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Subscription Commerce with Evan Padgett

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Talk-Commerce Evan Padgett

Commerce running, talking geek

Subscriptions are for everyone and merchants need to examine their catalogs and learn what they can be selling constantly month over month. We interview Evan Padgett with Stealth Venture Labs and learn about subscription commerce. Even is a tenured eCommerce executive dedicated to driving performance and growth in fluid landscapes with nearly 20 years of operating and marketing subscription commerce businesses.

Transcript

Brent: Welcome to this episode of Talk Commerce. Today I have Evan Paget. He is the C O of Stealth venture labs. Evan, go ahead. Introduce yourself. Tell us what you’re doing on a day to day basis and maybe one of your passions in life. 

Evan: All right. Thanks, Brent. So Evan Paget, Stealth venture labs chief operating officer here.

Evan: Hitting my 20th year in the industry this year, actually. And pretty much the entire time inside of subscription commerce companies or here at Stealth overseeing the acquisition marketing for subscription commerce companies largely. Been around the recurring revenue model for a long time.

Evan: I spent a lot of time in recurring revenue models in women’s fashion running brands, like just fab and shoe dazzle. With unique sort of membership models there and a stint as the chief marketing officer at a company called thrive market online grocery company mixing the the model of annual membership and, really awesome club prices for organics and non GMO, really healthy foods.

Evan: And then here at Stealth, really just running and building this company, we’ve had an awesome run building up a marketing agency focused on. A lot of the team here coming from vertical inside of brands and we’ve just had subscription commerce brands gravitate towards us. They also tend to do really well in acquisitions.

Evan: My job is pretty much managing the entire company bringing in the team, making sure that with a lot of our bigger clients at the higher level strategies are sound and being met and channel expansion, everything like that operations you name it. I’ve seen it all at this point.

Evan: And that’s what we do here at Stealth have a good time doing it. 

Brent: I’m excited about subscriptions. I think that subscriptions at all agencies should be a practice. We’re gonna learn today how much it helps to drive revenue for merchants. And I think that subscriptions should be the basis for a lot of how merchants are gonna grow their business and help them create better ROI on every one of their products.

Brent: And so maybe dive into what platforms you’re looking at and and how you’re helping to enable subscriptions. 

Evan: What I tell people about subscription commerce and how you’ll get this question just generally, how do you, I jump into subscription commerce. Few things come to mind.

Evan: One, you have to create a technology or work with a technology. So Shopify has several different plugins, personally biased towards recharge as a great option for most subscription type platforms. When I say most meaning a routine monthly billing and shipping a product or some kind of or access to a product

Evan: covers that really well, but there are sophisticated subscriptions that exist out there that could be based off of triggers or different bespoke, timings, or variable pricing subscriptions. That maybe you have parts of recharge. You need a little bit more custom work or there’s other subscription technologies out there to jump in, but the beauty of subscription, and you might hear me say this and I’ll switch back and forth between the terminology here, subscription and broadly speaking, creating a recurring revenue stream is actually the goal. Subscription is a recurring revenue stream.

Evan: But it’s also not necessarily exclusively depending on your product, the end game, meaning you might have a service fee, that’s a subscription. You might have a subscription that is for exclusive access, or if you are a scarcity type commerce company, meaning you have rare things, you only get 50 of them in stock.

Evan: And you wanna say. Paying members get an hour head start, right? That’s a recurring revenue model as well. So a lot of that I’ll switch, my terminology between saying subscription or recurring revenue model, but the point being the beauty of a subscription model and what you’re trying to get to is predictable revenue over time.

Evan: And it’s basically a machine that allows you to have with really good accuracy. Predictability in your business cash flow management of your business. And usually not always, but usually higher lifetime values of customers for you to be able to go out and attract more customers with acquisition marketing, the one who can pay more for a customer.

Evan: And has a better product can usually win them. There’s a lot to unpack there, as I look at it once you’ve determined a technology, there’s a lot of them out there. You need to be thinking about what your recurring revenue model’s gonna bring to the customer. And I can elaborate on that some more.

Evan: What you’re looking for, is a few is like five key things. Your subscription’s gotta have five key things that, that pretty much help it be successful. One passion audience meaning a subscription and recurring revenue model establishes a relationship between a company and a brand.

