In today’s episode, I talk with Chris George about his experience with subscription services and other recurring revenue models. Subscription services have risen in popularity over the last several years. They are now utilized by businesses in virtually every industry and are a business model that every company should consider in order to establish a stable revenue stream.
In today’s episode, I talk with Chris George about his experience with subscription services and other recurring revenue models. Subscription services have risen in popularity over the last several years. They are now utilized by businesses in virtually every industry and are a business model that every company should consider in order to establish a stable revenue stream.
Chris is the co-founder of Gentleman’s Box and has successfully launched and managed seven businesses. He is a leader in helping businesses stabilize their revenue streams. He also established the Subscription Trade Association, using his passion for entrepreneurship to help others with a similar drive. I know this episode will be extremely helpful as we discuss all of this and get into Chris’s story.
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Startup Story LIVE- Chris George
In this week's episode of The Startup Story podcast we unpack the importance of having a subscription or recurring revenue model in your business.
Every wildfire began with a spark. Every superhero has an origin story. And every single startup has a moment that they point to as their beginning. And every founder has a purpose that drove them in the midst of all obstacles. THAT is The Startup Story.
James McKinney: Welcome to another episode of The Startup Story podcast. On May 14th and 15th we held our first Startup Story LIVE event which was an epic, two-day livestream event featuring 13 incredible founders from varying industries. Throughout those two days, our founder guests shared the various tactics and strategies they have employed in their businesses as a result of the global pandemic. This event also gave you the listeners a chance to have your questions answered directly by these founders themselves.
Well, Startup Story LIVE was an incredible event and I want to provide more opportunities like this to get you direct access to some incredible entrepreneurs so that you can get your questions answered directly. For the duration of the summer I have been and will continue to share the audio recordings from these sessions for you to enjoy. That said, I will not be releasing them in back to back weeks because I have some incredible founder startup stories to share as well.
Also, if you're wanting access to all 13 founder sessions from Startup Story LIVE then please join our Startup Story Inner Circle. When you become a member of the Inner Circle you will get unlimited video access to every live event segment, as well as access to private livestream events just for Startup Story members. As if that we not enough, all Startup Story Inner Circle members will receive a hardcover copy of Jaime Schmidt's upcoming book titled Supermaker: Crafting Business on Your Own Terms absolutely free. That is a $25 value as a bonus for joining The Startup Story Inner Circle. You can see all the many perks by visit thestartupstory.co/VIP. All right, now let's jump into this week's founder session as it was originally recorded during Startup Story LIVE.
Chris George is a serial entrepreneur who has successfully launched and managed seven businesses. Chris has channeled his passion into the subscription industry as the cofounder of Gentleman's Box and also establishing The Subscription Trade Association. The Subscription Trade Association helps to establish a voice for the subscription industry. Today more than ever the subscription model is one that businesses need to consider regardless of their industry. The business model was made popular by brands such as Dollar Shave Club and Loot Crate during the explosion of the box subscription segment, but has since been utilized across all industries and all sectors, including the automobile industry. The Subscription Trade Association's premier event is Sub Summit, which is the single largest event centered on all things subscription Chris George is leading the charge as businesses seek to stabilize revenue streams. Please help me welcome Christ George to Startup Story LIVE.
James McKinney: Chris, thank you so much for joining us for Startup Story LIVE.
Chris George: I appreciate it James. Thanks so much for having me on.
James McKinney: Oh man, this is going to be unbelievable. So before we jump into our time together, I just want to give quick shout out for the SUBTA's YouTube channel. So for all of you, we talk about the impact of YouTube and video content, but make sure at some point either today or tomorrow, whenever, you go to YouTube and just search for SUBTA Studios. They've developed, you know your video series called Crisis and Hope has been incredible, and one of your most recent video interviews included was with Gary Vaynerchuk. It was incredible and it was a great video, and everyone should check it out. I think it's like 16 or 17 minutes. It'll be a great 16 or 17 minutes spent, so make sure you check and you go to YouTube, search SUBTA Studios, subscribe, give that video a like, share it. It's absolutely remarkable.
