Jack Rubin, Co-CEO at Purdy & Figg, knows how important strategy is to reducing churn. The top priority for every subscription-based company is keeping its customers. The lower your churn rate is, the higher your long-term gains will be. So, how do you convince subscribers to stick around? Jack turned his company’s churn rates upside down by changing his strategy around frequency and price. On this episode of Subscription Radio, Ben and Jack chat about his tips for reducing churn rate, which companies should (and shouldn’t) move to a subscription model, and what incentivizes customers to stick around.
- Hold on to your customers
- Create a subscription that makes sense
- Offer customers the right experience
- Don’t annoy your customers
- Analyze CAC to LTV
- Give customers community
- Pay attention to social media
- Check out Purdy & Figg
- Connect with Jack Rubin on LinkedIn or Twitter
- Check out Rodeo
- Connect with Ben Fisher on LinkedIn or Twitter
03:54 – Hold on to your customers
The biggest benefits to a subscription model is a longer customer LTV. So, keeping your customers should be your number one priority.
“Most businesses approach subscription in the way we did when we started, which is you get your PDP, you stick a subscription widget on it, and you give 20 or 25% off of subscribing. A percentage of customers, call it 20% of customers, will choose subscription. And that's how most businesses look at subscription. They try and get people on as high a frequency as possible with as much yearly LTV as possible. And that's exactly what we started with. We started with a monthly subscription, and we changed the widget on our site and we got some early subscribers. But what that doesn't take into account of is firstly, you're not actually building a customer acquisition funnel around trying to convince someone to subscribe. And that's an important part. What are the benefits of subscription? It's not 'Here's money off.' It's why is subscription actually better for the product you're buying? And building that into the customer journey. It doesn't work as effectively on that regard, but also the way you are chasing LTV, it's a pay as you go mindset, and you're applying that pay as you go mindset to subscription. It's how can I get as much money as fast as possible from customers? But the thing about subscription is the value is in the long term, not the short term. You'd much rather have high retention and much lower monthly revenue per customer than a bunch of revenue in your first three months and then high churn. You can model this out. I've modeled it out everywhere you can imagine, and it always comes out the same. Keeping your subscribers will make you way more money. That should be your number one aim is keeping subscribers and everything else can work itself out.”
11:51 – Create a subscription that makes sense
A subscription model isn’t right for every brand. You should only pursue a subscription model if it makes sense for the types of products you sell.
“One of the things about subscription is that it's not right for every brand. And a lot of brands say, 'Oh, I tried subscription. It doesn't work. I can't acquire customers. It doesn't work.' And that's probably correct. It doesn't work for that brand because they haven't got the right building blocks for subscription. If you are not a consumable product that is used on a reasonably regular cadence where subscription doesn't actually add value to the customer experience in a meaningful way, it probably won't be something customers opt for, or they'll only opt for it if you incentivize them heavily or trick them into doing it. And that's the reality of customers buying things they need. They will not buy a subscription they don't need. For us, we're a cleaning product that you use every single month, and it makes a lot of sense because who wants to bother going to the supermarket to get a cleaner?”
13:39 – Offer customers the right experience
How do you entice customers to sign up for a subscription? It all depends on the funnel you build and how you market your product.
“It's down to two things. It's down to the funnel you're building and the way you are pushing customers into subscription, and it's also down to how you're marketing your product and how effective that marketing is. We'll start with the funnel concept. If you push people to a PDP with choice, then people will often choose pay as you go. If you build a funnel with a single option page that pushes into a subscription link with one option. You don't have to choose the frequency, you don't have to choose anything like that, and it's a smooth experience for the customer to understand what they're buying and it's easy, then they will often go along with it if they want the product. In the customer's head, it is, 'This is how this product is bought.' it's not, 'I want to choose subscription or not.' It's, 'This product is bought as a subscription.' And if you look at Harry's or you look at those successful subscription brands, it was never an option. It was never, 'Oh, I want Harry's, but I'm going to buy the head and one razor.' It was, 'I'm going through this funnel. I pick the frequency, I pick how often I shave, and it delivers to me every month.' And that is the thing that most people don't grasp and don't execute on. And then the second thing is how are you actually guaranteeing customers an experience they're going to love? And social proof is a massive part of that. And building in that confidence from customers that you're a reputable company, that your product's good, everyone loves it. And for instance, we've got a money back guarantee for customers on subscription, and they have to believe that's going to be action. When they look at your Trustpilot, or they look at your reviews, it's clear that the company or the brand is interacting with its customers properly. It's replying to Trustpilot reviews. It's available. That if they don't like the product, they're pretty sure the company will refund the order and that will all go through smoothly. All those things are important.”
