w/ Andriy Rudnyk, Good Subscription Agency
In this episode, we discuss the subscription business model and how to make it successful on Shopify. Our guest is Andriy Rudnyk, founder of Good Subscription Agency, who shares his insights on common mistakes brands make with subscriptions, the difference between good and bad subscription strategies, and advanced tactics for boosting subscriber conversions and reducing churn. We also discuss the growth of subscription businesses in eCommerce and the lessons that can be learned from the SaaS industry.
The Unofficial Shopify Podcast
1/17/2023
Kurt Elster: In episode 437, way back in 437, we heard from John Roman, CEO of subscription box companies BattlBox and Carnivore Club, on how they had done subscriptions right, and when I say right, I mean it paid off when they were acquired for somewhere between $10 and $20 million. Okay, so it’s way closer to $20 million than $10. Now, that predictable recurring revenue model is extremely attractive to us, and also attractive to buyers, and now it’s easier to do than ever on Shopify with their selling plans features. But it’s also hard. It’s hard to get people to commit to a recurring expense, more so than a one-time purchase anyway.
And so, I’ve got someone here who’s gonna continue to help us with this, a consultant, a tactical practitioner. Our guest today worked at Bold Commerce previously. Andriy Rudnyk started Good Subscription Agency in 2020. And as far as we know, that’s the first agency to work exclusively with Shopify subscription brands. And so, in this episode, we’re gonna pick his brain. We’re gonna find out two very important things that will hockey stick your revenue. We’ll find out how to increase subscription conversion and lower subscription churn. After all, subscribers are your highest paying-
Sound Board Clip: WHAT?
Kurt Elster: … most loyal customers.
Sound Board:
Kurt Elster: I’m your host, Kurt Elster.
Ezra Firestone Sound Board Clip: Tech Nasty!
Kurt Elster: And this is The Unofficial Shopify Podcast. All right, Andriy, welcome. Thank you for joining us.
Andriy Rudnyk: Thanks for having me, Kurt.
Kurt Elster: I am thrilled to have a practitioner and an ex-Bold person here who helped… Shout out to Bold and Jay Myers for believing in us early on as an early sponsor for many years, and Bold, that was like one of the first upsell apps. I’m hyping up your background here. And if you work at Shopify, the employees will call themselves Shopafolk. Sometimes you get a cute name for yourself in some organizations. Did Bold have one of those? I’m just curious?
Andriy Rudnyk: Yes. Yeah. No, Bold, real, diehard Bold employees are Boldies.
Kurt Elster: Boldies?
Andriy Rudnyk: Boldies. Yeah. And Bold actually used to do a Boldie award every single year, where it’s a shoutout to somebody who’s been going above and beyond for the team. So, Bold actually takes the culture really, really seriously, and I think it shows. It’s one of the best places to work at locally and also one of the… Obviously, eCommerce, big pieces in the Shopify ecosphere. Yeah.
Kurt Elster: And so, that’s in Winnipeg. Are you in Winnipeg?
Andriy Rudnyk: Yes. I am based out of Winnipeg. I’m actually one floor above the old Bold office, since they went all remote and distributed pretty much, and yes, it is very snowy. It is minus 22 Fahrenheit, which I don’t even know how-
Kurt Elster: Oh, Fahrenheit. I was doing the conversion from Celsius.
Andriy Rudnyk: Yeah. Well, it’s supposed to be minus 30 degrees tonight Celsius, so I don’t even know what that… Yeah, so-
Kurt Elster: Yeah. Minus 30 degrees Celsius is minus 22 Fahrenheit.
Andriy Rudnyk: There we go.
Kurt Elster: Brutal.
Andriy Rudnyk: Yes. Yeah. It’s one of those. I did barbecue last night, though.
Kurt Elster: Oh, okay. Yeah. I’m still… It’s like 30, 40 here, and I’m still using my grill on the porch, but it’s… You move quickly.
Andriy Rudnyk: Yeah.
Kurt Elster: Okay, so if we’re gonna talk about subscriptions, there’s something I gotta get out of the way first. Have you run a subscription store yourself?
Andriy Rudnyk: Great question. It’s like why am I an authority on this question? Totally. And I think the reason, or I guess the technical answer is yes, technically, or actually our agency website is built on Shopify. All of our agency billing is done through a subscription app, so it’s kind of we’re walking the walk.
Kurt Elster: All right. I’ll give it to you.
