The Unofficial Shopify Podcast

How a Subscription Box Biz Got a Netflix Show

Episode Summary

w/ John Roman, BattlBox

Episode Notes

We all love subscriptions, the allure of recurring predictable revenue is too hard to pass up. They're hard to get right.

We need an experienced subscription veteran who's been there and can tell us what what works and what's a waste of time.

John Roman, CEO of subscription box companies BattlBox and Carnivore Club, joins us to go deep on how to do subscriptions right.

You'll hear:

Did I mention that they sold a show to Netflix?

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Episode Transcription

The Unofficial Shopify Podcast

Kurt Elster: Ah, subscriptions. Man, we all want to make subscriptions work, right? They’re really attractive. Every time I see that subscribe and save option on Amazon, I’m like, “Oh, once I sign up for that, they got me.” Right? It is the ultimate conversion rate optimization hack because I don’t even have to go make the purchase. Month after month, that predictable recurring revenue keeps showing up. That’s what we love about it. Predictable recurring revenue. Especially in eCommerce, where inventory and inventory forecasting is such a challenge.

And speaking of challenges, subscriptions are a challenge. They’re tough to get right. And I think there is a bigger difference in the right way to approach and sell subscriptions versus one-time purchase products than most of us, myself included, realize. And fortunately, we have someone here today who has really excelled at selling subscriptions through their Shopify store. We’re joined by someone who’s grown and sold a subscription Shopify store for a fairly large and impressive sum, and get this, they even had a Netflix show to go along with it. So, we are joined by John Roman. He’s the CEO of BattlBox and he’s gonna share this journey with us.

All right, John, welcome. Oh my gosh. I forgot the important part. This is The Unofficial Shopify Podcast and I’m your host, Kurt Elster.

Ezra Firestone Sound Board Clip: Tech Nasty!

Kurt Elster: All right. John, how you doing?

John Roman: I’m good. Thanks for having me, Kurt. I’m excited.

Kurt Elster: All right, so let’s start at the top here. BattlBox, spelled B-A-T-T-L Box, BattlBox. What is it?

John Roman: Yeah, so it’s BattlBox, B-A-T-T-L, no E, B-O-X.

Kurt Elster: B-A-T-T-L. I already screwed it up. Oh my gosh. We’re two minutes in and I’m like, “Well, let me just butcher this brand name.” It’s called BattlBox. Did I get this right?

John Roman: So, it’s BattlBox without an E because that domain was taken.

Kurt Elster: Domain names are such a pain.

John Roman: They are. You really gotta get it right. So, BattlBox is a monthly subscription box. It’s a surprise mystery box. Outdoor camping gear. So, anything from a tent, to maybe an ax, month before last we sent a takedown bow, like a bow and arrow that you would put together. It’s cool gear and it’s a complete mystery each month. It’s almost like the drop model where everybody gets it at the same time, and nobody knows what’s in it until they open it. But everybody gets the same thing.

Kurt Elster: And people are happy with this? That’s always the pushback from merchants, is like, “Well, what if they don’t like it?” I don’t know. What if?

John Roman: Yeah, so it’s not easy, and we’ve made mistakes through the years and learned from those mistakes. We have a pretty ridiculous procurement process of deciding if something goes in the box. It starts… Number one, a big thing, we listen to our customers. So, we built this community. Not all of our customers are in it, but I think we have maybe 7,000, 8,000 in this Facebook group, and it’s a very streamlined process for them to submit ideas and products, and then we have a team that then reaches out to these vendors and gets samples. We then test the samples, make sure that they’re of a high enough quality where we’re gonna put our name behind it, and then it goes to a group. There’s a panel of seven of us and if more than one person says no to any product, it’s not an argument, that product’s just out.

And it’s difficult, right? It’s this huge funnel of potential opportunities. And then the worst part is if it actually makes it to that point, we then have to make it make economical sense. So, it’s a whole nother conversation of how we’re a marketing engine to this company, and the reach we’re gonna give them, the 50 people that are gonna put it on YouTube the day that it drops, and it’s gonna be this organic traffic to them.

So, it’s a crazy process and we’re constantly improving it because it’ll never be perfect.

Kurt Elster: All right, so straight up, this just sounds really difficult. It does. It sounds hard. And so, if I start with-

John Roman: But there’s easier subscriptions, right? The traditional subscribe and save model that Amazon coined that a lot of companies have success with works great. The Manscapeds of the world that have a replenishable. The Dr. Squatch, where it’s just gonna be the same product. We chose to take the more difficult road where the product changes every month.

Kurt Elster: And so, how many products are typically in a box?

John Roman: We have four different tiers. We have the Basic Box, which is $35 a month plus shipping, and typically that’s a why would you charge shipping? These boxes are heavy and it’s actual shipping based on geographic location. And then we have the Advanced Box, which is $65, the Pro Box that’s $119, and the Pro Plus that’s $169.99, and 40% of our base is in the $169.99 a month. The boxes stack on top of each other, so if you get the Advanced Box you’re gonna have everything from the Basic and the Advanced, and so on and so on.

So, on the Basic Box, typically it’s gonna have three to four items, all the way up to the Pro Plus, which could have six, seven items.

