5 Concepts Every Subscription Business Owner Needs to Know

Starting a subscription business requires understanding several important concepts in business. These ideas are tightly interconnected, so you’ll reference them daily in speech and thought when working through the development and marketing of your product. Being able to define them is the first step in making sure you’re truly understanding your process.

The Customer

The idea of what a customer “is” has become so ubiquitous that few business owners think through what this really means for them specifically. Success requires a customer base for any business; regardless of how compelling your marketing is or how well your product actually addresses a need, without actual customers to make purchases, your business fails.

So it’s important to acknowledge that everyone is probably not your customer. Thinking in too-broad strokes will leave you losing money and chasing ineffective “leads” (aka potential new subscribers).

But how do you determine who your customer is? First, pull out a sheet of paper or copy and paste these questions into a document of your own, then answer them as best you can before reading on.

  1. What is your product?
  2. Who would buy your product?
  3. Who has already bought your product? (And does this answer conflict with the one above?)
  4. How do you find your customers?
  5. Who follows or supports your product?
  6. Where are your members located?
  7. How old are your members?
  8. What is the gender breakdown in your member base?
  9. What do customers look like for other similar products or services?

Now you should have a mostly accurate picture of your customer base, including demographics and analysis based on your product and type of people who buy your product. Inevitably, specific trends become evident, and a “target market” will begin to emerge – in other words, the most typical example of your ideal customer. These are the people who are most likely to purchase your product.

Let’s see an example.

Jonathan has just launched a bait and tackle subscription service, after hearing friends who work as coastal fishermen complain about wanting to find more lures. After launching his subscription, Jonathan polls his users, analyzes shipping information, and looks at social media data and web analytics to learn more about his customers. Despite marketing evenly in all areas, his first few months of operation included 70% of subscribers who fished in a more affluent area away from the coast and 30% who fished in a more-visited fishing area closer to the coast.

What did Jonathan learn? Despite perceiving his customer base as coastal fishermen, those located further from the coast in more affluent areas were more likely to purchase his product. Perhaps this is due to higher amounts of disposable income.

The Takeaway

Now Jonathan knows where to spend his marketing dollars. Furthermore, he can now tailor questionnaires – or even products – to his specific customer group, increasing customer satisfaction and retention in the process.

While this is a rudimentary example, it demonstrates two things: 1) your first assumptions may not always be correct and 2) it’s vital to accurately understand your customers. By doing so, you set yourself up to be more effective at advertising, which ultimately derives more value from your members for longer periods of time.

Value Proposition

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In every good product, there is a clearly defined reason for purchasing it – the value the customer derives from the product. In business terms, that’s your value proposition: the utility and promise of value in your product. This can be either highly specific or a generalized appeal to a set of principles or ideas.

Consider these examples and what each might mean to a customer.

  • Guaranteed $ value
  • Discover something new
  • Try before you buy
  • Set it and forget it
  • Learn new ideas
  • Help change the world

These are all different examples of value propositions – the reasons underlining why someone would actually purchase your product. You can use one or more of them to add context to your marketing campaigns.

Here’s the same list, defined with a clearer conceptual value proposition alongside each idea.

  • Guaranteed $ value | Appeal to profitability/saving money
  • Discover something new | Appeal to surprise and discovery
  • Try before you buy | Appeal to testing products, which prevents wasteful spending or poor purchasing decisions
  • Set it and forget it | Appeal to ease and convenience
  • Learn new ideas | Appeal to education and personal advancement
  • Help change the world | Appeal to social/political causes and missions

Like defining your customer, understanding your value proposition to customers accurately is critical to successfully marketing your product and meeting expectations. Make sure your product aligns cohesively with a specific value proposition.

Which proposition do you think would be most appropriate for Jonathan, from our example above?

Your Niche & Positioning

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A niche can be best understood in the context of a specific type of product that fulfills a specific set of needs. Notice the use of the word “specific” in the definition. Niches are small, easily definable, and represent a particular set of interests or needs. 

In most cases, the more specific your product niche, the better. You’re more likely to attract the type of customer who will buy the product, which makes you better able to develop and defend your brand. Moreover, you can look to influencers and communities for inspiration and direction for your niche.

Let’s consider another example.

Everybody eats, so making a food subscription service sounds like a great idea to Jane. However, she wants to create something special and recognizable – she wants to define her niche, since there are already a plethora of food subscriptions.