Andriy Rudnyk: But that’s a side. As an aside, as you said, we’ve decided to work exclusively with subscription brands on Shopify, and that actually, because we’re so niche, that gives us a lot of time on stick. So, where an average agency does four to six subscription projects in a year, we launch that many projects every single month. So, it helps us understand what works on the conversion side, what works on the churn side, so we worked with consumables like toilet paper and meal plans, to curated boxes and loot boxes, and membership subscription businesses, so that actually is one of the big boosters of saying no to many projects on Shopify and just working with exclusively subscription brands.
Kurt Elster: Okay. And there are a couple things in there you mentioned. Do you have any favorite subscription stores you’ve worked on?
Andriy Rudnyk: My favorite one is… Oh, it’s hard to call out a brand, but-
Kurt Elster: Which of your children is your favorite?
Andriy Rudnyk: Yes. I’ll call out Dwell Differently. So, they are a very interesting Bible quote memorization toolkit that’s a monthly membership, and they send you basically… It’s a tattoo, it’s a keychain, and a print, and it’s a monthly thing, and they really believe in… They actually align with us a lot on what it means to be good to your subscribers. They think long term. They’re not just thinking of it, “Okay, we need to build a conversion funnel.” It’s like, “How do we provide more perks for our members?”
And their average customer lifetime value as a result is like 10X or 11X their average order value, so it’s like 12 months, 13 months is how long an average subscriber stays with them. So, I would have to call them out. They were also the first ones to really jump in with us.
Kurt Elster: And these are… The audience here is like armchair Bible scholars? Like they’re gonna remember our Bible verses? I’m always impressed by people who can do that.
Andriy Rudnyk: Oh, it’s… Well, they make it fun, and unique, and different, which is like-
Kurt Elster: It sounds like it.
Andriy Rudnyk: Yes. And the thing is that space, and I’m Canadian, this was a new thing to me, but the idea of mega churches has been wild to me, but it’s a massive… I mean, obviously it’s a massive industry, and people are really diehard fans of it.
Kurt Elster: Yeah. I guess in the U.S., if you live near a mega church, you pretty quickly stop thinking about it as unusual. Yeah, I live near one, and it’s like, “Oh, well, you gotta avoid that street, because they’re probably letting out right now and it’s gonna be wild.”
Andriy Rudnyk: Yes. Yes. Agreed.
Kurt Elster: So, back in 2015, I posed the same question to John Roman. I think we saw subscription box businesses peak, right? And so, that was seven years ago. Today, are they still viable or is it a fad? This is such a softball question, but given how inescapable they were at that time, what happened since then? Give me your impression of the environment.
Andriy Rudnyk: Yeah. I think the subscription space, and if you listen to some of the research, or market research from people like SUBTA, which is the subscription trade organization.
Kurt Elster: SUBTA. It rolls off the tongue.
Andriy Rudnyk: It does. It does. They’re talking about actually subscriptions within eCommerce is actually the fastest growing aspect of eCommerce. And I think the reason for that, and if we just look at Shopify specifically, since 2015, two massive things happened. One, Shopify released their subscription API, and what that means from a completely non-technical standpoint, now there’s a ton of new subscription apps that are super viable for a lot of niche cases.
So, previously you had to build your own checkout experience, and that was not possible for a lot of startups. So, you had like, “Okay, do you want a Bold subscription, or do you want Recharge?” And now you have a ton of really good subscription apps that allow for really awesome build-a-box experiences, gifting experiences, and so I think that’s one piece, and that happened roughly in 2020. And then the second piece is we’re seeing ad costs go up, and up, and up, and they’ve become less and less effective, essentially, so a lot of brands are starting to look at and hearing from their investors, like, “Listen, you need to start looking at boosting your customer lifetime value. You need to start building longer…” Basically, yes, longer runway for yourself.
And a lot of people are talking about recurring revenue. So, I think those two aspects of a booming Shopify subscription app game and rising ad costs, and customer acquisition costs, is what’s propelling kind of this growth into subscriptions.
Kurt Elster: So, we had… When it became possible and accessible, it exploded in 2015. And that was kind of fad-like, and then people ran into limitations of it, and we hit saturation, and then people pulled back from it. Shopify then later introduces selling plans, and in essence is able to… The previous versions of these apps had to replace the checkout, which created issues, was kind of a strange experience. Mostly it worked, but also there were tradeoffs.
Andriy Rudnyk: Yeah. Analytics problems, yeah.