One of the things that Gary says in that video, and this is going to kind of lead into our conversation together. One of the things that Gary states in that video is that every retailer should consider how to monetize through a subscription model. So with that said, I want to talk about that but I want to start, for our audience, on just kind of understanding a little bit more about you and your background. So before we unpack the discussion you had with Gary, can you help connect the dots along your entrepreneurial journey as to how you got to where you are today?
Chris George: Yeah, for sure. Again, I appreciate it James and appreciate everything you're doing and putting on this event. It's awesome. The Gary Vaynerchuk thing was awesome. We'll talk about that later. So I started as an entrepreneur when I was 20 actually and was not in this industry, was not internet. Actually, I used to own a collection agency. It's a long story how I got into that-
James McKinney: Wait, collections like debt collections?
Chris George: Like debt collection, yeah. I used to buy debt from banks and collect on it. But I was always this salesman at heart. So my family grew up owning liquor stores and wine stores, so the concept was kind of simple. They'd buy things for cheap, sell for more. I always wanted to be on the internet and I wanted to have an internet business. Didn't have a lot of experience but I said, "If I can buy things for cheaper and sell them online, my audience isn't limited to the 2 miles like it was for my dad. I can sell it all across the US or across the world." So I started searching for products online that I could buy and sell for more. Perfect example, I bought 50,000 lighters for 10 cents each, and I sold them on eBay in 50 packs making 10 cents on them, so I was selling them for 20 cents each. So I started to do this hey, let me buy things, let me flip it. I would go to auctions, I would find items. I remember buying six Mickey Mantle cards for like $1,500. I sold them on eBay for $7,000 as a whole after I sold them all.
James McKinney: Oh wow.
Chris George: So I wanted to get in the internet space, I wanted to find products that I could sell online, and I found a niche in health and beauty, where I'd get health and beauty products at wholesale or closeout, and I would sell them for more online. It worked well because it was a depleting product, so people had to keep buying it. Better than like a Mickey Mantle card, it's a one-time purchase. I still had that business, it does well. That was like my first taste of ecommerce.
2014 a friend of mine, John Haji, he approached me about this idea of a subscription box for men. At that time, there was Birch Box, there was Fab Fit Fun, there were a lot of subscription boxes that were targeting women, not so many targeting men. And the idea was let's put some grooming products in there. I had some experience with health and beauty products and so that's where that connection came. And I said, you know, instead of giving them something that's going to deplete why don't we give them something tangible they'll like to keep. Let's give them a tie, let's give them socks, let's give them some cool items that they can get every month.
So that's when we launched the Gentleman's Box. That was in early 2014 and one of the things that we wanted to make sure we did is we wanted to establish a partnership with GQ, and the reason being that when we started and for five years, when you sign up for Gentleman's Box you got a free, you got a subscription to GQ magazine at the same time. So every box came with GQ magazine. The idea was read about the latest fashion, get it in the box.
Now here's the funny story. We're two guys, well three guys because we bought my partner in so we're three guys from Detroit. We have this idea for a business, a landing page, and we're approaching GQ about building a partnership with them. Conde Nast is a billion dollar company. So we reached out to GQ, no response. I told John, I said, "Hey, go on LinkedIn and literally message everybody that works at Conde Nast." It was like 100 something, it was 80 to 100, I don't remember the exact number.
This young lady Sidney from Detroit's office reached out, was like, "Hey this is cool, come see us." Mind you, we're still like we have a landing page and like a box that we like cut out, and items from Nordstrom's in this example. We go meet with her in Troy, Michigan and she loves it. She loves the idea and she's like, "I'm going to send you guys to New York." Again, this is to us we're like oh crap, this is awesome. We go to New York and we meet with them, and plain and simple not in these exact words but GQ is like, "We're GQ, you're this startup that has no subscribers, come back to us in a year." Well, we left that and not upset, but like we get it. But I was like look, screw this. I need to get this deal because I wanted the brand association of GQ with Gentleman's box.
James McKinney: Yeah, yeah.