Because Jane loves to cook, she decides to include organic ingredients and recipes in her box. As a result, her niche is now customers who enjoy cooking at home and who prefer organic food and produce. This is more specific than “food” in general and allows Jane to better understand her customers and their needs.

By understanding her niche, Jane also enables herself to understand how to effectively position her brand. Positioning means exactly what it sounds like: where your product is in relation to other brands or services in your space.

In Jane’s case, she needs to position her product as a source of delicious food; exciting, fun recipes; and sustainably-produced food. For each of these angles, Jane’s business needs to appear both authentic and passion-driven for customers to engage. That allows Jane to bring creative elements and specific communication strategies into her marketing efforts.

The Life Cycle of Your Business

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One of the special elements of a subscription business is the fact that they operate on repeating schedules. Rather than in a traditional retail setting – where customers come and go at different times, with different frequencies, and different spending habits – subscription businesses can offer customers a few sets of products, with billing cycles occurring in tandem with each other. Furthermore, because subscription businesses operate via the medium of a monthly box – i.e., a physical product – you’ll also need to develop creative assets, order products, pack boxes, and ship.

Subscription businesses have a clearly defined life cycle, then, though that may flex from business to business or month to month. Here’s a rough outline of what that life cycle might look like.

Day 1: Month begins, subscriptions open to customers

  • Begin product procurement (or continue from last month)
  • Update creative assets (monthly themes, product pages, etc.)
  • Update customer service tools and prompts

Day 10: You’re a third of the way through your month

  • Product begins to arrive
  • Compile content for packing list (or other applicable box inserts)

Day 15: Packing and fulfillment begins

Day 20: You’re two-thirds of the way through your month

  • Create shipping labels and tracking emails
  • Mail monthly boxes to customers
  • Begin procurement for the next month

Day 25: Final week of your month

  • Boxes arrive or begin to arrive
  • Rebilling occurs shortly after

Day 30: Month’s end

  • Send feedback reports to customers if desired
  • Prepare for next month

Understanding your business’s life cycle allows you to better plan and coordinate your monthly tasks, as well as prepare your team for fluctuations in duties, like a rise in customer requests during shipping and rebilling weeks. Following the same format above, build out a schedule for your business and reflect on how your own life cycle operates. Because you know more about when specific things are happening, be as detailed as possible. You can print this out and use it as a guide throughout the month, helping you keep on task and effectively prioritizing duties.

Subscription Business KPIs

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When reviewing and reflecting on your business, it’s not enough to use anecdotal evidence and your “gut” to provide accurate analysis. To do so is to base your review on assumptions and perceived competencies, which may not always be accurate. It’s here that we find the need to have clear Key Performance Indicators, or KPIs.

KPIs are sets of specific metrics we define to provide accuracy to business and cash planning. There are dozens of KPIs to consider, and they can vary from department to department (for example, customer support KPIs are important, but not tied to financial planning and analysis).

Consider the following KPIs as you evaluate your business practices.

Financially-Driven KPIs

Churn or Attrition: Rate at which you lose customers each month

Customer Acquisition Cost (CoCA): financial cost to acquire new customers; also known as CAC

Average Revenue Per User (ARPU): Revenue divided by number of users

Monthly Recurring Revenue (MRR): Amount of money your business receives based on recurring payments each month

Customer Lifetime Value (LTV): The average value of a customer over the course of their lifetime (from signup to canceling)

Customer Service-Driven KPIs

Response Time: Average number of hours it takes for customers to receive a reply

Ticket/Interaction Trends: The rise, fall, and trends of customers reaching out to your support team

Ticket/Interaction Completion Time: Average time it takes your customer support team to reply to a customer

Satisfaction Rating: Average percentage of satisfaction reported by customers based on agent/product satisfaction

Net Promoter Score (NPS): How likely your customers are to recommend your product to others

By no means are these all the KPIs you can dig up. There are literally dozens – even hundreds – more you can identify for all the different aspects of your business. What’s important is understanding that as a business owner, it’s more accurate to look at specific, definable data metrics for an indication of success, rather than a feeling.

These can be used to evaluate your customer base, marketing strategies, procurement quality, and employee performance. They provide hard, fast, and data-driven analysis – quantifying what often seem like qualitative aspects of your business.

Return to These Concepts Often

Throughout the lifetime of your business, return to these concepts as often as possible, repeating the exercises with each new group of customers or major change in your business. You’ll base your rebranding, marketing, and retention strategies on many of these ideas, and while some of these concepts appear basic on their face, their ongoing use makes them important at every stage of your business.

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