I was “digging in the crates” recently and found some really great stuff that for one reason or another I haven’t worked into the series. And although this isn’t a “one on one” conversation, this session from ExCom 2016 — an event I co-organized with eCommerce thought leader John Lawson — is just as relevant today as it was last year.
Insights on Running a Subscription Based Business
Small Business Trends Publisher Anita Campbell led a great conversation on the benefits and challenges of running a subscription based business, from both a B2C and B2B perspective. Rohan Gilkes, owner of Wet Shave Club, and Sangram Vajre, cofounder and CMO of account-based marketing platform Terminus, share their experiences in growing subscription businesses. And together they cover a lot ground and provide some great insights that can help those considering this business model understand the what to do, and what to avoid.
The following is an edited transcript of the session. To hear the full conversation click the embedded video/audio clips below.
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Small Business Trends: Rohan, we can tell from the name of your business, Wet Shave Club, what you sell, but would you describe for everyone what exactly does a customer get when they subscribe to the Wet Shave Club and what are they paying for every month?
Rohan Gilkes: With Wet Shave Club, customers get a monthly box of wet shaving products. Wet shaving products are like your old school razor where you would go into a barbershop, you probably see it in the movies. They put this shaving soap in your face and it’s a double edged razor. The brush and talcum powder, maybe some cologne. All types of random stuff that men who like this traditional shaving experience would use. They pay between $19 per month, if they’re going to subscribe for an entire year, commit to an entire year, or they pay $29 per month if they’re going to go month by month.
Then we have a three month and a six month as well. It really allows us to smooth our revenue out by having people commit for a longer time and we reward them with a discount.
Small Business Trends: Are you from a barber background by chance?
Rohan Gilkes: I am not from a barber background. I actually don’t even wet shave. I shave with clippers. I actually just came across the opportunity and I felt like I could probably knock it out. My background is I just build internet companies. I used to be an accountant and I started finding opportunities online and teaching myself everything I could teach myself about internet marketing and hustling online. When I came across this opportunity, I took it and it’s working out.
Small Business Trends: We’ve got a very different kind of business over here with Sangram. It’s not a B2C business. Tell us what you sell to your customers and who they are and what they pay, Sangram.
What we do for B2B companies is help them make sure that their message is in front of the right people on the channels that their customers care about and we have done it through an account based marketing platform.
The other challenge that B2B faces is that less than 1 percent of the leads turn into customers. Think about it from a CEO, CFO, or anybody executive, if less than 1 percent of your leads are going to turn into customers, that just almost translates into saying that 99 percent of your efforts don’t mean anything. We want to solve that problem. Our goal is to help B2B marketers turn more of their leads into customers. We understand that in B2B, unlike B2C, the decision is made by committee. There are more people involved in the decision making process. Sometimes there’s 10, 15, 20 people, the bigger the organization.
We’re able to put your message in front of your target audience, the entire account. If you want to target a sales team, the entire sales team is going to start seeing your message, as opposed to just that one person, on the channels that they care about. That has really changed the way B2B marketing has been done today.
Small Business Trends: Essentially, you’ve got a software that provides a service for your B2B customers. Is that right?
Sangram Vajre: Yep. It’s $1,000 a month, subscription business. Most of our customers sign up for annually recurring revenue. For us, that really helps us out quite a bit. It’s literally you sign in, you connect to your Salesforce or any CRM for that matter and upload a list of companies, and tell us who you want to target in terms of roles and then we’re able to put your message in front of them, anywhere they go, proactively.
Small Business Trends: That’s great. You said you just got financing. $7.5 million?
Sangram Vajre: Yes.
Small Business Trends: Okay, good. But when you first started with the business, did you start it on a shoestring? Did you have investment? Did you put savings into it? Tell us what you invested to get it started and give us a little of that story.
Sangram Vajre: Just like Rohan, this business was started by another two gentlemen, my other two co-founders Eric and Eric. I just call them the “Erics.” They got $300,000. A lot of people are probably familiar with David Cummings (serial entrepreneur and Pardot cofounder) here in Atlanta. He literally gave Eric $300,000 and said, “You’re smart. You’ll figure something out. Go start a business.” He started with doing something in the advertising space and, clearly, me coming from a Martech space and marketing, and understanding this problem, something that I was facing every single day. When I saw what they were trying to put together, I was able to jump in and say, “Let’s change the game here.”
Small Business Trends: Rohan, I know you bought this business. Tell us the story about how you bought it.
Rohan Gilkes: Sure. Randomly, I was hanging out on Reddit. I’m on there everyday. I guess it wasn’t that random. On r/entrepreneur some guy just posted a thread saying that he had this business. He was doing maybe $200 per month in revenue. He wanted to sell it. I was thinking, “Wet Shave Club. Wet shaving. What the hell is wet shaving?” I went on Google and I googled wet shaving. At the time, Dollar Shave Club was really, really kicking. I felt based on the fact that this market was already validated, for me.