Kurt Elster: Yeah. And so, those problems are just gone because we have a much closer to native integration here, and so the combination of all right, now the technical barrier to entry goes down again, and then you combine that with, “Hey, rising ad costs, slimming profits, let’s really lean on this recurring revenue because we’re not…” It’s more profitable, right? We don’t have to keep paying to acquire new customers in quite the same way.
And so, all right, you do make a good case for the continued success of subscriptions. Now, with subscriptions, you’ve got the typical conversion rate in eCommerce is like, “Man, if you get over 2 and a quarter, that’s excellent.” In subscriptions, I bet it’s even… It’s gotta be lower because there’s a scary limitation there in that it’s like, “Well, I’m not buying this once. I’m buying this forever.” I don’t want that recurring charge on my credit card to come as a surprise.
And so, what’s your benchmark? Certainly, you have a rule of thumb for this subscription conversion rate is good or bad.
Andriy Rudnyk: You know, it’s really difficult, because it’s so brand specific. Obviously, it depends on their traffic mix, and it’s really hard to say, but I have seen brands convert at 3% to 4%, but however, if you’re a membership business and the whole thing you do is one single SKU, it’s a lot easier to convert somebody to one single product and build your whole website around just sign up for this thing that is a recurring payment every month. I do believe that fundamentally the subscription conversion is actually the most valuable conversion in eCommerce, because the reliable info that we see from all of our brands is once somebody becomes a subscriber over a one-time customer, the customer lifetime value goes up by 200 to 300%.
So, if you can get them over that extra hump of, “Hey, this is… You could do a one-time purchase, however, if you subscribe and save, which this comes with zero risk. It’s literally the best way to buy from us. It’s preselected on the page. Why would you go with one-time purchase when it’s even more expensive?” Then you create… Yes, that fundamentally is the challenge, and trying to communicate all that with a webpage is tricky.
Kurt Elster: You said, “Hey, it’s preselected on the page. It’s no risk, because cancel anytime,” and then this new generation of subscription apps, much easier for the customer to manage their own subscription without having to email customer service, and be annoyed about it, but is it a good idea to have it default to subscription as opposed to one-time purchase? I only bring this up as recently we built a website that sold jerky, beef jerky, and they started offering subscription. It’s a consumable good. Of course, you should offer subscriptions. But it had the default installation, and I don’t remember which subscription app this was, was it defaulted to subscribe and save, and then the customer would have to select one-time purchase. And who knows if this is true or not, but they’re like, “Look, this is creating a customer service issue, so hey, can you modify it to default to one-time purchase?”
Was that a case of one person complained and we panicked? Or we didn’t communicate it correctly?
Andriy Rudnyk: That’s something we see commonly, and this is actually probably the most insightful split test that we ran this year for a brand, Sea to Table. They do kind of sea, obviously sea to table meal seafood, which is the idea of just seafood in eCommerce, buying seafood online just kind of sounds like a crazy idea, but they’re leveling up to sell it as subscription boxes, and this is a split test we ran, and I do believe that in this case it was probably communicated not the best. And also-
Kurt Elster: You’re really trying to be quite neutral there. You’re like, “It was probably communicated it not good. Opposite of good starts with baaaaad?”
Andriy Rudnyk: Yeah. Giving in to my Canadian roots, here. Although my roots are Ukrainian. I will shout that out. But I think one of the best ways I’ve heard this framed is you want to make the customer feel stupid for not buying, for not subscribing and saving. So, you use your one-time purchase as an anchor price, and you say, “Hey, you can save 30, 40, whatever percent.” And my job is not to give away your profit margins, but once you start thinking long term and start looking at, “Oh, 200, 300% customer lifetime value increase, okay, this is predictable revenue, this is what our investors are asking for.” It’s really trying to outline it on the page as, “Hey, you’ll get the perks. You’ll get exclusive discounts. You’ll get maybe exclusive products. You’ll get access to our cookbooks. If you prepaid for the year, you’ll get access, you’ll get this free product.”
So, I think yes, communication on the product page once you opt them in to subscribe and save needs to be very clear that it’s yes, the common objection is cancel anytime, but also you do want to make it very easy to opt out. And the tests that we’ve run, the results we’ve seen is the conversion rates are actually staying, between both, are staying completely flat. And we are lucky enough to work with a brand that was like, “Yeah, sure. Let’s see how this pans out.” However, once you opt people into subscribe and save, your subscription sign up was 47% higher, and that’s actually my biggest… That’s my most recommended thing into 2023. If you’re a subscription brand, try running a split test. Opt people into subscribe and save, see what that does to your conversion rates, see what that does to your total checkout revenue.