Chris George: So I call them back and I said that I had 1,000 pre signups and that if I didn't sell 1,000 subscriptions I'd buy them from them. I was lying but it's okay with it because we ended up giving them hundreds of thousands of subscribers. But I just was like look, we need this deal, so they agreed to it and it was awesome. Through our partnership with GQ we had given them over I think 300,000 new subscribers to the magazine.
James McKinney: Wow.
Chris George: That really helped get Gentleman's Box going and get it to the point where it was at, and that's still a business that we have and it's doing really well. But that led to really what's been the bigger picture here, and what we love in terms of what we built now. In 2016 I wanted to go to an event just like any other industry, and just meet other individuals, network, and nothing existed. Paul was like why don't we just have our own subscription box event? You know, it's three scrappy entrepreneurs, you get excited about it, but we don't know anything about events. We don't know what we're doing, but we said let's do it.
We hosted our first ever event in September of 2016 in Detroit. We had right around 200 attendees. We got Katia from Birchbox to come speak, we got Michael from Fab Fit Fun, and all in all it was just a great event. We did it solely on like we want to build relationships and have good contacts. We didn't think we were going to make money, it was just let's build this like amazing community. Fast forward to last May we had just over 1,000 attendees at our live event, we had over 95 exhibitors, over 150 speakers, everybody from Netflix, Sling TV, Fab Fit Fun, Hello Fresh, Bark Box, they've all been to our event and it's now the largest event in the direct to consumer subscription space.
We've expanded outside of subscription box, and it's any direct to consumer subscription. Then we launched SUBTA, which is the trade association. We launched that in 2017 and we did that because we wanted to be able to facilitate the community and have the relationship building all throughout the year as opposed to once per year at our annual event. We built the largest trade association in direct to consumer subscriptions, we've got the largest event in direct to consumer subscriptions, and this is where we're at now.
James McKinney: That's incredible. What is, so re address for those watching what is your event? And obviously you were supposed to have one in June. Coronavirus impacts all that-
Chris George: And May.
James McKinney: … so like what was, what is that event and then what does the future of that event look like when we get going again?
Chris George: Yeah, so that was going to be our fifth event. It's been pushed to November 4th at this point. We're hopeful that we can still have it, but it brings together hundreds of direct to consumer brands as well as suppliers that can help these businesses grow. It's an opportunity to go and learn from experts in the industry as well as meet new suppliers and just network. It's been amazing and for us it's the excitement of being able to help entrepreneurs build their business and grow, and that's what our core values are is how can we help entrepreneurs build a subscription model and excel with it.
James McKinney: That's incredible and I love that you actually have a box business as well, so it's not only are you facilitating the conversation but you're learning and contributing as well.
Chris George: 100%.
James McKinney: We probably have and this is really for everyone watching right now one of the things I said about Startup Story LIVE is we're going to give you new tactics and strategies and thought around areas of monetization. We talked about video content yesterday and it's probably super uncomfortable for many. For many, you might have written off the idea that subscription business does not apply to you and your industry. Over the next two panels you have Chris George right now and then we have Matthew Arevalo. We're going to really dive deep into the world of subscription revenue.
Right now, I think people probably think of subscription, the subscription model specifically around the box. So being that you have cofounded the Subscription Trade Association, can you kind of unpack more just how you see the market that you serve as Subscription Trade Association? When you think subscription model, what do you think of?
Chris George: I like to think that it's a relationship with the consumer. What we're finding and what we're seeing is the consumer buying behavior is changing. It's less about ownership and more about usage. Our data is showing us that by 2023 75% of all ecommerce businesses will have a subscription model attached to it. That's us aggregating data from a lot of our partners, a lot of the CRMs and merchants that are doing payment processing.
Perfect examples of this is like Microsoft Office. Five years ago you would have paid $499 for the software. You might have lied and said you were a student and got it for $115, but now you just pay $10 a month and you've got three licenses. You get the most updated version. It's not this large upfront cost. If you look at like Gen Z, which I joke it's like Gen Zero like Zero Ownership, they're renting more, they're leasing cars, they're not like our dads that like… when I tell my dad I'm leasing a car he has a heart attack, he's like, "You're just throwing money out the door." But I want to have a different car every three years. But the consumer buyer behavior has shifted. I think subscription I think relationship. You want to build the relationship and experience with the consumer that's going to set you apart from the big box retailers or other brands.