Some people look at competition and they say there’s this big company that’s just going to crush me. I have to go against Gillette or Dollar Shave Club. They have probably $100 million in funding by now. How could some little guy compete with them? For me, I look at competition as a real validation of the marketplace. People are already educated. They’re already used to the concept of receiving shaving products every month in the mail and I felt I could do it. I reached out to the guy. It was on a Tuesday. By Saturday I had paid him $4,000.
His monthly revenue was very, very low. It was less than 500 bucks. That Saturday I got the passwords and I started working. We changed the website. We rebranded. We expanded the product line. We rebranded the boxes. We then almost tripled our price. That’s another thing, too. I would rather go after a customer that is willing to pay a little bit more and get a higher quality customer who is more likely to stay on than try to compete in the weeds of $9 or $10 or $12 per month, which is what he was charging.
After we made all those changes, this already was a two months process of changes. We went out to search around on Google to find new producers and manufacturers that would improve the quality of the products. We found people in Pakistan. They would send us stuff. We went through so many different versions. I have a post where I show the different images of the different razors that we received. We tested it. It was terrible. We sent it back. We found another manufacturer. This whole process was just figuring things out all on Google. This is the question I get. How did you guys find out about manufacturers and production and soaps?
We just googled everything, emailed people, they sent us samples. We tried it. If we liked it, we ordered more. If we didn’t like it, we found somebody else. It’s really two month of hustling and then we relaunched the business and got going.
Small Business Trends: Did that have any unexpected headaches? You’ve described some of the things about the products and so on. Was there one thing that maybe surprised you that you weren’t expecting, Rohan?
Rohan Gilkes: Yes. There are a lot of headaches. This is my first product business. I think one thing that is so crazy is the logistics around shipping. Every month we have to say we’re going to assume that we’re going to have 1,000 customers at the end of the month, whatever that number is. That number is a guess. It has to be a guess because we’re going to be onboarding new customers and we’re also going to be losing customers.
If our data is right, we’re going to be onboarding more customers than we’re losing. But that number is going to be an educated guess. But, a month before that, we would have to, based on that educated guess, order product. That product is going to come in, it’s going to sit in a warehouse. There’s costs associated with that. Then we’re going to have to repackage it, ship it back out. There’s costs associated with that. Then we’re going to have leftover product. There’s costs associated with that. That whole process of guessing, your order times, figuring out logistics, shipping, product storage, that part of the business is very difficult. I can’t say we have fully figured it out, but we do a really good job now based on past experience and past trends.
Small Business Trends: Is there any particular analytics tool that you use to help you or do you have a variety of tools?
Rohan Gilkes: We have a variety of tools. The main tool we use is Cratejoy. Cratejoy is, I guess, what Shopify is for regular one-off purchase eCommerce stores. They manage the subscription business. We can get some data and look at trends and look at churn, which is probably the biggest number … The most important number in this business is how many of your customers you’re able to retain from month to month versus how many you’re losing. Once you figure that out, things are … You can build a very, very big business very, very quickly if you can understand that churn number and your customer acquisition cost number.
Small Business Trends: I have one last question. What is the one important lesson you think other entrepreneurs should know about starting and growing a subscription business?
Sangram Vajre: I think the one thing we believe that has helped us is distilling down the problem that we’re solving. We talk about this every time, every meeting that we start, or the kick off meetings that we have, we continue to say this problem to ourselves. Less than 1 percent of the leads turn into customers. We need to solve this problem. Every new hire, every employee, every onboarding call, every marketing collateral that we put out there, everything has this problem clearly stated that allows us to look at everything from that lens. When we think about production innovation, when we think about new marketing messages, when we think about the sales process. Everything is looked from that lens. It really helps us make sure that we have our eyes on the prize, we know what we’re trying to do and what problem we’re solving because if you don’t know that, every single problem or solution seems like a good solution.
Small Business Trends: Thank you. Rohan, your lesson.
Rohan Gilkes: I really think that subscription based business, they’re really data driven businesses. Yes your branding and your marketing and your experience has to be right, that unboxing has to be great, but at the end of the day it’s all about the data. You have traffic coming in and then you have your conversion rates, what percentage of that traffic is going to convert into a customer. Say that number is 5 percent or that number is 3 percent. That could be the difference between your business being successful or not being successful.
You have traffic, conversion rate. You have your churn, which is very, very important, how many people are leaving. What kind of allocation you can have between your customers? How many of them can commit to one year? How many of them commit to one month? It’s really about the data. For me, that’s probably the thing I’ve learned the most in the past year and a half or two years.
This is part of the One-on-One Interview series with thought leaders. The transcript has been edited for publication. If it’s an audio or video interview, click on the embedded player above, or subscribe via iTunes or via Stitcher.