Evan: And that passion goes beyond something transactional. You really gotta nurture that relationship. You gotta communicate with them about their package, their tracking their shipment, why they’re buying what they’re buying and what it stands for. Doesn’t have to be cost driven, but it needs to be something that sort of shows the convenience or shows the value it brings to their life.

Evan: So that’s one thing. Ideally, the number two thing is you want that audience to be as large as possible best example I could give. And we work with a lot of these. Our meal at home companies, everyone’s gotta eat. Therefore you’re addressable audience, pretty much everybody on the internet at any given point in time.

Evan: If you have a really passionate audience, but they’re very niche. if it’s too small, they can be very hard to find any cost effective manner when it comes to acquisition marketing. But not to say you can’t find them, but then at a certain point you hit. Terminal velocity a little bit more quickly.

Evan: So that’s number two. That’s the second thing you need is that audience to be large? Number three is this is the hardest one I think is having a unique value prop. You can make a, me too company, right? You can do a copycat of somebody else doing something that you like, maybe. Maybe you got a better supply chain or maybe you own the factory, or maybe, there’s things like that could give you a little bit of a competitive advantage, but seeking the thing that makes you different and using that as a claim or as something that you could put in front of customers is critical because when they’re bouncing you against your closest competitor, if you guys are copycats of each other, down from your claims, your pricing and everything, Then you gotta coin flip chance of winning that customer and it’s gonna come down to the other things like reviews or credibility or how long you’ve been in business.

Evan: So finding a unique value proposition that, that says we do this, or we are unique because it’s our own brand and we’re not reselling third party product. I don’t know what the answer is there, but finding something that’s unique to you, that’s number three. With that uniqueness, good unit economics.

Evan: This question comes up a lot. What do I need to be doing? What’s my margin need to be when I’m doing subscription on the internet. And I always say start at 50%, 50% gross profit margins delivered to the customer before you’re before acquisition marketing, before your team, before all that, just shipping the product from your fulfillment center.

Evan: Cost of goods with shipping, with the actual product itself, to the customer’s door, 50% gross profit margins at that level, give you room to grow and scale and throw money into advertising lower than that, you’re gonna find that you struggle to scale your advertising because your CAC, the fluctuations in CAC can lead you into really challenging territory when it comes to your overall bottom line margin.

Evan: And EBIDA And it’s also gonna be difficult to scale because media prices tend to only go up over time, as we’ve all seen those number four, the economics and last piece that you were looking for when you’re building out a subscription, is it needs to solve a pain of some kind. It needs to solve something for the end user to make their life better.

Evan: Meaning I’ll use meal at home again, cause again, I have a lot of experience and this vertical. Meal at home. It’s not just food delivered to your doorstep. That’s a feature. A benefit is you’re now not having to spend time going to the grocery store. You’re not having to fight about what we’re eating for dinner tonight because the food your meals were delivered for the next several days.

Evan: And you’re picking which one you wanna do. You are now creating less gravity for that consumer because they now have something delivered conveniently to their door. And that is now releasing them from a pain that they were feeling before. And that’s that’s one example, but you gotta find a reason why your product alleviates a pain from the consumer.

Evan: And once you do that, you have all five of those things. You gotta really great. Subscription model, I think. 

Brent: Those are five great points. So just keying on the number four, you said having that economics on there A lot of subscription models offer a discount on top of just getting that subscription as an incentive to get it a subscription.

Brent: Do you feel as though there’s some built in economics in there for that guaranteed revenue over time where you might want to at some point dip down to some level. I’m not arguing about the 50%. I think that’s a great value. But having that revenue maybe cut into in the beginning where later on, you might get some more margin and then secondly the idea of a recurring service, a long time ago, we did some work for a music company and we did fan subscriptions.

Brent: So from that standpoint the margin is essentially a hundred percent, there’s no real cost to it. It’s just trying to get money or a Patreon or something like that, where you have a subscription. All you’re trying to do is get revenue for something. 

Evan: Yeah. So the the beauty of subscription and recurring revenue models is I’ve worked in subscription companies where the first order that goes out the door with cost of goods.

Evan: And this is an extreme version is actually negative. We’re losing money. We’re losing money by shipping to the customer on that first order, even before customer acquisition cost, I’ve been in a major subscription company where that is how we started. Our goal was like, Hey, we’re breaking

Evan: even before customer re acquisition cost and team and everything just breaking even that was success for us. But the reason why as subscription, you’re bouncing against an LTV you are buying and optimizing your media against an LTV. And that allows you to be, hypercompetitive even unbelievably competitive on that first order, which is very common.