Kurt Elster: Okay, so you gotta come up with six or seven items, and I assume the items themselves stack, like you’re adding to each one? Or is it a completely different set for each box each month?

John Roman: So, it’s adding to each one, so if you get the Pro Plus, you got everything from the Basic, the Advanced, the Pro, and then the additional item.

Kurt Elster: Okay. A majority of people are going with the most expensive one. You’ve got four pricing tiers here. Why not three pricing tiers?

John Roman: So, when we launched, we launched with four. Prices, they were a little bit less. They were all about 20% less than they are now seven years later with cost of goods going up, but we were with certainty that the $35 a month, the basic that used to be in 2015 $24.99, we were 100% sure that’s gonna be our most popular box, and then we said, “We’ll give some additional options, and we’ll throw a $150 up there in case someone wants to spend that much, who probably won’t, but maybe we’ll have a couple people.” And we were completely wrong. It was a complete flip flop.

I’d say 90% of our ads right now, the entire experience we take off the Basic Box from the offering completely. We’re just positioning the Advanced, the Pro, and the Pro Plus, and we’ve also run the opposite too, where we only had the Basic, Advanced, and Pro as an offering. If you go to the site organically, you’re gonna see all four, but we’ll switch up what we’re offering. Sometimes ads and landing pages will just feature one of them.

Kurt Elster: All right, so when you approach vendors, and obviously there’s gonna be relationships that get developed over time. It sounds like you’ve been at this for seven years, right?

John Roman: Yes.

Kurt Elster: So, you approach them, and the pitch is… It’s a bit of a strange opportunity because you’re going to them and saying, “Hey, we need this item. We need a whole bunch but only for the one month, maybe in the future, and we really need to squeeze you on the margin, but do it for the exposure, buddy.” That’s a really difficult pitch, especially to go to a manufacturer with that.

John Roman: Yeah. It’s a tough pitch. And to make it even more difficult is… So, we can’t repeat. We don’t repeat items. I’d say in the seven years we’ve maybe repeated three items in total. We also don’t repeat a lot of brands, the reason being we want to be delivering surprise, and new, and brands they haven’t heard of, or a lot of times at this point we’ll do product launches with brands. But it’s all because if we send the same brand, if it’s in the box more than three times in a year, customers are gonna let us know that’s unacceptable. So, it’s even more difficult because we’re building a relationship, but the relationship is difficult because we’re not gonna… You know, we might feature them again in a purchase order for 2024 just to show our commitment, but it’s spreading it over time and it’s difficult because wholesale is not an acceptable rate, because our margins don’t work off that, because we’re also presenting the $170 a month… It’s gonna have, if you try to shop it on your own, a retail value somewhere in probably the $300, $310, $320 range.

So, we can’t pay wholesale because then we would not be a business. So, it’s difficult, and then we have to say to your point, sell it to us for less but trust us. These YouTube videos and these TikToks we’re gonna put out, you’re gonna get insane traffic. Luckily, with time, though, we have case studies and testimonials where we can supply that with our other PDFs explaining the model. And references. Hey, call this vendor, call this vendor, and at least in this point it’s a little bit easier because a lot of these vendors will sing the gospel and tell them how it genuinely helped their business.

Kurt Elster: Initially, when you’re starting out, it’s gonna be tough. But once you have some proven hits and you start to get some fans among your industry, they’re gonna be able to sing your praises and present that social proof to these other vendors where they’re gonna be more willing to get on board. Since you’ve done this over seven years, this predates TikTok, right? This predates… It would be like at the start of really the rise of the influencer. Do you think people have gotten more receptive to it or more suspicious of the pitch over time?

John Roman: I think they’ve become more receptive to it. So, we do, we’ve obviously made new iterations, so we have on our site, we have a section on the mega menu that says, “Hey, do you want to be in BattlBox,” for vendors. We’ve created a funnel there where we’re getting I’d say on average maybe 50 submissions a month of brands that want to be in there. And because of that, it’s made the pitch a little bit easier because they came to us, so we can be very matter of fact. This is our model. It’s a little bit less of a sale.

Our initial model, first month I think we sent 30 boxes to influencers. That was a big part of our initial spend. And we continue to kind of lean in heavy on that. We send 50 boxes to YouTubers a month. The face of our brand, if you watch any BattlBox video, there’s a tall, bearded gentleman. His name’s Brandon. Goes by Currin, it’s his last name, but he's the face of our brand. He was one of the initial people doing reviews. He was a paying customer. Our customers fell in love with him and we in turn were like, “Dude, you gotta come be a part of the team.”

Kurt Elster: It sounds like that ambassador relationship was born out of a very genuine relationship and experience. Is this the same guy who’s in your Netflix show?

John Roman: And he’s the reason we have the Netflix show.

Kurt Elster: How does one get a Netflix show?

John Roman: Oh, man. So, Brandon Currin, who’s the face of our brand, so we… So cringe to say this. We had a prepurchase survey on our site in 2015, where before we would take your money and let you buy, we wanted to know where you came from. Obviously, we don’t have that anymore. We haven’t for years. But it was your usual suspects, right? Facebook, Twitter, Instagram, YouTube, and then there was an “other”, and the other you had to hit the little radius and type in who it was. And I want to say month three, month four, we were seeing a large number, like 20%, 30% at some times were putting this guy. So, we look him up, he was doing a YouTube review. We were checking our spreadsheet and we didn’t send him a box.