James McKinney: Awesome. So now let's talk about that Gary V interview, because there's some things that come from that interview that really kind of launch us into the content of our conversation. So Gary V states that he stated that every retailer should consider how to monetize through a subscription model. Do you agree with that?
Chris George: 100%. Yeah, when I said, and I asked him the question it was funny I felt like I paid him to answer that question. He just said it and he's right. The reoccurring revenue model works. Businesses that have reoccurring revenue have higher valuations. They've got more predictable income. And it's more of a sustainable business. Again, it's this relationship. I'm going to go back to this relationship piece.
I like to just bring up one more thing. So if you think about a big brand, let's say the big girl in the room Amazon. I'm an ecommerce site for pet products. Amazon sells pet products and Amazon sells them for cheap when they deliver it in two days. How can I compete with Amazon? Well, I can tell you this. If I was building an amazing pet ecommerce website where I sold food and nutrients and treats, if somebody were to call me and I make this clear, and say, "Hey my dog is a white Siberian husky. She's six years old. She's got some joint issues. What should I give them?" and I'm able to answer that question, and provide this amazing customer experience. Amazon can't do that. The Amazon rep isn't going to know whether to give Pro Plan or give Purina. So when you've built a subscription, one you're building a relationship, you're having the consumer think about only you when ordering products, and you're giving them this experience that they can't get from somewhere else.
James McKinney: Awesome. Again, you've been in this space for some time. If a consumer product brand is launching right now, should they come out the gate with a subscription revenue model or is a subscription something that comes in a phase two strategy?
Chris George: Yeah. There isn't one right or wrong answer there. I think it's the product. It's also what your company goals are. So if I wanted to build a subscription box or direct to consumer subscription business, then I'm coming out the gate with the model. I believe that there's higher value in a subscriber than a one-time purchase of a consumer. You might find a business that sells one off products as well as has a subscription. If they look at their one off products, they're probably going to see an average anywhere from 1.5 to 2.5 purchase per year. When they get them on a subscription model, they're seeing 6 to 8 to 10 purchases per year.
I think if I'm currently an ecommerce business, or if I'm building, I want to build a business where I'm selling products online, then I'm going to do that, I'm going to add a subscription element and I'm going to launch them together. If I have to pick one or another, maybe I'm biased, I'm going to lead towards a subscription but the data is showing you that works better. I think it's product based, service based, but you should be really thinking whether it's starting with it or adding it, you absolutely should be doing it.
James McKinney: So let me ask this question. If you were to think of those two sales strategies, subscription versus just transactional ecommerce, is one easier than the other to sell?
Chris George: For sure. The one off is going to be easier because people don't want to feel like they're getting committed to a subscription. That can happen. That can be a barrier to purchase. Also, it's I want to try this, I don't know if I want to get this every single month. While you probably are going to have a higher customer acquisition cost on the subscription, your goal is to build a higher lifetime value. So these data points are super important when you're building any subscription.
You need to look at what's the lifetime value of the customer. And that's going to tell you how much you're going to pay to acquire them. If you can get them into a subscription, yes you're going to pay more, you're more than likely going to build a higher lifetime value. You're able to upsell them through the process, through the relationship, and you're also able to keep the customer at your brand versus going to another one. It's always going to be easier to sell a one off, but if you can get them into the subscription you're going to see higher benefits and higher lifetime value.
James McKinney: Awesome. One of the perks of being a serial entrepreneur like yourself and having a subscription box company, like yourself, and the cofounding the Subscription Trade Association is that you are heavily entrenched in the industry. So can you share with us some of the trends you're seeing in the space? We're talking, let's unpack product trends and consumer apathy, diversification of subscriptions as a whole, and anything else you want to share with our audience.