Evan: Huge discounts on subscriptions on that first order. I don’t think that’s a bad thing because look, you need to get people to take a leap of faith on you. If you’re consumable, if you’re something that you eat, if you’re something that you drink they wanna try you out first, before they jump into could be a year or more of commitment.

Evan: You’re buying against an LTV. And when you’re doing that, you’re looking at, Hey, my average customer. And you model this, we’ll probably talk about this in a minute on the on the financial and how to build up a subscription company, but you have a, typically a forecast model looking at your attrition, your revenue, everything over time, and you come up with an LTV and let’s just say for hypothetical sake that your LTV is $400.

Evan: I would always say, Hey look, do you wanna maintain. A LTV to CAGS ratio of four to one for conservative scale and three to one for aggressive scale, meaning you, you trying to lean into that. You’re not maximizing your EBITDA or bottom line profits. You’re reinvesting heavily back in an increase your media spend.

Evan: And that’s with 50% margin. If your margin’s less, that ratio’s gotta be better, but at a 50% margin, you’re basically saying on $400, LTVs. I’m gonna make $200. I could spend $100 to make $200, and then you have team and everything after that. But at least from there you get your ROI. If you’re an e-commerce company without a subscription element attached to it, you have to be getting that ROI on that first order.

Evan: Otherwise you are just literally burning money and you’re waiting for them to come back. And you might know that customer comes back and purchases three times throughout the year. But sometimes that’s two, sometimes that’s four. And you don’t know when they’re coming back, subscription creates predictability there.

Evan: And you’re not just focused on making sure that oh, I got a customer for a hundred dollars and they bought $400. That’s how it is when you’re doing e-commerce. We do a subscription commerce. You can draw that out a little bit, and that allows you to be competitive in the advertising space and also make sure that you’re

Evan: controlling your downstream revenue. 

Brent: You mentioned the media spend, what out of a percentage of that would be your typical media spend or would be a recommended media spend and let’s just let’s compare to the subscription. Like you’d probably wanna spend a little bit more on media for subscriptions as compared to a one time buy type of product.

Evan: Yeah, I think the generally yes. And I think it’s more about the scalability subscriptions, the compounding effect of revenue over time with subscriptions allows you to have money, to invest to, reinvest into marketing. When you are an e-commerce company without a recurring revenue model behind it.

Evan: You might have months where your ROAS is sitting very comfortably at five or six or seven. And then you’re saving some of that for months when that ROAS is two, three or four. And you’re and then your media availability becomes really touchy, but with LTVs generally being hired with recurring revenue models.

Evan: That kind of gives you the ability to. Can continue to create a sustainable growth trajectory as long as your CAC stays within a bigger range and also you can really just hone in on understanding your customer’s needs and desires and improve your product over time. Where. Most e-commerce models,

Evan: they just have a position in the marketplace I’m and I’m not do on e-commerce models. Okay. There’s still a lot of them that exist and they do really well. I say you really want to unlock revenue potential for your company is find a recurring model to go along or be the primary offer and have regular, e-commerce to go along with it, but just the ability to reinvest into media and control your numbers more holistically predictably.

Evan: That’s the big benefit of recurring revenue models on top of, I, generally I’d say higher LTVs customer LTVs, et cetera. The beauty of it is it’s if you do it right there aren’t any surprises with e-commerce. I find that you could be surprised a lot and those surprises are usually not positive ones.

Brent: It’s just a little bit on surprises. The supply chain issue, especially in the subscription market can be very painful, especially if you’ve had a standard product that you’re selling over and over again. What do you recommend to merchants who have something and suddenly it’s outta stock for a month?

Brent: Does that lead buyers to have to look somewhere else? Or do you just try to source something that may be more expensive and lose money for that month? 

Evan: Yeah. This is probably the hardest part about subscription. And it, the hard part is understanding and seeing the cliff coming because usually the beauty of a eCommerce company non subscription is if your inventory is low for the month, you could just pull back your marketing and maybe your website isn’t as fun.

Evan: Are you. You come up with another angle to get people excited. So they’re not coming back to your website and being like, oh wow, this the merchandise this month is not interesting. But you’re not as primed to lose money. You might lose momentum if you’re an e-commerce company, subscription commerce, though, here’s the rub you usually know pretty far in advance.