So, then we realized he’s a fully paying customer, so we quickly reached out, “Hey, man. Love what you’re doing. Your box is free moving forward. You don’t have to pay anymore.” And then when it continued for a few months we were like, “Hey, we need you to keep doing this. Still a free box. We’re gonna give you $500 a month. Please don’t stop.” And then it came to the point where it was like, “Hey, do you want to just move down to Georgia?” He was a HVAC guy and at nighttime he would record content, and he had done some other… been on some TV shows, on hunting, like Fox hunting shows, so then he came on and in a short order after that we were reached out to by a company called High Noon Entertainment. Production studio. Cake Boss and Fixer Upper are kind of like the two feathers in their cap and they said, “Hey, we really love what you guys are doing. We’ve gotten some money from The History Channel to shoot a sizzle reel,” which I didn’t know what a sizzle reel was. It comes before a pilot.

And basically, you get a green light on a sizzle reel, you then get the money for a pilot, and then you hope the pilot goes well so you can get money for the full season. So, we want to shoot a sizzle reel. They came down. History Channel sat on it for about six months. Told us, “No, we’re not interested.” High Noon said, “We’re gonna keep pitching this. We really like it.” They pitch it to Discovery. We’re talking to Discovery for like seven, eight months. They finally pass. At that point we were like, “Okay, I guess it didn’t work.” And they’re like, “No.” This was January 2019, so at this point we’re a year and a half into this attempt, and they’re like, “We have two meetings. One’s with Netflix and one’s with Walmart’s streaming service,” which I don’t remember what it is even called. Maybe VUDU. I don’t even think it exists anymore.

Kurt Elster: Yeah. That was a surprise to me.

John Roman: Us too. Even then. They pitched to Netflix, and they came back, and they said, “Hey, it went really well.” And the next day Netflix said, “We want it. We don’t do pilots. Let’s shoot a season. We want the right of first refusal to the next seven.” And they sent us over an 84-page agreement. We said, “Okay.” We showed it to our lawyer. They’re like, “This is not my wheelhouse.” So, we went and started Googling, found an entertainment lawyer, took it to him. We were feeling good about this. Really nice guy. Redlines everything. We’re feeling super confident. We send it back to them. Netflix responds almost immediately, within an hour, and says, “We’re so sorry if we miss-set an expectation. This is the agreement. There’s not redlining.”

Kurt Elster: Oh, so there’s zero negotiating on the agreement. Wow.

John Roman: “You want to have a Netflix Original Show? Here it is.”

Kurt Elster: So, they move fast, but it’s on their terms.

John Roman: 100%. You know, we had an internal talk and we’re like, “This could be…” The whole premise of the show is us testing gear to determine if it goes in a BattlBox. It’s this literally dream commercial for us in a season format, so we were like, “This could be really, really good,” so we just say, “Okay, we’re gonna do it.” And off to the races. I think it was all said and done by the end of January, beginning of February, and by summer we were filming. We filmed through the end of the year, moved into 2020. They come back and shot some touch-ups for a couple weeks, and then it aired in July of 2020, like in the height of the pandemic.

Kurt Elster: I was gonna say. Height of the pandemic is also peak streaming, so a great time to have a show premiere on Netflix.

John Roman: We were gonna be the next Tiger King. That was the hope.

Kurt Elster: No one could be the next Tiger King. That whole thing was too insane.

John Roman: I agree, but that was the big pie in the sky, and then came the fun part of forecasting and how do we have enough product, and how is this customer gonna behave, and are they gonna buy, and are they gonna buy subscriptions? Are they gonna buy one time? We don’t know what we don’t know. So, it was literally just throwing a dart at the board and hoping we were right on the forecast.

Kurt Elster: The show functions essentially as a commercial, because in… If I look up the listing on Netflix it says, “Watch Southern Survival,” and the description is the BattlBox crew tests out a variety of products designed to help people survive dangerous situations including fires, explosions, and intruders. And then just looking at the stills just immediately gives my MythBusters vibes. Which, I love MythBusters, and even episode one, The BattlBox Crew. This functions as an infomercial. I’m not saying that derisively. Did Netflix pay you for this or did this cost you money to produce? Because it is such an immense opportunity.

John Roman: No, so we didn’t have to pay anything. They spent a few million dollars. They wrote a check for a few million to High Noon to produce it, because it has some over the top stuff. Not what we actually do. Reality, right? We don’t jump in a helicopter to go test something. I wish we could, but definitely TV-ised it a little bit. But no, they paid for it. That was it. It was pretty straightforward.

Kurt Elster: What’s the result? What’s the reaction when this thing goes live? Because I know like with Shark Tank, I have lost count of the number of Shark Tank people I have talked to, and they all say a similar thing is like, “I always know when my episode has re-aired because I see this giant spike in traffic.” What’s the result of a Netflix show?

John Roman: We were getting about 150 to 170,000 unique visitors a month prior to the show. July, the month it aired, we had 1.2 million unique visitors on our site. Now, the reality is they converted but they did not convert at the same rate. They converted at about half of our typical paid traffic.