20:04 – Don’t annoy your customers
One of the benefits of subscriptions for customers is that they don’t have to think about reordering a product, so don’t over-communicate with them.
“I get that, but I'm super careful about communication. One of the great things about subscription is you don't have a company emailing you all the time, hampering you to buy more product and being annoying. I did it as a company as well. You're sending three emails a week. You're pushing new products. You've got offers, sales, whatever it is. And the great thing about subscription is it's not needed. They can just go off into the sunset and get their refill every three months and never have to think about it again. And I don't like trying to get them on to the thing or click around and move their thing and then it gets messed up. Especially with our audience who are older women, I'm super mindful of that. I'm not drawing too much attention to all these different elements. My philosophy is very much, 'Let customers work it out for themselves.' But as I said, there is also an education issue.”
27:25 – Analyze CAC to LTV
When you’re calculating your CAC to LTV ratio, make sure to include all the costs related to marketing in your total.
“NCPA is just CPA, but for new customers. A lot of people just say CPA for new customers, but because CPA actually means cost per action on our dashboard, NCPA is new cost per action. It's just my terminology. I'd love to dive into CAC to LTV because a lot of people look at LTV and CAC and, firstly, they look at it on a gross basis. They'll go, 'Your LTV is a hundred pounds,' and they won't properly look at contribution margin of that LTV. They're like, 'Oh, we've got a three to one CAC to LTV.' And it's, 'No, you don't. You've got a three to one revenue to CAC.' Which is not the same as CAC to LTV. The first thing is strip out all of your costs of delivering the goods, costs of product, and get your proper contribution margin. Compare that to your CAC. Then it's, ' Okay, how do you define what the CAC is?' And most people just take their ad spend and they say, 'We spent 10,000 pounds on ads. We got a thousand customers. It's 10 pounds per customer. Our CAC is 10 pounds and our LTV is 50. Your gross margin is 50%, 25 pounds LTV. You're looking at 2.5 to one CAC to LTV.' That's what the second phase of doing that calculation would be. But what most brands have to do is they need to include all costs related to marketing in their CAC. If you've got creative costs, if you've got freelancers doing consultancy on design work or scripting videos, or you've got UGC creators or whatever it might be, or you've got agencies running media buying, and you've got ad commission fees and all that stuff, that needs to be built into your CAC. It's not just 10,000 pounds of ad spend divided by a thousand customers. It's probably more like 50,000 pounds of ad spend plus 15,000 pounds of other costs. That makes a big difference. And then the second part to this, which I think is even more important is building in all your overheads. What's your cost of keeping that customer for the time that you are measuring their lifetime value? For that, you want to divide the number of customers you are acquiring by the total overheads of your business over the time those customers delivering the LTV. And what that'll normally do is add an extra big chunk of cost into your CAC or your cost to LTV. And that will tell you if you're truly making money from customer acquisition. That ratio, getting all your costs for delivering LTV divided by the LTV itself will give you whether those customers are truly profitable for you. And that's where a lot of subscription brands are not profitable and why they're not profitable, because they're not looking at that.”
32:27 – Give customers community
How do you make a subscription so cheap, easy, and beneficial that customers would have to be insane to unsubscribe? Offer them community and other things they can’t get elsewhere.
“What we say internally is we want to make it so you'd have to be stupid to unsubscribe, is the mindset. How do we make this cheap, easy, and with so many benefits that you'd have to be insane to press that unsubscribe button? That's the mindset. We're nowhere near there yet. And at the moment we're mainly a replenishment thing, but we're building things: community things, access to Facebook groups, access to our founders Purdy and Charlotte who have a lot of product knowledge and a lot of tips and tricks around looking after your home. Free gifts with purchase. Early access to product releases. All these things are things we are looking to build into the subscription experience.”
34:23 – Pay attention to social media
Test out different social media platforms to find the one that works best for your product and marketing strategy.
“We scaled TikTok up to 30 grand a month in spend, bearing in mind Facebook's over six figures in spend. We got TikTok to 30% of our spend. But the CPAs looked on platform and our NCPA blended held relatively steady. But then we turned TikTok off one day and our NCPA dropped massively when we turned it off. That toll off TikTok was more expensive than Facebook. Even if looking at the whole funnel in terms of what it's adding to top of the funnel, it's increasing the cost per customer. Now TikTok's been scaled right back down and we're totally focused on Facebook still. My personal view is until we're hitting the 10 million mark, I'm gonna assess it every month, every year. But you can scale to 10 billion on Facebook. Being super focused and good at winning on that platform feels like the right move right now.”