You’ll see, “Oh, this is not actually deterring people from this.” See what happens to your same-day cancellations. Are people mistakenly opting into this? Shopify is actually making that pretty difficult these days too, because they still have to opt-in with a box at the check in and say, “Yes, I understand this is a recurring payment. I understand that this is what I’m getting.”
Kurt Elster: Oh, so there is like a double confirmation that happens. Okay. And so, where do you think… Where are the common pitfalls here? Where do you see brands consistently going wrong with subscriptions? What’s that one common subscription mistake you see over and over that makes you want to scream?
Andriy Rudnyk: I think the big question or the big pattern I see is a lot of brands are hampering their subscription growth by hyper focusing on acquisition and not thinking about retention as much. Because if you ask some subscription brand owner, and this is kind of where we see seven-figure brands stall, instead of growing their revenue, is, “Okay, well, what’s your churn rate? What’s your monthly churn rate?”
“Oh, actually, you know what? I don’t really quite know that number off the top of my head.” Although, they do know what their acquisition costs are. They’re not really thinking about, “Oh, we’re losing our most loyal, highest paying customers every single month. We know that it’s more important that it’s easier and cheaper to market to them.” My favorite saying is your upcoming order is actually your most profitable marketing email you send every single month. All you’re really saying is, “Hey, here's…”
A great example of this, Athletic Greens actually recently sent me, “Hey, here’s a Black Friday-Cyber Monday thank you. No action needed. On your next order, here’s this $10 free product if you order in the next,” or basically if your order falls into the next window. All this email is really saying is spend $100 with us on Athletic Greens and you’ll get this $10 product. And for me, it worked, because I’ve already bought from Athletic Greens and I understand what that product does, and all it’s really trying to tell me is make sure to renew within this timeframe. Versus for a new customer, it’s trying to convert them wholesale, and that’s really hard with that same offer.
So, again, the old marketing, and this is why I think subscriptions are not a fad, because we know this, or I’m yet to know what the origin of this stat is, but it costs five times more to market to a new customer versus an existing customer.
Kurt Elster: Right.
Andriy Rudnyk: Right. So-
Kurt Elster: I said right. I have no idea what the source of or if that is true, but A, it makes sense, and B, we could Google it.
Andriy Rudnyk: Yeah. We could. We could look it up. But that would take all the fun out. So, yes, I think the big mistake is yes, focusing too much, and this is what’s slowing a lot of growth down. Forgetting about churn. And if you start, yes, and the other smaller, kind of more tactical issue I see all the time is people trying to hide cancellation flows, or cancel buttons, or-
Kurt Elster: That’s such a… It’s not an optimization. It’s a dark pattern. One is like… A dark pattern being a cursed optimization. Do not do it.
Andriy Rudnyk: It’s this black hat version of trying to fool yourself that your cancellation rates are lower, however, your chargeback, your customer service, everything just suffers, and your customer lifetime value certainly takes a dip if you’ve employed those tactics, so yeah, that’s kind of the big thing we see what separates really good subscription strategy from one that just doesn’t go anywhere, is thinking about retention.
Kurt Elster: When I log into a Shopify store, and I go to the analytics, and I’ll load it up for like 30, 90 days, and I look at those KPIs, and to me, all I see is a math problem. And for me it’s in this algebra equation, which is the variable I want to change? Which one gives me the big impact? And often for me it’s average order value, whereas everyone else is like, “Well, let’s focus on conversion rate.” And there’s so many factors in it I can’t control, and so I really… I like AOV and it has these outside effects as a multiplier.
It sounds to me like… All right, so that’s one-time purchase. Once we move into subscriptions, your equivalent of that, and obviously average order value applies in subscriptions too.
Andriy Rudnyk: Oh, totally.
Kurt Elster: But for you, the number that you want to look at is churn rate. How many people am I losing each month, and can I reduce that?
Andriy Rudnyk: And why, and can I reduce that, exactly.
Kurt Elster: Yeah, and why are they doing it? Why are these people leaving? So, how do you uncover that answer? Give me some benchmarks. Give me a range for this churn rate… Give me a churn rate that wouldn’t scare you and a churn rate that would terrify you.
Andriy Rudnyk: If your churn rate monthly isn’t double digits, and we’re talking about… This is a whole question of like, “Well, how do you calculate churn?” Is it on MRR? Is it on number of subscribers? Is it sticker churn or is it revenue churn? So, to me, if it’s somewhere in double digits, that’s scary. If it’s higher… Well, yes, it’s terrifying. Because you’re losing 100% of your subscribers within a year. You could have serious product-market fit problems, because customers are just churning out left, right, and center.