The reason I'm asking this question is I really want to leverage this time with you to unpack all that can be when it comes to the subscription industry, because there are probably people watching right now that might have considered it at one point in time and written it off as not applicable to my business, the economy was great it wasn't necessary, but now in the last six to eight weeks they're kind of wishing they had some consistent revenue for their business. So if you can just kind of share with us everything that you're seeing in the space that is subscription.
Chris George: Yeah, for sure. I mean absolutely right. Me and Gary V talked about this and we actually idealized about how certain businesses and industries could build a subscription out of what they currently have. I like to break down subscriptions into pretty much two categories. You've got your replenishment products and you've got your "surprise and delight." So replenishment is going to be like your Dollar Shave Club, it's going to be like your Amazon pantry or your Chewy.com reoccurring of your dog food. On the "discover and delight" think Fab Fit Fun, think Birchbox where they're giving you products that maybe you don't get to choose, but you're going to discover something new. You may like it, you're going to go buy more of that brand, or it's just that feeling of getting something cool and like a gift every single month, or every single quarter.
One you have to look at your brand and think about your industry and what you do, and decide is it one of those two. Is it replenishment or discover/delight. The replenishment model is amazing because it's something they need to get every month. The LTV is going to be 24 months, 36 months. Generally replenishment is going to be a lower cost per month or what we call it the Netflix effect, you pay $9.99 for Netflix and I watch like literally Stranger Things and Ozark, and then I don't watch anything else but I don't cancel either, I keep it. But I've seen things like Sponge of the Month club, like they send you a sponge every month for $3.99.
James McKinney: Hold on, hold on one second real quick. There are certain things that I'll just let people roll… there legitimately is a Sponge of the Month club?
Chris George: Yeah. And you know what's funny is it makes sense, I'll tell you why.
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James McKinney: Hold on, hold on one second real quick. There are certain things that I'll just let people roll… there legitimately is a Sponge of the Month club?
Chris George: Yeah, and you know what's funny is it makes sense. I'll tell you why. They come out with all this content about how it's the dirtiest item in your home. You're a single guy, you're living on your own. What's the likelihood you change that sponge? It's like zero. The only time you get a new sponge is when mom brings over a 12 pack from Costco. And like because she came over to clean the house or help you out with something and is like, "Why do you have this sponge from three years ago?" That's the truth, right? So like it can make a lot of sense. So the replenishment model has its benefits is that the longer LTV, something the customer is going to continuously need every month, it's going to deplete.
On the discover/delight what I like about that is it's allowing the consumer, consumers get excited about getting a gift so that's exciting. You can start to build really good marketing and social campaigns around unboxing your box, encouraging them to do that online. No one's going to unbox their new sponge or unbox their shampoo that they just got right, but with discover/delight they're going to do that. The trend that I like and that I'm starting to see a lot of success with brands is having a quarterly subscription versus a monthly. Gentleman's Box started as a monthly subscription. What we identified was that people were cancelling for one of three reasons. One, they'd cancel because they couldn't afford it financial. Two was they didn't like it, okay can't do anything there. Or three, they had too many products, they were getting too much.
We solved for that by offering a quarterly option. What does that do? It allows them not to get any products. Financially helps them because they're paying every quarter versus every month. So we've got our premium subscription which is $99 a quarter, then our monthly which is $29 a month. What we're seeing is on the quarterly LTV is up 150% over our monthly. When you have somebody that's paying $99 every quarter versus $29 a month it's generally a higher quality consumer, higher income consumer, more likely to stay on, less likely to turn. So the businesses that have the quarterly model are seeing higher success, higher LTV.
Also, too, if you think about your business, think about curating 12 boxes versus curating four. It's like a huge difference. You've got three months to build it, you've got three months to sell out of it because that's one of the struggles. All these subscription boxes and direct to consumer subscriptions you have to predict inventory and that can be difficult. As eager entrepreneurs like many of us are, we're like yes we're going to sell 10,000 boxes this month and like you sell eight. Well now what? You're stuck with 2,000 boxes and you can't ship them the next month because your 8,000 customers already got the one, that box. So the quarterly model is I think where you should be thinking. If it's replenishment, it's again it's that could be monthly. But also just offering options really helps.