Evan: If you’re, unless even if you’re manufacturing your own stuff, running your own supply chain, you’re ordering. Four to six months in advance, unless you have manufacturing here in the United States or locally to your country, wherever you’re at. If you’re ordering from anywhere overseas, you’re ordering four to six months

Evan: usually more even in advance. So you’re tying up your working capital in that product. You gotta give yourself a certain amount of buffer, cuz the earlier you procure your inventory, the more working capital you have just sitting on your shelves in a warehouse, which is important when you’re managing your cash flow.

Evan: The other side of that, if you’re cutting it way too close to being like, oh, it’s gonna arrive in the warehouse on the third and we’re selling it on the seventh. All it takes is a little jam up in the port and all of a sudden you’re like, yeah, Hey we know we’re supposed to deliver and unload on the third.

Evan: They’re not gonna get to it until the 26th of next month. It’s Okey dokey. So when you’re a subscription company, you now have to get ahead of that. And you’re doing something like sourcing product locally. If you have a, the ability to get inventory, if you’re in fashion, for example, you can always maybe find.

Evan: More fashion products that you could throw in your box, but if you’re your own supply chain, if you’re your own first party brand, you might just be low on inventory that month, which means you’re gonna have a huge bump in attrition. You’re gonna have to convince your customers to stick around and say Hey, we have some problems here or you’re paying.

Evan: Exorbitant amounts of money to somehow get that date of the 23rd back down to the 15th. And you’re able to say, Hey guys, we just have shipping delays for a week, not a big deal. But you have to scramble. Now, you usually see that coming usually, meaning, if your boat leaves, from wherever it’s coming from on time or early you’re like, okay.

Evan: And I, maybe you build in buffer time look, we’re gonna get this in the warehouse. Gonna sit there for a. Then, maybe it sits there for two weeks instead of a month, you build in that buffer, but that comes at cost. It comes outta working capital cost, because guess what, they don’t let you get your inventory without paying for it.

Evan: So you have the ability to create cash flow models that answer these questions for you and give you the means to, to create alternatives. But. If you’re not planning. And if you don’t have these check downs between how to get my inventory, how to replace my inventory, what happens? I always like to say always think about what happens if a boat sinks and I’ve been in

Evan: that business and I’d had product that was important. That was on a boat that sank. What do you do? And what plan do you put a place to, to do that, between communicating with your customers, finding alternative product, trying to rush something from somewhere else who knows. But everything comes with a calculated and quantifiable cost and risk.

Evan: And you really have to think about that. The beauty of subscription is you usually see that coming. It’s usually not the last minute. You see the horizon of alright, 60 days from now, we’re really low on inventory. We can find things. We have to act quickly, but we can solve this problem.

Evan: But it’s expensive. It is expensive and you gotta be, you have to have rainy day funds for that. 

Brent: Yeah, I think you keyed on two points there. The first one is you talked about the fashion business and maybe the box model. Compare that to just buying toilet paper where you want to get it every week or every month.

Brent: Actually maybe not even toilet paper, something a little more like coffee, let’s talk about coffee. Because somebody really likes some coffee and you need to fulfill that exact same thing month over month or week. Yeah. Week after week where a fashion you do have the option of of mixing and matching and taking 

Brent: what you have that’s most popular, but also what you have in stock. When you’re looking at the strictly subscription call it the pantry business that another big platform uses how do you manage that? If somebody has something that they really want every month and then suddenly it’s gone.

Evan: Yeah. So depending on the timeframe, you have to do that one, one beautiful thing about subscription. If you’re selling the same product one thing you can do is slow down customer acquisition. If you’re paying I, if you’re doing advertising for customer acquisition and it’s the same product conceivably, coffee’s a good example.

Evan: Like your coffee starter box from the company you order from and your recurring subscription. They have the same, goods in them. And what you do is say, okay we’re gonna be short 5,000 units in two months from now or three months from now. What you do is slow down your customer acquisition cost to say, okay, we, I think we can pick up 3000 units.

Evan: We’re gonna get a little less customers. Now, those less customers I get now are also gonna be less customers later. So you work into the number that you. I think above all my opinion on this is do your best to not upset the customers that you have, the customers you’re going to get. You will get them later chasing customer acquisition,

Evan: and I have a big tirade on this one, is what ends up crippling most up and coming subscription companies and consumer packaged goods. A good example, a practical example outside the one I just gave right there. Your company, and let’s just say your customer acquisition costs $50. Okay. Keep it easy numbers.