A decent one is somewhere between… Ideally you want to be somewhere between 3% to 5%. And assuming, again, that your subscription keeps growing, but a lot of brands find themselves in kind of the 5% to 10% range, and they’re trying so hard to peddle, to get growth and new customer acquisition to fix their churn rates, that they’re forgetting about, “Well, why are customer canceling? What’s the main reason? Is it too much? Is it they can’t find the right price plan or the right frequency?” And those are actually one of the big strategies around what makes a good retention strategy, is providing first of all good transparency on your communication and empowering your user, so upcoming order emails are really clear, your customer portal is easy to access, and then second one is flexibility around your frequencies, and pricing, and pricing plans. And then the third one is pampering. Occasional pampering of your subscribers. Because fundamentally…
I really like, there’s a book, kind of an OG book, The Membership Economy by Robbie Kellman Baxter. And she’s an ex-Netflix exec and worked there for a while, and she published a number of books. On this topic about building a recurring revenue, she talks about this being a forever transaction. Well, if somebody signs up for your subscription, when do you want them to leave? Probably never. You would want to think that. Well, okay, so you’re trying to build a lifelong relationship with this person, and I just got married this summer, so my headspace is in that, so the reviews are still to be in, but-
Kurt Elster: My wife and I have been together 10 years, and I recently left her a five-star review, so I understand.
Andriy Rudnyk: Yes. Yeah. It takes a bit of time. I still need some feedback there. But on the idea here is you want to build that relationship on in my mind transparency, flexibility, and yeah, occasional pampering.
Kurt Elster: Give me an example of pampering.
Andriy Rudnyk: An example of pampering is giving… Here’s a thank you, so Athletic Greens, a great example was, “Here’s a thank you gift for just being a subscriber. You have to do nothing. Here’s a free gift on your next order.” Another example is, “Hey, here’s an exclusive offer that is literally, is truly not available to anybody else. Here’s a locked off collection or locked off product that we’ve just reserved for highest, longest standing subscribers. Here is a free download that… We thought of you and here’s a free download. Just go onto the website and nobody else can get access to it.”
So, these are occasional things that you drop in there.
Kurt Elster: It’s exclusives.
Andriy Rudnyk: That are exclusives. Yeah.
Kurt Elster: This same tactic, also a client, Hoonigan, who has… They don’t have subscriptions. They have a loyalty program. And we do very similar things with the loyalty program. And the more things we do, the more people are like on top of their points. We’ll get customer service emails. They’re like, “Hey, I don’t want to miss out on this upcoming exclusive, and so I want to make sure that I’ve got enough points.” We’re like, “You’re good. I swear you’re good. Here’s a screenshot.” No, offering those exclusives, that pampering, simultaneously creates those really loyal customers, and also identifies them and rewards them. It is such a necessary thing if you really want to separate yourself from the crowd. And then that creates the idea of like, “Well, especially in terms of retention, if I quit, if I cancel my subscription, I’m gonna lose out on some of these things.”
So, it’s like it’s goodwill, but then it also creates FOMO. That’s not necessarily our intent. That’s just human psychology.
Andriy Rudnyk: And that’s primarily like the whole operating idea on how we’ve built our agency, is just being good to your subscribers, like it’s common sense, but a big part of my job is reminding brand owners. It’s like, “These are your most loyal, highest spending, most profitable customers. When you do good things for them, they’ll be good to you.” It’s not a crazy idea.
So, yeah, so pampering with exclusives and an occasional free sample of something. We have a cheese subscription that we work with, and they do, “Hey,” they have like this ripe and ready selection that just needs to go out every single month, because cheese, obviously… What’s the word I’m looking for? Disposable product? Not disposable. But it’s got a peak freshness point, so they’re just like, “Hey, if you’re a subscriber, you’ll get a free sample of awesome artisanal cheese every single month.” So, just log into your portal and find the one you want. Small things like that. Yeah.
Kurt Elster: I love cheese. I live 20 minutes from Wisconsin, so I have so much access to fabulous cheese. What is the name of this cheese box?
Andriy Rudnyk: Yes. You gotta check out Cheese Grotto.
Kurt Elster: Cheese Grotto?
Andriy Rudnyk: Yes. Cheese Grotto.
Kurt Elster: I love that name.
Andriy Rudnyk: Yeah. Jessica is a fantastic entrepreneur. She’s based out of New York. And she just dedicated her whole life to cheese. I thought I loved cheese, and my wife makes a lot of comments that I eat a lot of different kinds of cheese too often, and we typically need to have four or five pieces of cheese in the house.