Kurt Elster: But if I do the math on it, so you were getting 5,000 people a day on average and they’re converting because they’re higher quality, they’re higher intent, and then the Netflix show goes up, people watch that, now you’re getting 40,000 people a day but at about half the conversion rate. You’ve still quadrupled total orders.

John Roman: And we did. So, we shot up. Now, the reality is we quadrupled orders, but it was a lot of one-time stuff, so we… Even now, to this day, if you go to our page, the hero image kind of says… There’s two call to actions. There’s a subscription and then there’s the items from the show. So, we built a landing page that it takes you to afterwards where it shows the episode and all the items from it, so you can purchase it, so we do see a large amount of those items still to this day sell. We obviously want them as subscribers.

Within the first three, four months, we had probably grown our subscriber base by about like 35, 40%, and then what we saw, the people that did subscribe, they started to behave like our normal customers. It was just we had to get a lot more of them to the site to find the good ones.

Kurt Elster: It still seems like this was an unbelievable net benefit. What has been the longtail on it? Have you continued to see success and referrals from having a Netflix show? When they have… They’re known for just producing an unbelievable amount of content. And so, I feel like it could be easy to get buried.

John Roman: Yeah, so I would feel that we’re buried at times, but we still live on there because… So, we have a post-purchase survey currently. Typically, between a sixth and a seventh of all of our new customers each month, subscription box customers, where did you first hear about it? And they pick the Netflix show. So, we’re getting several hundred customers, subscribers, each month from the show, so it’s been very long and it’s pretty consistent.

Kurt Elster: And then on top of it, you can take… I’m sure that provides quite the library of content and social proof, that you can take cutdowns. Are you able to use cutdowns from the show in things?

John Roman: So, the non-fun part of all this is dealing with them, so they were not fun to work with. That’s their model, right? They don’t create Netflix Originals for businesses. They view everybody on the show as talent. And the conversations I wanted to have… One, it was the wrong department. Our only point of contact was the talent department, and to take it a step further, they wouldn’t talk to me at all because I wasn’t on the show. So, we would literally… The four guys that were on the show, there would be an email, “Hey, we want to meet Friday,” and they would reply all and add me to the mix, add Patrick, our CEO, and one of the other three co-founders, and, “Adding John and Patrick for the call,” and they would reply, remove us both, and say, “No, they can’t be on this.”

So, we were having conference calls with them, me and Patrick, and Richard, our CFO, we would be not visible, or we’d be on a speakerphone listening to it secretly. It was very, very frustrating.

Kurt Elster: I was gonna say it sounds like it’s frustrating, like they hold the cards because they gave you this tremendous opportunity. You would have been silly not to take it and we saw the results, and it worked out well. 100%, even though you have that great thing, as a businessperson I’m sure it was absolutely maddening because you can see the vision for like, “If you just work with me a little bit here we could take this further and we can all win.” You know, they have no issue doing brand collaborations for Netflix shows like Stranger Things, and you’re just like, “Hey, I just want to do that too. Come on, play ball.” And they really… It seems like they have no interest.

John Roman: Yeah. It was strange. So, they gave us a press pack, just a Dropbox with all these creatives three weeks before the show. That’s fine, but we would have built this up. We would have spent our own money. We would have put billboards up. We would have dumped some serious, serious marketing dollars into this. Instead, they gave us some creatives and we said, “Well, we have a creative team, so hey, we made some revisions. What do you think about this? Or we made these versions.” Not approved. Okay.

Kurt Elster: Do you think there was any chance of it getting approved? It sounds like the MO is just like, “Hey, we have streamlined operations and so there’s just no wiggle room.”

John Roman: And the reality is they’ve streamlined operations but also the people that we would need to convince of such are not… The decision makers for that are not the people we’re talking to. You know, you can only ask a couple times, “Hey, can we bring them into the conversation and maybe we can help? We have this whole team that can push this.” And it’s just like it doesn’t work that way. You guys are the talent. If you have a Facebook page or an Instagram account you can share it. It’s just like because this is what we do, we’re digital marketers, and-

Kurt Elster: Yeah, so you’re like chomping at the bit to just run with this.

John Roman: Yeah.

Kurt Elster: And they’re like, “All right, hold your horses there, buddy.”

John Roman: Yeah, so literally we were like, “Okay. Well, let’s put…” It’s I think that was the URL. But we were putting ad dollars behind it too, because we want to pump it, but it’s not fun to throw ad dollars to a page that you don’t have any visibility on at all, and they’re not sharing any with you.

Kurt Elster: You’re flying blind.

John Roman: Yeah. But we think it’s helping, but we have no idea, and they won’t tell us.

Kurt Elster: So, you don’t know metrics for your own show.

John Roman: One metric. There’s one metric.

Kurt Elster: Watch time?

John Roman: What’s that?

Kurt Elster: Is it watch time?

John Roman: It’s very similar. So, the one metric, and this is I guess… This is their north star metric and it’s Netflix Original shows they want… They look at something called a completion rate. And they need 25% of all people that start a Netflix Original show to complete, and their definition of completion is watching more than 90% of it. We had eight episodes in season one, so that means they basically had to get into the eighth episode, and if you got into the eighth you were gonna finish it anyway, so you might as well call it 100%. And if you’re above 25%, let’s start planning season two. We’re doing season two. If you’re below 20%, this is where we part ways.

