pretend that customer paid $30 and your product cost $20 to build and get to the customer’s door. The most you can profitably have spent to get that customer is $10. If it cost you $8 in facebook ads and SEO work to get the customer you only profit $2.
With a subscription, the math is different. Sure you might only make $2 profit on the first month…but the next month you profit $10. Then again on the third month. So run the exact same scenario as above, except with a subscription business. If you have an average customer duration of 10 months, that means
rather than profiting $2, you profit an astounding $92!
Check out this calculator which shows you exactly how your reinvestment amount affects growth: Subscription Box Profit Margin Calculator.
3. Subscriptions are pay as you grow
Because subscriptions are typically positive cash flow businesses, they can be grown on demand. That means that one month you can reinvest ALL your profits and grow the business as fast as possible. Then another month you can hit the brakes on marketing and catch your breath – maybe optimize your logistics for a while.
The positive cash flow nature of a subscription gives you flexibility. Flexibility to decide whether to take more money home, or re-invest in growth.
4. Subscriptions are pause-able
Unlike most types of businesses, you can pause a subscription box and stop accepting new customers.
Turning off your website to new orders in a typical business is death. You need that drip of new customers to survive. In a well run subscription, you may even increase customers’ desire for your product by pausing it. And best of all, the money keeps flowing from existing subscribers.
Cratejoy just released a cool new feature to make pausing your subscription even easier: New Cratejoy Feature – “Sold Out” Close Shop for sellers
5. Subscriptions are Defensible
Great subscription businesses have low churn because their customers are happy the experience.
You know what happy customers are not doing?
Trying to find an alternative product.
Your competitors can waste tons of money on advertising and direct outreach. Sure they might get a few people to switch, but they are mostly just going to spend a lot of their money.
Contrast this with a regular eCommerce business. The customer has to remember your name and re-order when they need new products. They are likely going to google (or worse, Amazon) the type of product they want to purchase. Even if they do feel some allegiance towards your brand, this is still an opportunity for competitors to steal them. Perhaps with lower prices, or higher reviews, or even just flashier pictures.
Subscriptions deny your competitors openings to grab your customers.
They do this by removing the customer from the market entirely. Well built subscription businesses are castles with very, very wide moats.
6. Subscriptions are Predictable
Pretend you’re running a regular eCommerce storefront. You made $3,000 in sales this month. How much are you going to make in 3 months?
There’s no way of knowing! With a subscription business, it’s much easier. You know how many subscribers you have today. You know how many subscribers you added this month. You know how many subscribers you lost this month. You just do some simple multiplication and you can know with reasonable accuracy what to expect in 3 months. The math is fundamentally a lot simpler when all your customers will re-bill automatically the following month.
7. Subscriptions are Automatable
Fulfilling subscriptions involves sending out many hundreds or thousands of the same package each month. You’ll be repeating the same packing procedure in bulk at your fulfillment house. This means that it’s easy to build out packing lists ahead of time (perhaps even months ahead of time). Then your fulfillment house uses those packing lists to “make it so.”
Perhaps while you’re on the beach.
8. Subscriptions are Self-Optimizing
In a typical business, your cost of customer acquisition goes up over time. This is because the “early adopter” customers have already purchased. Now your advertising has to become effective against more reluctant buyers.
Subscriptions are different. Your biggest customer acquisition asset is your existing subscriber base. Every month your subscribers receive a communication from you. Every month you have another opportunity to convince your subscribers to tell their friends.
The more subscribers you have the more referrals you will receive.
That means that over time, your subscription drives down the cost of customer acquisition. And the more referrals you receive, the more subscribers you have.
In this way, your subscription is like a snowball growing as it rolls down hill.
9. Subscriptions are a Launchpad
One of the best parts about a subscription business is how flexible they are to allow introduction of new product lines (or new businesses!).
Curious about the performance of a new product? Include it for free in a subset of your subscriptions one month and request subscriber’s feedback.
Looking to expand your business line? Offer your existing a subscribers a free sample, with a discount for their first month of the new subscription.
The possibilities for expansion are endless. This is because you have an on-going relationship with your subscribers.
Don’t get me wrong
It’s totally possible to build huge, multimillion (or billion) dollar subscription businesses. We’ve seen this with NatureBox’s latest Series C financing raise: NatureBox Raises $30 Million in ‘Series C’ Round Funding, Securing Nearly $60 Million to Date Or Ipsy’s announcement of hitting 1 million paying subscribers: YouTube star Michelle Phan’s Ipsy startup hits 1M paid members
But for those who are looking to get a little financial independence subscription businesses are second to none.
Do you have any thoughts on subscription businesses as lifestyles? Tell me what you think in the comments below!