Kurt Elster: Is there a cheese intervention? I like a variety. You need a primary cheese, like a smoked cheddar, then you need an accent cheese, like a parmesan. You need a base cheese, like a mozzarella. We could do 20 minutes on cheese if you really want to switch this up.
Andriy Rudnyk: Okay, that’s a different podcast. We could start a side show on that. But yes, a long story short, it’s hey, if you’re a part of this subscription, log into your portal, find the free offer that’s a sample, and just add it in. So, exclusives again.
Kurt Elster: The magic here is keeping people subscribed and curbing churn, and we’re doing it by building authentic loyalty through… Up front, it’s transparency, so we’re gonna… The risk here is I want to get out of this subscription. And the dark, the Voldemort method would be like, “All right, we’re just gonna prevent you from canceling in any way. Can’t lose subscribers if they have to cancel their credit card to end this mess.” We don’t want to do that, so instead, we want to earn their authentic loyalty with like, “All right, we do exclusives that are truly only for the people who have trusted us with a subscription.”
And so, we’ve got transparency, flexibility, rewarding people, and then you mentioned good communication and figuring out the frequency. So, the good communication is like always reminding people, right? Like, “Hey, your next subscription’s coming up. This is what you’re getting. This is what you want to do if you want to change it.” Anything noteworthy there we should bring up?
Andriy Rudnyk: On the upcoming order emails, it’s literally one of your most open, like order confirmation email, upcoming order email, one of the highest opened, highest interacted with email. And with an upcoming order email, it’s like your job is to tell them how much is being charged, what they’re getting, get them hyped up for this upcoming thing, so good brands actually take, and it depends on your fulfillment schedules and if you’re fulfilling once a month, if it’s a monthly box, or if it’s coming up, it’s like, “Hey, here are the items in your box. Here are recipes to go with the items in your box.”
Kurt Elster: Oh, okay.
Andriy Rudnyk: Also, or, “Here is how to make the most out of your next upcoming order. And if everything looks good, just ignore this email. But if you want, here’s a magic link that takes you directly to your portal and you can update, delay, postpone, change the shipping address, change the billing, skip an order.” One hesitation that brands have is like, “Well, if we give them too much power in the portal, customers might cancel. We don’t want this upcoming order to be a cancellation prompt.”
And your job at that point is, “Sorry to break it to you. If somebody wants to cancel, they will either cancel before your order or after the order is placed, and then will ask for a refund, and you don’t want that. Terrible brand experience. Good luck ever winning them back.” So, your job is to give them any option that’s better than cancel. So, pausing for an amount of time, a delay, a skip of an order, changing of a frequency, this is a big one, and finding… Because one of the big mistakes I see is you set up a subscription program and you put your frequencies just like one month, two month, three month orders, which is… It just came up with the app. It must be the best solution.
And then you think about, and brands just never think about the consumption habits, and you end up having, “Oh, this is a 12 jar box of peanut butter. Who goes through 12 jars of peanut butter in every single month?”
Kurt Elster: This is always my issue and my resistance to subscriptions, and I’ve tried them, I’ve tried to make it work. Because I love automation and what is more automated than like, “I don’t run out of a thing because it just keeps showing up.” And so, I tried this with very obvious staples, sundry goods, and I think the great example is kitty litter, and it drove me nuts. I could never get it right. And eventually my cat, who’s very picky, had like his brand of kitty litter he had to have, Dr. Elsey’s. And I couldn’t get the… I always ended up with either I’m out or I have two bags. And it drove me… I’m like, “You know what? I’ll just cancel it.” Because I can get it quickly anyway.
And so, how do you get that frequency right? Because for me, that’s the objection.
Andriy Rudnyk: That’s actually really tough. I think the short answer is let the customer… Basically give customers flexibility. Did they allow you to set a completely custom frequency? Like, “Hey, I wanted actually every 32 days.”
Kurt Elster: No. I don’t think I’ve seen that.