James McKinney: you know real quick just because you mentioned you think quarterly is the better strategy, one of the questions that came in was they were asking about monthly or yearly, and I think part of the question is probably about the pay frequency of commitment. What are your thoughts on that longer one? Is it even done?
Chris George: So yearly would be like if you were paying for 12 months up front or for four quarters up front. I think in any moment where you can get more revenue from the consumer initially that's great. You also have to be really smart with that because you're getting the money now and you have to make sure that you've got the cash flow or the inventory for the future months. Even if you're selling three months, six months, 12 months you're going to get all the revenue now it's a liability now on your books that you've got to provide them with a box or a package. Anytime you can get more it's going to be super beneficial because it's higher revenue on the spot.
Typically, on a 12 month it's harder to get them to renew because it's like I might have paid $300 for the year and now I've got to pay another $300, and if you auto renew them you sometimes get a lot of complaints like wait a minute, I don't want to renew this. So I think offering it is an absolute, you should do it. Having the options of monthly, quarterly, yearly it's pretty much a no brainer that it's something you should be doing if you're in the subscription space.
James McKinney: Awesome. When you think of consumer apathy, because I think to your point it's interesting that I don't disagree that I think majority of retailers or ecomm companies are going to have a subscription model in some way, shape, or form. Of course SAS becomes part of that and there's a lot of things to it. But do you think there's any type of consumer apathy when it comes to the subscription side of things?
Chris George: So I think I touched on it a little bit. I think consumers are, especially this new generation, they are thinking about more usage versus ownership. I think that today with the millennials and the Gen Z, they like to be involved with the brand. They like to know the brand. They like a connection with the brand. It's less about the brand name and more like what does that brand stand for, are they socially conscious, are they thinking about the environment. And these things, you can start to build a connection by having the relationship with the consumer on a subscription because you're communicating with them throughout the process of their relationship with you.
Every time they get a package, you're communicating with them. You're emailing them before the package may go out, you're emailing them after the package has gone out, "Hey did you like this?" So I think that the consumers, they're more about what's unique and less about brand name, and so they start to become more attracted to the subscription model.
James McKinney: Excellent. It's amazing to me too the different industries that have leveraged the subscription model. I mean automotive just is really kind of leaning in on this model. So given that you have a broader sense of the industry, how has the coronavirus impacted brands that leverage a subscription model?
Chris George: Across the board we're seeing an increase in subscribers I'm sure, but the point was-
James McKinney: For the industry an increase or for Gentleman's Box an increase?
Chris George: So to rephrase that, we're seeing the subscription boxes are seeing success during this time. There are certain ones, so like if your brand is focused on fashion it's having a little bit of loss in revenue. Why? People are not going out anywhere. They don't need to look a certain way, they're not trying to get new clothes. That being said, the subscription box is offering an experience that consumers cannot get at the retail level, and right now they can't even go to the retail level. People are not shopping. So there's more people shopping online. Aside of that what we're seeing too is that consumers are more active on social media. Non active users on Instagram, Facebook, Tik Tok, Snapchat are becoming more active. Why? They're home and so they're scrolling through their phone more, they're on social media more. What is that doing? That's introducing this whole new demographic and more consumers into the social media world that's allowing you to then target them with ads.
I talk to some brands that were like, "Yeah, we slowed down our ad spend." I'm like why? We're increasing our ad spend, you should be increasing your ad spend. If you're selling outdoor goods or outdoor sports, there's a decrease. People aren't doing that right now. They weren't fishing, they weren't doing these things, but the indoor sports was going up. Cleaning supplies were going up. The discover and delight, the home games and board games, these things are all going up. Brands like Hunt A Killer, Hunt A Killer has got this amazing murder mystery box where every month you get new clues. That's something to do at home with your significant other and your family. Things are probably amazing for them over there. Their subscriber account is probably booming.