Evan: And your payback on that, your media payback periods for most subscription companies. Usually around three months, if you have a healthy subscription, you’re getting fully paid back on your customer acquisition cost after about three months time let’s just say you’re spending $50,000 a month to get a thousand new customers a month.

Evan: That’s a again, easy numbers here. What that means in your company. If you have not done this analysis is you have $150,000 in working capital tied up in your media, right? 50,000 a month, three months until you’re getting a media payback. You are always having $150,000 in media working to, to keep your current pace.

Evan: What I see happen a lot of brands jump in, they have some tailwinds, good news. They’re C is lower. Awesome. They think they wanna dial it media. Hey, you know what? We got the cash spend a hundred grand this month. Sound good, everybody. We all feel good. Great. Guess what? A hundred grand a month,

Evan: for three months to maintain. Now you’ve doubled your working capital for media to $300,000. Somebody’s gotta come from somewhere. It comes off the balance sheet, but uhoh customer quality. Maybe you’re going a little too hard. Maybe they’re jumping on because you ran a buy one, get one promotion and it’s dropping customer quality.

Evan: Even though your CAC went down, your customer quality went down. Maybe you have a little bit higher first cycle churn. Now your media payback’s four months. Oh. Now instead of $150,000 on working capital you’ve created $400,000 in working capital to support your current media. Guess what you also did.

Evan: You bought more inventory because you got more customers that are gonna be coming in 3, 4, 5, 6, 8 months from now, from all the new subscriptions that you’re planning on getting that, and you’ve increased your media spend. So now you’ve committed more working capital to your product. and just because you saw tailwinds and you see an opportunity there, you’ve consumed 500, $800,000 of additional working capital out of your company.

Evan: And what happens if that boat sinks? What happens if your product’s just gonna show up late jams up in the port? No one’s fault necessarily. Can’t really avoid it sometimes. The truck carrying your product, got in an accident it’s delayed a week now. You’ve overextended your company

Evan: significantly. And that leads to people having to do distressed fundraising. They have to go out and get desperate bridge capital because their vendors still gotta get paid. Their teams still has to get paid. They have to still order more product down the road. And they’ve overextended themselves on their own working capital.

Evan: This all comes together with planning your subscription business well makes an elegant machine that is controllable. There’s several levers to do that, but being too aggressive when the grass is green could really end up jamming your business up in ways that and I think if you were to.

Evan: 10 subscription company operates successful ones say, sort of 50, a hundred million dollar plus businesses. They all have that story. Every single one of them has that. We went a little too hard and it blew up in our face. So that’s one thing I always tell people, like plan ahead, but don’t stretch too far because unless you’ve got

Evan: a rich family or rich uncle. That’ll just write you a check by asking them, you could end up significantly crippling your business because you cannot control the market conditions. You can’t necessarily control your competitors. You also can’t control the nature and volatility of a boat on the ocean.

Brent: yeah. That’s a great point. That brings up the question. How do you properly measure and forecast your subscriptions? Is there a model to that? 

Evan: Yeah, proforma modeling, subscription waterfalls. These are terms that you usually hear a lot if you’re into the space, but it’s not very hard to do this.

Evan: It’s just a little bit complicated. Meaning there are a handful of key KPIs. You need to know one, your revenue, of course, revenue per box revenue per shipment, whatever that is for your, for every single cycle. And that cycle could be monthly every other month, every quarter annual. don’t really know, right?

Evan: Every business has its own revenue stream. And you need to be looking at, if I just say, if I use this the most rudimentary example of I’m a subscription box company that sends a box every month and it doesn’t matter what I’m sending in it, but just as go with that, you need to be looking at what is typically referred to as a churn water.

Evan: And another term you hear a lot in subscription is cohorts, and this is all very important. If you’re gonna go out and raise money on your subscription, these are the words that the investors love to hear and understand cohorts, cohort being typically defined as new customers. You get in a month or in a period of time, but typically a month, that’s a fixed number.

Evan: That number doesn’t change. You get a thousand customers this month. That is a fixed data point that never adjusts. You’re always gonna get a thousand new customers in April of 2022. And then by cycle usually month again. In this example, you’re looking at what’s called the churn waterfall and you’re applying churn percentages to each month.