And then if you’re in between the 20 and 25, you’re in an almost purgatory category where you’re just sitting there waiting. They haven’t told you no. They definitely haven’t told you yes. And maybe in the future if they want content that fits you, they’ll tap you and say it’s go time. So, we fell in the… We were like at 23.2%. So, we’re right in the middle of we aired over two years ago and never got told no or anything.

Kurt Elster: So, there’s still a chance is what I’m hearing.

John Roman: You’re saying there’s a chance.

Kurt Elster: Yeah. That’s what I heard. I’d be out there. I’d be buying Amazon Fire TV sticks, signing up Netflix accounts, just streaming it. I’d have a server farm of 40 TVs streaming my own show.

John Roman: We definitely were trying, like talking to my neighbors. Just run it on repeat. It’s fine. Different room. Just leave it please.

Kurt Elster: Yeah, it’s like do you have a TV in a guest bedroom or something you’re not using that I could borrow?

John Roman: Right. I definitely had it running in the guest bedroom for months.

Kurt Elster: That’s funny. Okay, so the Netflix show, it’s fascinating, and yeah, you had some frustrations with it, but it’s still this tremendous opportunity and it did help you immensely. It helped you grow this subscription business. But you also say we’re selling one-time purchases or one-time items that were featured on the show, so there is a proper catalog in there. What’s the breakdown here? What’s the percent of subscriptions versus one off?

John Roman: So, the business overall is about 90% subscription and 10% one-time products. And the one-time products are simply the products from our show and then everything we put in a past box we always order above our forecast so we can sell it just if someone just wants that specific item after a box drops. We have maybe 500, 600 SKUs in inventory.

Kurt Elster: Okay, and that’s not drop shipping? You hold onto that stuff?

John Roman: Yeah, so it’s all… We started with our own warehouse, fulfillment center, and we’ve grown it, and we still have it. It’s still completely done in-house.

Kurt Elster: And so, when we talk about subscriptions, there’s lots of app options today. I’m guessing given when you started you’re probably on the OG subscription app. You’re on Recharge, aren’t you?

John Roman: We are. So, when we started we were with a very niche platform called Cratejoy.

Kurt Elster: I remember Cratejoy.

John Roman: Yeah. Well, I think they’re still around.

Kurt Elster: Yeah. I said it like it’s past tense. There was like a rush to do subscription boxes and you were probably in on that, and I did… I had a car detailing box that I did for a while. It was just like all free samples. And how many times can I wax one car, right? That’s the issue with subscription boxes is eventually I churn out, and whether that’s one, three, or six months, for sure I never made it a year on any of them. But I do recall Cratejoy because it was like a marketplace for these things.

John Roman: Yeah. It was the marketplace. They gave you template tools. I think we had our initial website up in literally the matter of a couple hours. And so, we were with Cratejoy for the first couple years. We simply outgrew them, and we went to Shopify Plus and at Shopify’s recommendation, Recharge, and we’ve been with them ever since. They’ve grown a long way. We broke some stuff back then because they were really a subscribe and save model and there’s all these weird variables and nuances with subscription box.

Kurt Elster: Oh, it’s so complicated.

John Roman: Yeah. It’s not the same model. So, we broke a lot of stuff. We luckily realized that we could accomplish a lot of stuff through their API, so we’ve really built this custom dashboard, custom solution, just leveraging their API.

Kurt Elster: And that’s like Recharge Pro, right? And then it opens up the API. And that assumes you have access to a development team who can build on top of that for you, and so you built a business intelligence dashboard it sounds like. And so, you’ve got excellent visibility into things. Do you ever… Are you concerned at all about vendor lock in? I noticed this particularly with subscriptions is a lot of people are like, “I don’t love it but it’s too hard to change.”

John Roman: Since 2017, just with our other brands that we’ve acquired and launched, I’ve done seven migrations over to Shopify. I think every time, I lose 30% of my hair. It’s just that’s the model. I would just take my ball and go home. I want to quit. I don’t want to migrate. We could, but luckily we have a great relationship with Recharge. We built this amazing relationship, and we have a great relationship with Shopify. But we are probably a little locked in, right? Same with our development agency. You know, they know where the bodies are buried on this.

Kurt Elster: I was about to say there’s some guy at your dev agency who knows where all the bodies are buried. You’ve got that key man there. Yeah, it’s a risk, it’s a liability, but it’s also reality. It is what it is. And it sounds… You’re happy and successful regardless, but knowing that, I brought it up just because I wanted people who are in a similar situation to not feel alone.

John Roman: Yeah. No, it’s a great point. It’s something people don’t really talk about, so I appreciate you bringing it up. It’s interesting. I think though that because of that reason, the time and effort that we spend with those relationships… Recharge had an event last week in Austin, one-day event, four local people near Austin. I went out to it because they weren’t having an Atlanta event and I want to maintain that relationship because it’s so paramount and it’s this part of our endoskeleton. Kind of need it. Need it working and enjoying being with us.

Kurt Elster: I posed a question to Lindy at Recharge, and I said for sure it’s gotta be harder to sell subscriptions than one-time purchases. I know this to be true. But how much harder? I bet you know the numbers. What’s that difference in conversion rate? And she definitely sidestepped that question, which I don’t blame her. What’s your view?