James McKinney: And for all of you watching, Hunt A Killer, we actually had Ryan Hogan on the show so we unpack his entire episode. In fact, it was last November we released it because I focused on all founders that were veterans. Ryan's got a fantastic entrepreneurial journey where he talks about ups and downs while being active in the military. So I want to run through some of these questions real quick, Chris, before we get too far ahead. There's been a couple questions around the payment options that you spoke about, so I'm going to run through them in real time. Do you think quarterly payment options will gain traction? I know you said you like it. Monthly and yearly seem to be the most popular. I'm not going to lie, I feel like I see monthly and yearly as the go to options on a lot of things, but you said you really like quarterly. Do you think you're going to see an increase in that?
Chris George: Yeah, I would tell every subscription brand that's under the discover/delight side that they should have a quarterly model. And the quarterly subscription probably should be higher priced. When it's higher priced, you get to put more items in the box or you get to put more items in the package. On the discover/delight, I think absolutely. The data proves it too. The brands that don't have a quarterly model I think are not doing it right. They should have one. I'm not saying get rid of the monthly. I will tell you that on the Gentleman's Box side we are trying to shift everybody to quarterly, and I've seen this with other brands that either I've consulted with. I helped Ellen launch her Be Kind by Ellen box, we went right into the quarterly right off the rip. If I was to do Gentleman's Box, start 2014 over, I'm doing a quarterly business model. I'm not even introducing the monthly.
James McKinney: There you go.
Chris George: And so absolutely, you're just going to see a higher LTV, a higher quality consumer, less turn over. The data proves it. It's not even what I know, it's not even what I think, sorry. It's the data has proven it.
James McKinney: That's awesome. So real quick because I do want to, for those that still despite how passionately you just spoke towards the quarterly, and it makes sense to me completely especially from a planning perspective, but for those that still leverage the monthly and quarterly, just give us a framework for those that maybe don't have a box or aren't in the industry. And again I'm just going to use simple numbers. So in a monthly box if you're paying we'll say $30, are you getting we'll just say eight products and then a quarterly you're going to be paying we'll say $90 and you're getting 12 products?
Chris George: Not necessarily that. So you might be paying $30, you might get four to five items. On the quarterly, I think it's less about the number of items but it's about the quality of the items that are going there. I would be building the monthly with four to five items, quarterly might have five to six but those five to six items are going to be higher quality. It's all about value. If I had a $30 box then I'd make sure I was providing $100 of value. If I had $100 box I'm trying to provide $300 in value. It's about the quality. The higher the quality, again, it's better for retention.
James McKinney: That's awesome, and that's great insight for all of you watching. Let's get back to these questions real quick. One question from Tammy, how do you deal with subscription services not appearing as a necessary expense in a downturn?
Chris George: Consumers like to shop. They're still going to shop and there's a lot of unnecessary expenses that we have, so I think that could apply to a lot of things. Like you don't need Netflix but you want Netflix, right? I think that there are certain products that you do need and a subscription model when the message is conveyed is providing value to the consumer. So we're saying look, you can go buy these four or five times but it's going to cost you $150 if you buy them separately. We're going to give them all to you for $35. So in a sense, you're providing value and even if there's an economic downturn, you're actually giving the consumer more product for their money. It's all about your messaging. You've got to be providing value, you've got to put the time and effort in.
So one thing that's super key too, if you're building a subscription you need to think about the theme about every individual box that goes out. The consumer needs to see that you've taken time and energy and put thought into what's in there, you didn't just grab random items off your shelf in the warehouse and throw them in there. And then with the subscription model you're building that relationship, and when you're building a relationship with the consumer they stay loyal to you. It's proven time and time again. If there's an economic downturn, I'm not going to go buy more stuff from Under Armour that I don't need, but there's this brand that I really like and they send me awesome stuff every month I'm going to stay with them.
James McKinney: And I think that answer… there was a question that said, "I never participated in a subscription service. How do you retain your customers and keep them engaged? How do you reward those that stay for a long time?" And I think that idea of that relationship side, and I think you spoke to that. But there's an element of that which I think is interesting, is the engagement side of it. What are some layers of the relationship that one could bring into a subscription service?