Evan: So your a thousand customers after one month might be 800 customers. And then you apply, 20% drop off there. Then that 800 customers, it may lose 10% of that 800. So now it’s gonna drop to 710 customers you’re gonna lose or 720 customers. It’s gonna lose 80 customers. And that seven 20, maybe you apply another 10%.

Evan: And there’s I have a lot of experience on different types of models, but generally speaking, usually in that first cycle, typically the highest attrition, 20, 25% of all your subscribers gonna drop off. after that 10 to 15% on that second cycle on a monthly cycle. Then from there, you’re usually looking at about three to 5% per month.

Evan: If they stick with your product for three or four months, they’re not dropping off at high clips anymore. As long as you maintain quality service. Now, when you have all those customers and then you have the revenue attached to them, you can now plot your revenue over time, what are you gonna collect? You can also project your inventory demand over time, how much product you’re gonna be selling from that cohort.

Evan: And then you layer on multiple cohorts. So you build a model that says, okay, this is what our customers were in April. This is what they were in March. This is what they were in February. And then you get a final total from every single cohort of all right, I’m gonna. 4,000 boxes this month. And I know if I ship 4,000 boxes, I put three things in a box.

Evan: I need 12,000 units plus or minus for this month in demand plus new customers for that month. So maybe it’s 15,000, whatever your new customer rules are. Now you can track revenue, you could track product demand. You could track you could start applying customer service interactions for workforce.

Evan: That a every thousand boxes we ship out, we get 10 tickets, we have this math, right? So then you know that from sending out 10,000 boxes, I’m gonna get a hundred tickets. So then you know, how many customer service agents you need. Now you have your revenue planned up. Great. Awesome.

Evan: Now you gotta plan out your media. Media advertising. If you’re doing direct to consumer advertising on Facebook, Google, et cetera you’re balancing that with a new customer acquisition cost number. So spending $50,000 at $50 fully blended CAC means something at a thousand new customers. And you’re tracking that as media dollars spend over time.

Evan: You used that revenue model that I mentioned to derive an LTV all an LTV is. There’s different versions of LTV that people use. But, generally speaking, there’s two that make sense. You’re of your gross revenue per customer after discount. So just what you’re gross, getting from them, which is typically referred to as an LTV number.

Evan: And many of them apply their margins after that. So they’ll reduce if you have 50% March and it might say, Hey, my LTV is, $400, but my LTV after cost of goods is $200. All that does is really tell you what you’re dropping further down on your P and L sheet, right? So once you have all that, now you’re looking at trying to layer that into cash planning.

Evan: So this is the tricky part, managing your cash flow because cash is coming in when you’re selling product cash is going out for media pretty much real time, not unless you’re a gigantic. Media partner spending tens of millions a month. You’re not really getting terms with Facebook or anything like that.

Evan: You’re not able to get an invoice at the end of the month for Facebook. They’re not floating that you’re, they’re just hitting your card every thousand dollars you’re spending. But inventory there’s long lead on that and you gotta look out and say, okay, Hey, eight months from now, we need 20,000 units and I gotta buy those next month.

Evan: I gotta make sure I have cash for that. And where is that cash coming from? What happens if it’s a little tight, do I need to slow down my marketing? Maybe you do. You run those scenarios. You start having all of these numbers in place. It’s not an incredibly large set of numbers, but the primary numbers being, cohorted customers churn your revenue per cycle for those customers and your media spend.

Evan: And product demand, those five things. When your product’s gonna hit, you can work backwards and build a cash flow analysis you could build and understand all this from understanding your initial cash balance of what’s gonna go out. What’s coming in. And you do that. You can really manage a business again.

Evan: It sounds complicated. It’s really not. It’s just, you have to be planning far further in advance subscription you’re always looking forward. E-commerce you can find opportunities. I’ve, the drop ship, world’s the most prime example of this, but even just anyone else that’s been like, Hey.

Evan: I go buy a hundred thousand of these products right now at a great price. Let’s just sell ’em sweet. Let’s do it. Drop the cash for a hundred thousand units or something. You’ll spin up a website, do run some advertising. You try to make money off of that. And you close that chapter. Subscriptions just require.

Evan: It’s more like a locomotive down the you’re going down the tracks and you gotta keep it going. You gotta keep it rolling. You gotta pay attention to enough things. The moment you disregard a lever you can end up blowing something up and that’s not what you wanna do. 

Brent: So we have about five minutes left today. If you were to give some nugget to a merchant and they would like to enter into subscriptions, or they would like to find some products that may be already in their catalog. how would you recommend they start to find that right product and start doing subscriptions.