John Roman: So, the subscription, so the conversion rate for us for subscriptions, and this is not just for BattlBox. This is for Carnivore Club. This is for Crate Club. It’s all these things that we have in our portfolio. For us, the subscription conversion rate is less. The reality is it’s not as good as the one-time. But to counteract that is at this point especially, we know what the LTV is gonna be. We know how long they’re gonna stick around. It’s a lot easier to forecast and understand. Because of that, let’s say we have a CAC of a one-time product, and the acquisition cost is $20 to get a new customer to buy a one-time product for us. The subscription piece, to get the subscription, we’re paying upwards, north of $60. Sometimes decently north of that. But we know that our LTV is $937, so we can spend a little bit more because we know how more profitable it is.

It's a worse conversion rate with certainty, but-

Kurt Elster: The LTV goes through the roof.

John Roman: Yeah.

Kurt Elster: Using your experience, thought exercise. I’m a merchant. I only sell one-time purchase items, but I am subscription curious, and I have a 2% conversion rate normally. $50 AOV. This is a real typical setup. Try and set my expectations on what my subscription conversion rate may be.

John Roman: Sure. So, it depends. If it’s a product that is replenishable that you would buy multiple times, I think you can counteract the conversion rate issue by offering a discount. So, the product is $50, but subscribe and save, right? Get this every two weeks, four weeks, maybe even give them the frequency for them to choose, and you’re gonna save 10%, 15%. You probably have to test depending on your product with that discount. I think you can actually completely flip it and it becomes the same and all traffic converts the same way.

Kurt Elster: Oh. Okay. Depending on category and if I really dial it in. And you mentioned like dial in the frequency, which I always find that’s the hard part as the customer. I’m either getting… I either have 10 bags of kitty litter in my basement or no litter and an upset cat, right? It’s tough to get that subscription dialed in.

John Roman: Yeah.

Kurt Elster: The enemy of subscriptions here and the opportunity once you have them going is to stop churn. You gotta be an expert at this. How do you reduce churn, the number of people who I’m signed up, three months later I cancel my subscription. That’s what we mean by churn.

John Roman: Right. So, you know, churn in general for subscription boxes is about 15, 16%. So, we’re substantially below that. Our goal in the next six months is really get below 10%. We’re a little bit above it. So, you’re right, that’s the most important thing. Even when we get under the 10%, we still have to get 1,500 new customers every single month just to not go the wrong direction. It’s this constantly chasing scenario.

So, we got ahead of it. We spent a lot of time on it. We obviously break it down into two parts, passive and active churn, so active churn being… Kurt, you went into your account with us, you clicked cancel, you said, “I am done. I don’t want this.” And then there’s passive churn piece, which your card on file, you switched cards, whatever happened, it just stopped working. Maybe your bank said something suspicious. And the crazy thing is on the passive churn side, there’s a lot of people that the card just… That’s why they cancel. So, on the passive churn side we used an app called Churn Buster-

Kurt Elster: I was gonna say, is it Churn Buster? The aptly named Churn Buster?

John Roman: Great name. And it does exactly that. Recharge natively, they’re sending that same email every failed charge during the dunning process. It’s the same email. Your card didn’t work, click here. And the problem with that is it’s the same email, so if you’re using Chrome and G-Suite as your email, they might get blocked together if you have it where emails get condensed. Also, a higher probability of spam, getting it put in the spam folder, sending the same message every day. So, Churn Buster does a couple things. One, they allow you to fully customize the emails. They allow you to throw a web hook in there and an SMS bump so you can send them a text and see if that works. Tracks open rates. And then you can obviously customize them all, so we have them in different voices of our brand, different… One of the emails comes from Brandon, the face of our brand, saying, “Hey, man. I’m getting ready to shoot the next video and-“

Kurt Elster: Oh, that’s smart.

John Roman: “… you haven’t renewed yet. Is everything good?” We have some jokes in there. The guys at the warehouse, they packed your box, but they don’t have a shipping label yet because… Give us a call. Let us know. Is something okay?

So, after all of that process, we were able to whittle down about 70% of the people with card issues. We then take that remaining 30%, pull an export out of Recharge, and then our CS team starts reaching out, and the thought process is it’s plain text email at this point. There’s no vibe of being a marketing email. It’s our actual people. It’s Ian, it’s Luke, it could be Joyce, it could be Allen, it could be any of our CS team, and they’re saying, “Hey, legitimately, do you need any help?” And they’re able to get another 50% back.

Kurt Elster: Whoa.

John Roman: Once you fall out and you’re done out of there, we have a win back guy who… His sole job is win back. He’s picking up the phone and calling.

Kurt Elster: Oh, okay, so we’re really… The LTV here is enough… Well, you know, it would be on a $160 monthly subscription. It would absolutely be worthwhile to do this.

