DTC brands might see subscriptions as the go-to framework, but it’s not so simple. For supplements or other easily-timed products, they work great. But for other non-linear products, subscriptions are hard to get right. So, what’s the solution? Ben Kochavy of ColdBru Digital talked with us about the benefits of bundles, why cash flow needs to be taken as seriously as LTV and CPA, and how brands need to bring a VIP experience to reduce churn.

Show Topics

  • Subscriptions are a tradeoff
  • Bundles are sometimes better than subscriptions
  • Cash flow is as important as LTV
  • Churn is a big problem for subscriptions
  • DTC brands need to bring a VIP experience

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Show Notes

02:58 - Solve for growth

Ben’s company ColdBru Digital acts as a DTC client’s marketing team to get their business off the ground.

“That's kind of the whole sales pitch is we solve growth. So whatever's needed, we make it happen. What that means in terms of context is that we're not a member or a resource to the marketing team. We are the marketing team. It changes the dynamics. We're like talking with the founders about offer and profit and margin and how to optimize for margin across the whole business. Versus looking at, oh, we're the paid media agency. This is the CPA we're going to hit and generating that as much as we can. There's definitely a time and place for that. But when they're earlier stage, that more business-level advice outside of just the marketing CPA, KPIs, et cetera is really valuable.”

09:13 - Subscriptions as an idea resource

Ben subscribes to lots of DTC brands for a short time and cancels so that he can get the experience and use that knowledge with his own clients who have replenishable products.

“I get inspired by experiences. So I like to see different ones from different places. I do that a lot in terms of subscriptions I've worked with. Probably the biggest names and subscriptions that I've worked with were Bright Side, which is a DTC health subscription. I guess they're sending you prescription meds in the mail. Every month, basically we're punching an actual prescription, but it's mostly the care model that's the big deal over there. Same thing with Steady. That is actually a subscription and those devices need to be replaced every 14 days. Those are continuous glucose monitors. So they're like a BandAid. You put them on, 14 days later, you take it off and put a new one on. So you do need to replenish that on a two-week cycle to keep it tracking.”

11:09 - Subscriptions are a tradeoff

Subscriptions increase lifetime value, but they also increase the CPA.

“In many cases, people do subscription for convenience. But then what I also see, people don't talk a lot about this a lot, is that it's harder to convince someone to sign up for a subscription. In many cases, people have this built-in wariness of one more bill every month. And so subscriptions have higher LTV. There's plenty of studies that have pulled that out and I don't really doubt that. But on the other side of it, I think they also have higher acquisition costs in many cases. If you're doing apples to apples and something doesn't require a subscription, but you're trying to turn it into a subscription, what I've seen and I've heard from colleagues’ similar stories is that CPAs tend to go up for the same product on subscription versus consumption. Just because people, given the price not moving too much on a subscription. It's like 10, 15% discount, not 50% off. People will be hesitant to sign up for something with a subscription, but they'll try it once.”

12:49 - Bundles might be better than subscriptions in some cases

For shelf-stable products, selling a bundle instead of using a monthly subscription model gives you better LTV and cash flow.

“If you look at it in parts, you see different things. But if you look at the full stack, there's no clear answer either way. But a conditional decision that I have to deal with somewhat often: why not do a bundle of six versus a subscription for lifetime? A subscription, a monthly, but like in perpetuity. And that question becomes churn and all these other things. But then cash flow is actually a lot easier if you're doing upfront bundling. You get all the cash upfront. You do six months will be delivered in one. Your shipping is cheaper usually, and you get the cash up front, which cash is actually a big thing people aren't solving for. They're solving for LTV, but not immediate cash in many cases.”

15:35 - Subscription timing is hard to get right

Ben prefers bulk ordering things he likes instead of subscriptions because he can store them and not have to worry about running out before the next one arrives or ending up with more than he can use.