Evan: Yeah, one thing I always say is just listen to your current customers. If you’re an e-commerce company, you already got a company rolling. And it is healthy. Maybe you’re doing five, $10 million a year in revenue, have some money on advertising, listen to your customers. They’ll tell you the things they want on a recurring basis.

Evan: They want to get access early. They want to get. Consumable product, if you sell that they wanna be part of a membership for some reason. That’s not everybody, you’re not gonna convert a hundred percent of your existing customers into it, but listen to your customers. If you already have some, if you’re coming into the market with subscription, I largely say, look at what solves a pain the most.

Evan: That’s the biggest one. What would be the thing that if you had it in your life or, everybody, had it in their. It would make their life easier. If it’s getting food delivered at home. If it’s getting toilet paper delivered at home, if it’s laundry services start there and see if you can build up and work backwards.

Evan: See if the economics works, not everything is meant to be in a recurring revenue model, but I do think that almost every business can create a part of their business that has a recurring revenue component to it. So doesn’t mean that, one of the questions I got asked, we put on the spot, which I thought was literally like mattress companies, right?

Evan: Like online mattress companies Purple like Casper, all them. How do you make a recurring revenue model out of that? I said, look like, yeah, then people don’t need mattresses very often, but would they pay more for, would they pay 50 year, $50 a year for no questions asked replacement? If something happens, maybe, but in that guarantee, the warranty of expensive goods is one of the oldest subscriptions that’s ever existed.

Evan: Could they get on a subscription for quarterly bedding? Like people have not a nice bed. If they were to get new bedding every quarter, that’s seasonally relevant. Again, not everybody would want that, but there’s some that would want that if they bought a bed from you, they want bedding, think about that.

Evan: But try to find something that solves the pain for the customer base that you’re going after. And ultimately that has the biggest applicable audience. If you can find pretty much adults, 24 and over to cater your product to, you can find a subscription stream there that will hit on all of those marks to end up solving a pain, have good economics, create a service and a relationship and, make people’s lives better.

Evan: That’s where I begin. And then on that. And then last piece be adaptable. Nobody gets it right on the first swing. You just, you really just don’t like every subscription brand that exists out there today. Right now, if they’ve been around for more than a year, probably year, maybe two years, they are different than when they started.

Evan: They have a different product line they’ve expanded, they’ve changed. They’ve pivoted their pricing, their service, their quality, all that stuff. Usually for the better know that it just don’t overthink about where you’re trying to get to. But if you see an opportunity, it will evolve with the company into what the market needs.

Brent: I think as everybody knows in the marketing world measure test, and then yep. Do it all over again to see how well it worked. And these are great opportunities that everybody has with every product in their. Online store or in, in retail store, whatever that thing is.

Brent: Like you said, with the mattress, there is opportunities for subscriptions across almost every product certainly is gonna be some that don’t apply. But if you look at what are the big box stores are doing, I think the add-on warranties and add-on products, and I the mattress pillows are a great example of how a mattress company would leverage the fact that somebody’s sleeping to the fact that you could brand a pillow that goes along with their mattress anyways. Absolutely. So yeah, this has been great, Evan. As I close out on every podcast, I give the guests a chance to do a shameless plug about anything you’d like, what would you like to plug today?

Evan: I just say that, if you what I was talking about, curious about how to build out a subscription platform, reach out to me, evan@Stealthventurelabs.com or it’s just Stealth venture labs.com. And see what we’re up to see how we can help. Sometimes we advise sometimes we just jump in and run this business for you.

Evan: Also I’d like to say that we are building out. If you go to our website we have a fully functional 5 0 1 C three, which is really important to us. Something we call our impact lab. where we as a company built a 5 0 1 C three and built a product focused on teaching young entrepreneurs from really tough areas of the country, how to build and launch their own e-commerce business and actually fund with cash.

Evan: Their first $5,000 in media spend After we help them build a website and show ’em how to do all that. So something we’re really passionate about is a developing the entrepreneurial spirit and the bridge to get from an idea to an online presence. So something, if you’re ever interested in donating or helping and mentoring reach out to us about that as well, it said something really important 

Brent: to us.

Brent: That’s awesome. Thank you so much. Evan Padgett from Stealth labs. Thank you so much today. And it’s been a pleasure having you on the show. 

Evan: appreciate it, Brent. Thank you.

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