John Roman: So, that’s on the passive churn side. On the active churn side, which is the bigger part of the pie for the two, we have some cancellation flows. We’re asking why you’re canceling. We have offers to try to maybe get you… We tell you about, oh, you can skip this box instead, and we switch this up and always test. We might offer you a free item to continue. We might offer you a discount off your next box. And then we have some rules in place where to prevent gamification and bad actors, where once we make you an offer and you take it, you move into a different segment so you’re not gonna see the same things. If you haven’t gone through a few renewals with us, you’re not gonna see these offers. To try to prevent unprofitable customers or just gamification, we have some rules in place. That’s just on the active and the passive churn.

Take it a step further and we’re… Every month after the box goes out, we’re sending surveys out asking for genuine feedback. We want to know how did we do, where did we go wrong, where did we go right? We’re big on community, so we have that Facebook group I mentioned earlier. We’re jumping in there. We might do a Facebook Live from there and say, “Hey, give us feedback. Talk to us. What do you think? How do we improve?” And we try to take those learnings each month and apply them. And we’ve been doing the process I outlined for over a year now and we’ve still made multiple mistakes this year where we just missed the mark a little bit on a product, and not get mad that customers are upset. You have to listen to them, right? These guys are allowing us to have the coolest job in the world.

Kurt Elster: Often the angry customers are the greatest opportunity. I was just talking with someone about this on Twitter. We have some Shopify apps, like Crowdfunder being the big one, and if we get a one-star review on that I know it’s probably born out of frustration, and so I will immediately pick up the phone and call the merchant. And no one answers their phone, so I leave voicemail and I say, “Hey, I saw the review come in. I’m sorry you’re having a bad experience. Absolutely I’m gonna fix it.” And if you can talk to the person, because oftentimes they won’t, but the half the time that you can talk to them, it’s actually really easy to resolve the situation when you’re talking face-to-face. It's like real person to real person, not Churn Buster email, delightful though they may be.

John Roman: And honestly, if that goes well, the people that will answer and will engage with you, you can literally turn them to the complete other side of the pendulum where they become this ambassador, loving your brand. There’s such opportunity there. That’s another thing. So, right after they get their first box, we send them a CSAT internal survey, not public facing, your typical CSAT, one through 10.

Kurt Elster: What’s CSAT stand for? I’m gonna go with customer satisfaction.

John Roman: Yep. So, it’s rate us one to 10, right? How willing would you be to refer us to a friend? And if they give us a nine or a 10, they’re a promoter, and we’re like, “Okay, this is great.” We then have some additional flows. Hey, have you seen our Trustpilot review? Give us a review. Well, we know they’re happy. Five or six is neutral, or sorry, seven and eight is neutral. If they give us a six or below, we’ve somehow messed up, right? We’ve either set improper expectations when we sold them, we’ve let them down with the product. Something didn’t go right. So, if they give us a six or below, it automatically kicks a ticket to our CS team. We have to reach out. We need to better understand where the mistake was made.

And we’re able to engage with some of them and really kind of figure out a way to turn their experience around.

Kurt Elster: We should just call you the subscription doctor based on all the amazing insight. Because subscriptions are this thing that I know enough to know how difficult they are to do right. This is one of the first conversations we’ve had on the show where I’m like, “Wow, this is someone who really gets it and is really committed to it and technical about it.” So, I can see why you were able to sell this company for as much as you did. How much you get for this thing?

John Roman: So, the total deal size was $19 million. Got a little over $12 up front. All the rest is tied to deferred revenue, and bonuses, and earn outs, and the carrot, if you will, to continue along the journey.

Kurt Elster: Do the doors on your car go up?

John Roman: They don’t. I didn’t change anything at all.

Kurt Elster: You didn’t ride that all the way to the Lambo dealership?

John Roman: No. No. We didn’t make any… None of us did anything. I did pay my house off. I paid my mortgage off.

Kurt Elster: Oh, that must have felt sweet.

John Roman: Yeah. And then my wife had student loans, and we paid those off.

Kurt Elster: Oh, practical and I’m sure deeply satisfying.

John Roman: It was. Everybody was like, “No, put the money in the market, or put the money in crypto and make money.”

Kurt Elster: Oh, boy.

John Roman: I’m like-

Kurt Elster: We know how that went.

John Roman: Yeah. Not good. Who would have known that the more conservative, less aggressive approach was okay? No, so we didn’t change at all.

Kurt Elster: Yeah. So, when you sold it, how’d you sell it? Did you work with a broker?

John Roman: So, initially there were four of us that were the founders. I didn’t come on full-time until 2016. When I came on full-time, one of my fun tasks right away was the fourth partner that wasn’t really bringing much value, doing anything, we wanted to buy him out.

Kurt Elster: That’s a tough conversation to have. I’ve been there.

John Roman: It was not fun. As you know, those conversations are never fun.

Kurt Elster: Feels good to get it over with, though.

John Roman: Yeah. So, we figured that out, we were down to three, so myself, Patrick, and Daniel. Daniel was at a… After the show, show was successful, COVID was successful, he was ready to take a break. So, we kind of had two options at this point. We wanted to keep… Patrick and I wanted to keep going, so we could buy Daniel out or we could all take some money off the table and maybe find a partner that we saw a cool vision with. The reality of buying him out, us too, we had this valuation multiple. We wanted to 6XE, but it really doesn’t make sense for me as an individual to pay a 6XE, but we have to see extreme growth and personally guarantee stuff, and it just quickly became not a reality.