“Personally, in my life, day-to-day, I've done that, the pack of six for the things I like. Because I don't want to worry about it. I also know that I get really irritated when I get three of the same thing and I’m only consuming one a month. So I have two extra sitting there without the conscious decision to. It's supposed to be convenient, but it's yeah. Usually, you can execute this well, but it's rarely executed well, in the sense that you're always getting it just in time because shipping, it gets lost. So you actually have to put it in a little bit early, but how consistent is shipping? How easy is it to ship, et cetera. So there's all these dynamics you're dealing with...I don't mind having six things of paper towels in my closet. And toothpaste and every other consumable that's shelf-stable so I never have to worry about it. And when the last bottle goes out, which lasts me however long, I just make the order on Amazon these days or via email, one-click on whatever app I'm using for the given product.”

17:52 - Cash flow is as important as LTV

Yes, subscriptions raise LTV and give more opportunities for upselling, but first and foremost you have to worry about cash flow.

“The one-click upsell or like any sort of upsell, six upsell opportunities for six, doesn't account for churn, doesn't account for cash flow. And assumes there is something to upsell. Now, you're right that the six upsell opportunities are valuable, but how much more valuable are they than just an email upselling without the purchase decision? You're shipping them something. So you're sending them an email. Hey, it's on the way. Would you like to add anything to your box or whatever? But then on the opposite side of it, you could just send it. Would you like this other thing? And upsell them. What's like the incremental added value there versus the cash flow upfront of having six months’ worth of product sales cash day one. It's a trade-off. And it purely depends on your product mix and a thousand other dynamics. There's no solution to that, but what kills a lot of eCommerce brands is cash flow. It's not LTV or margin or CPA. It's the fact that the cash flow doesn't work for those things.”

23:18 - Subscriptions have to solve for consumption rate

To avoid sending things too often or not enough, brands need to figure out ways to define a user’s consumption rate of the product.

“It's an interesting problem to solve. I was literally having a conversation about this with a client about how do we know the consumption rate? If it's not standardized the way it is for say a supplement, it could just be asking. But there isn't a genius flow that I've seen where someone asks me how fast I consume it and then adjust the subscription. It could be done. You could literally do this manually with CS teams where you basically have a templated question, ‘Hey, how fast do you consume XYZ?’ And then based on that, they customize the subscription. The problem is if the consumption rate changes, you're back to square one. If, for example, you're making coffee for your family. That's over in that case. I talked to a brand a while back and they're not secret or anything, Bottomless Coffee. Essentially, they put a scale under the coffee bag and it's networked and the reorder is triggered by the weight of the product. So that's an interesting use case where it's solving for it based on consumption.”

28:24 - Minimize issues to reduce churn

Timing of deliveries is one of many issues that brands need to get right to reduce churn and protect their margins.

“The problem is that's usually a lower lifetime value paradigm than if they were subscribed, if they're ordering as needed. So you're better off having them subscribed. And if you can reduce the churn that comes out of it. Churn is much more important now than it's ever been in terms of it's cheaper to keep a customer than acquire a new one. Everyone says this, but it's becoming more expensive to acquire new ones. And so churn is a bigger problem to be solved. Now, the question is how often is churn driven by too much product consumption? I think it’s pretty easy to land a supplement subscription. You consume it in 30 days. You keep on shipping every 30 days. You're kind of good. But what happens with other products that are not consumed in that linear path? That's where any product like that, if you can solve churn by 2-3%, that's a big difference. At least from what I've seen with my clients and people I talk to. But it also might be that it's not a painful problem until it’s too late. So people might not buy into that problem and trying to solve it until it's too late in the business to be solving it.”

35:17 - DTC brands need to bring a VIP experience

There are tech tools and apps that DTC brands can easily connect to their Shopify accounts that add a better experience to shopping with them. Brands should act like every customer is a celebrity.

“Going back to churn as a key driver and it's cheaper to keep the customer than to get a new one. How do we make sure they feel like they're at the Four Seasons versus the Motel 6? We can do this all automatically with smart communication. It's not like we have to build crazy stuff to do this. You would see that very few brands actually bothered to go to that level of thought to automate all this. Sure, they have great CS teams, but they're not creating it so that you have this evergreen experience that feels VIP. So that's my challenge to the audience. And, what's the one or two things you can do today? Little hacks. Hookup a shipping notification, SMS, even little things to make people feel like they're getting the VIP experience that people are starting to expect from most DTC brands cause it's that or Amazon. And Amazon has a standard experience you know to expect. DTC has to be like the VIP experience in many cases.”