Andriy Rudnyk: Yeah. You can. I mean, the business, it depends on the fulfillment, obviously, if they allow this, but now apps come with this out of the box, and if you really wanted to, you could build a custom solution on top of something like a Recharge that allows you to do that too. So, that to me is a big piece. I think you can fundamentally… You can look, export your data, look at what the most common frequency is, look at what the most common frequency is for the highest customer lifetime values, and be like, “Oh, okay, so we can bake this into email and SMS onboarding.” So, once you sign up and say, “Hey, Kurt. You’re getting all this awesome kitty litter stuff, and here are all the perks, here's why you would never want to cancel with us, because you’re getting all these side perks, and it’s a lot cheaper than buying one time. Also, here's how to manage your portal. Here’s how to set the perfect subscription frequency. We find that customers with two cats need this much, with three cats need this much, and with five cats need this much. But if you ever need your own frequency, here’s how to set it.”
So, matching that consumption, that reorder frequency and the customer’s consumption habit, is a really big conversion churn improvement factor. And really boosts customer lifetime value because of that. And some brands will be like, “Well, you know what? We really need to tighten our payback period and we need them to order more than they need.” And you can’t really force a customer to do that. I’ll be honest.
There are ways, and we talked about like, “Okay, what are the more advanced tactics that you could get?” And you bring up a great point around average order value increase, or in my mind, it’s like how do we get that reordering window shorter? How do we get customers to consume the product a little more? And that’s really the only way you can do that in my mind. Or I’m open to ideas, but…
Kurt Elster: We’ve really nailed reducing churn. We’ve got the frequency down. We need to be transparent and make it clear, “Hey, you can unsubscribe.” Are there other conversion tips here that we should be looking at for subscriptions?
Andriy Rudnyk: Specifically on the conversion customer signup side is yes, if you’re a consumable good, and if you’re selling one time and subscribe and save, and if you make it, quote unquote, not to make the customer feel stupid, but make it a very clear choice that subscribe and save is the best way to buy for your business. There’s no reason not to do it. So, that’s for consumables.
For things like curated boxes, and memberships, and things of that nature, a big booster for customer lifetime value and churn reduction is prepay and save. So, getting customers to prepay for a year of membership, or a year of boxes, and give them a good incentive to do that. Again, it’s… I don’t like discounts. I like free gifts. So, “Hey, if you prepay for the whole year, you’ll get either free shipping and this free gift, or just this free gift as a more loyal customer.”
Another thing is set that prepaid option to auto-renew at the end. Customer doesn’t need to think about… What are they gonna do a year from now? You’ll send them a proper upcoming order, and it’s like, “Hey, your subscription is due for a renewal. Decide what you want to do with it.” And hopefully by that time your product, and your service, and the trust that you built with the customer over the course of a year is already done, has done that for you. So, prepays, pre-selecting prepays is actually something that I would recommend. And again, your results may vary, but split tests show that they don’t impact churn, or don’t impact conversion, but do boost your prepay opt-ins and average order value in that sense.
And the funny thing is if you think about software as a service and like the OG subscription companies that have been always recurring revenue software as a service, the Looms, the Zooms, the Netflix.
Kurt Elster: The Looms and the Zooms. I like that.
Andriy Rudnyk: Yes. What do they do? It’s like if you go in to sign up for their paid plan, they’ll tell you, “Oh, it’s $15 a month billed annually.” They already are telling you they’re opting you into a full year payment right up front. It’s very easy to opt into month to month, but why would you want to because you’re basically gonna save money.
Kurt Elster: And I know someone is gonna be like, “Well, yeah, that’s the default choice, but I always switch it, therefore everyone else does too.” My favorite example of the effects of default choice, so this depends where you live, but in Lake County, Illinois, I see so many white Teslas, and I was like, “What is the deal? Why is every Tesla but mine white?” And the answer is because it’s the default choice in the color picker when you order one. That’s why they’re all white. And so, every time you see a white one, be like, “Man, whatever I want people to do, I should just make that the default choice on my website.”
Andriy Rudnyk: I’m sure also that Tesla is prioritizing the most popular option first if they’re thinking about their website, so it’s possible that they’re just like, “Well,” it’s kind of a chicken and egg. It’s like, “This is the most popular one ordered, so we’re gonna make it the most default one on the website.” So, it’s kind of a self-fulfilling prophecy there probably. But yes, default option, and then it’s a great point of like, “Oh, you see this in the real world,” because this even works on massive purchases.
Because at the end of the day, it’s just a person making a decision. If you’re a real car nut and you’re thinking about, “You know, I need to get my Tesla wrapped. I don’t really care about this so I’m gonna either skip this color option,” but how long do you spend thinking about your car color? Probably as long as you think about, “Do I need this subscription box every one month or two months?”