So, we said, “Okay, we’re gonna shop this.” Meanwhile, when we decided we were gonna go down this path, we hired a CFO, brought the CFO in, CFO’s still with us. He’s a paramount part of this team. And we brought Richard in, and Richard had to clean up our books, right? We were making some questionable decisions. We were managing money as well as we should have and then there were all kinds of nuances, like deferred revenue. We didn’t know what deferred revenue was. We didn’t realize, okay, we had this renewal on the 15th of November, but we don’t ship this product until December. Well, it’s December revenue. It’s not November revenue.

So, tons of cleaning. Cleaning of the books. Getting it to a point where we had a good trailing 12 month of profitability, and it could tell a good story. I got connected… So, we acquired a company called Carnivore Club in July 2019. That was part of the deal of a merge that bought us. They bought BattlBox and Carnivore Club.

Kurt Elster: Sounds like a roll-up strategy for them.

John Roman: So, when we bought Carnivore Club, stayed in touch with the guy, it’s a gentleman named Tim Ray out of Toronto, and spoke to Tim, and he’s like… Told him what we wanted to do. He’s like, “Well, hey. I have a guy that did my deal before Carnivore Club. He got it sold. You should talk to him.” His name was Tim too. Spoke to him. And meanwhile Richard, our CFO, went to a broker, actually went to Website Closers. Went through the process with that. Tim, the guy I was talking to, was putting some feelers out there. We decided we’re gonna move forward with Website Closers and they obviously wanted exclusivity. We said, “Hey, we’ll give you the exclusivity sans these 30 people,” businesses that Tim had reached out to. If it was one of those 30, he gets it.

Back and forth, they agreed to it, and then we went off to the races. We had a bunch of calls. We had a few offers. We quickly found that the private equity roll-up where they already had us on their side wasn’t very attractive. They were very honest and direct, but there was no guarantee to our team and our team’s future, right? If they had a guy that was really good at email, our guy wasn’t gonna be kept. And we weren’t comfortable with that, so the Tim, the non… Not Website Closers, but the smaller broker, he actually found us a merge, and their vision was this roll-up, we’re all ran as independent business units, at least the goal was, the goal is to eventually have some synergies, where we can have umbrella negotiated rates for maybe shipping, and credit card processing, and maybe we can share some warehouses as this grows, so we went with that.

And then in April of 2021, we signed a LOI, or March, we signed an LOI.

Kurt Elster: Letter of intent.

John Roman: Yeah. And then due diligence, and then audits.

Kurt Elster: Oh boy. Yeah. Now the real hard part begins.

John Roman: The audit was, and Richard, our CFO, got the brunt of it. Him and Ben, our controller, but that was difficult. And then we quickly realized even though we had made all these strides to having this, what we thought was a good set of books, we didn’t close until October. And it was because of the audit.

Kurt Elster: This is not an uncommon story. I mean, this is just how this goes.

John Roman: Yeah. And we had no idea. If there’s one piece of advice, and the audit was expensive, but if you’re at a point where you want to sell and you’re over probably a certain revenue size, if you’re in I’d say mid-seven figures and definitely anything north into eight figures in revenue, you’re gonna need this. You’re gonna need to have this audit. Because we would have closed probably within 60 days, and instead, it took however many months that is, and the reality is things change during that time. We had a really bad month that we weren’t very profitable, and our buyer was freaking out, and we had to jump on a call, and why is the EBITDA only this? And it could have… The deal didn’t go sideways, but it could have easily gone sideways a couple of times, which would not have been anything we were trying to accomplish.

Kurt Elster: For sure. But eventually it worked out and you closed it.

John Roman: Yeah. It closed October 6th. October 6, 2021. And now we just did the year anniversary.

Kurt Elster: Congrats.

John Roman: Thank you.

Kurt Elster: Yeah. This has been incredible. I am so glad you reached out, we talked, and I was able to pick your brain about Netflix, subscriptions, and selling a business for a handsome, princely sum. That’s quite incredible. You should be proud. What’s next? Where you going from here, man?

John Roman: Now we’re holding down the ship. We’re continuing. Continuing with BattlBox. Yeah. No changes. We’re in this for a minute.

Kurt Elster: If it works, stick with it, and you learn, and you evolve as you go, and clearly, survivorship bias aside, this has worked out pretty well.

John Roman: Yeah. It really has. Kurt, thank you so much for having me. I’m so glad I was able to come on.

Kurt Elster: My pleasure. So, John, where can people learn more about you?

John Roman: So, I’m horrible at Twitter. I do have LinkedIn. That’s probably my most active channel. It’s you can find me on LinkedIn and then I have a blog, Online Queso, all one word., where I kind of walk through some… TikTok, for example, has been… It’s our number one lead source currently, so I kind of walked through the process of that while I was going through it, and there was a lot of failure in there, so I just try to kind of give insights into what we’re working on, whether it’s working or not. Customer service being a profit center, I wrote about that on there.

Kurt Elster: Yeah. I wanted to get into that but there’s just so much in here. We didn’t even touch on it. So, for sure I will link to your blog, Online Queso, in the show notes.

John Roman: Awesome.

Kurt Elster: So that people can grab that. John, again, thank you so much. This has been incredible.

John Roman: Kurt, thanks for having me.