Kurt Elster: I don’t know. I don’t know. I guess it depends on the person. But the point is you gotta try. Are there other advanced tactics? We’ve gone over a lot here. And yeah, subscriptions, they’re harder. You gotta wrap your head around it. They’re not impossible. But are there some really advanced tactics that if I’m… I’m already entrenched in subscriptions. Everything you said is basic and obvious to me. Give me the tough stuff.
Andriy Rudnyk: Yeah. So, if you were looking to break into eight figures and further, it’s like, “Okay, listen. We’ve got good customer acquisition. We’ve got good subscription basics here.” One really cool thing that we’ve played around with this year was creating flexibility around talking about frequency, but also flexibility around pricing plans. So, creating a really good step-down plan as a membership. So, for example, think of it, this is part of your cancellation flow, and if you want to cancel a subscription, providing a membership option that is say $10 a month, but it gives you $10 back in cash back every single month. And then you can use that cash back at any point with the store. And you also get still access to all of the perks that a subscriber would.
So, it tells you, “Hey, instead of canceling, opt into this basically zero risk cash, $10 back, spend $10 a month, get $10 back, and because you still at some point want to purchase from the brand and use that cash anyhow on something on a one-time purchase product,” that being one of the good cancellation mitigation tactics is creating a really good, flexible step up, but also step-down plans.
And another thing I would talk about is, and you see this from really good subscriptions. Athletic Greens, the MUD\WTR, what is the first starter kit that they send you? Well, part of the first starter kit and the unboxing experience is, “Hey, here’s this shaker for the Athletic Greens to make it a part of your daily routine, or here’s this latte milk frother so you can use it and use our product more often and make it more enjoyable more often.” So, here are the tools that you need to make this subscription consumption a lot more… just a lot better.
And same thing with I really like with MUD\WTR, what they do is part of their unboxing experience, once you open the box, on the facing piece of the back of the lid as you open it and it faces towards you, it’s the recipe on how to make it really easily. And it’s like, “Hey, here’s the most popular recipe that everybody enjoys. 80% of our people drink it as a latte. Here’s the recipe.” So, building tactics like that in to increase consumption habits is really, really… Can be really, really powerful to again, extending customer lifetime value, getting people to reorder more often.
Kurt Elster: We’re coming to the end of our time together. There are many apps you can use to run subscriptions on Shopify. Which are your preferred solutions? Which ones don’t suck?
Andriy Rudnyk: So, and it’s again like picking your children, and obviously we work with all apps. I’ll put it out as that. The biggest app we work with is actually Recharge, just because they have so much of the market share. But there are a number of really good, up-and-coming apps that we’ve either switched people to or we’ve worked on onboarding them onto. If you’re thinking… I hate recommending replatforming, because people think that this is gonna be a solution to all my problems, and sometimes if it enables some kind of purchasing behavior that is kind of game changing for your brand, if it’s like you never had a good build a box and now you need a really good build a box, or your customer support’s just dying and you’re losing customers left, right, and center because customers can’t get ahold of their portal, because accounts on Shopify are a total mess and with all of it, so I would call out Atomic app, Skio, Rodeo, and Smartrr. Those would be like the new kids on the block that I’d say are really doing cool, innovative things. We’ve worked with them, and I would put it on people’s radars. Yeah.
Kurt Elster: All right. I will include all of those in the show notes along with Cheese Grotto, the book Forever Transaction, SUBTA, and of course, The Good Subscription Agency. GoodSubscription.agency. And that’s the best place to go to learn more about you?
Andriy Rudnyk: Yes. Totally. Check out our website. And if you’re a podcast listener, we are doing a little Kurt promo, so if you go to GoodSubscription.agency/kurt, you’ll get 10% off your first month with GSA, and that discount never expires.
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Kurt Elster: Thank you. I appreciate that. Wonderful. All right. Mr. Rudnyk, this has been illuminating. Clearly, you know what you’re doing, and I appreciate the time. I got a new lease on looking at subscriptions, which previously really kind of made me tear my hair out as this necessary dark horse revenue tactic that I’m like, “I like it. I know it’s a necessary evil. But oh man, is it tough to mess with.” Here, you lay it out, and okay, this seems much more accessible. I have a much better 10,000 foot view here of the way to approach it.
But more so, when I look at other people’s subscriptions now, when I’m trying to purchase for myself and I see them doing it wrong, it’s gonna drive me doubly crazy, because now I’ve seen behind the curtain.
Andriy Rudnyk: Yeah. Yeah. You will not unsee the seams again.
Kurt Elster: Andriy Rudnyk, GoodSubscription.agency, thank you so much.
Andriy Rudnyk: Thanks for having me on, Kurt.
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