Chris George: One, customer service is so important, but two how are you communicating with them regularly? When they post something about you on social media do you have somebody that's responding right away? Are you engaging with them? And when I say right away, I mean right away. So like we've got rules here with our team, but if you let's say James you got a Gentleman's Box or you got a Battle Box, or let's just say a brand that you like. You got it, you love it, you post it on social media. In 24 hours that post is gone. It's on your feed, but nobody is seeing it. None of your friends that follow you are seeing it after 24. So somebody needs to, "Hey James, so glad you loved the box. Thanks so much for your support!" And people see that, that engagement is super key. For us, every new premium subscriber gets a handwritten note from our team. Every single new one. That's an initial high engagement piece. It's an initial impact with the subscriber that can be long lasting.
The other part about retaining is being proactive with the consumer. What I mean by that is you need to be sure that every month you're surveying your customers. Did they like the products? Have them rate every product. And for us we start off the question with three smiley faces, or three emoji's. You've got the smiley face, you've got the sad face, and you've got the mad face like eh it's average. If anybody clicks the sad face or the average face, our customer service team immediately gets notified because we then want to reach out and say, "Hey, we're so sorry to hear that you didn't love this month's box. What can we do?"
We don't want to be reactive and get them when they hit the cancel button, we want to be proactive from the moment that we find out that they had any concerns, that we're on top of them. That's super engaging with the consumer. They love it. It goes a long way with them, and then you're being proactive. Okay, sorry you didn't like one of these times, we're going to send you this replacement for you, thank you again for your support. Those are the types of things in regards to engagement and things you need to do in regards to retention to keep the consumer.
James McKinney: There's a question from your experience what are the key points to consider when starting a subscription model? And they're asking any tips for food businesses. Obviously food business is super broad, whether we go the Blue Apron food business.
Chris George: Food is hard, I will say that. When you've got perishable items, they've got short shelf life. And it can get very hard in terms of keeping up on inventory, and you're going to be throwing away a lot of inventory. So when I think about, it's just like any idea, what's going to be my go to market plan. The subscription model works. How am I going to get exposure to it? Ideas are cheap, how are we going to execute on this? My tip is one build out a really good go to market plan. Build like the numbers, like coming up with the pricing models, sourcing the product, to me it's all easy. It's like you can solve for all of that. Email me and I'll give you every supplier like the boxes, that stuff is easy. It's how are we going to get exposure to this, how are we going to make sure that one consumers can find us, and then consumers are going to love the product. So my first thing is build a really good go to market plan.
And also two, I've done this with many brands that I've consulted with is get a focus group. Get 100 people in the room and bring your box to them and say, "Hey, what do you think of this? Is it worth the price? Would you pay for this? What would you pay for this?" Those types of things can give you a lot of data initially and help you make really, really good decisions. So as entrepreneurs, especially entrepreneurs and then as your C level, execs, your directors, we all think we know a lot. We also like to think we know what the consumer is thinking, and we've got gut feelings. But the truth is data will tell you everything and the consumers will tell you everything, so ask them. You can start your subscription one way and it can pivot to another way. You've got time to do that, so build a subscription model. You get the customers, you start survey them, you start to find out that they don't like certain aspects of it, just start to change it. Pivot the model to where the audience is telling you they love it. It's not always what you think. It's what the audience is going to tell you.
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James McKinney: What tech do you like to use to facilitate a smooth subscription process?
Chris George: There's multiple CRMs out there and a lot of them work really well. There's plenty that make it really easy to start one and you could start one within 24 to 48 hours. I've seen a lot of brands that are built on Shopify with a plugin like Recharge or Bolt. The Recharge or Bolt plugin manage the subscription. We built a lot of ours on WordPress. There's a little bit more ability for customization there and there's a commerce plugin that allows to manage the subscriptions. I've seen though and especially for people that are starting out I think Shopify is a really good answer and option because one you can build an ecommerce store easily out of it. They're known for ecommerce. And you can add this plugin which is like overnight you've got a subscription. Or even a subscribe and save, right? We didn't even touch on that. So maybe you're a beauty brand that sells beauty products or sell replenishable products. You can have a subscribe and save option. Subscribe, get this monthly, save 10%. A plugin on Shopify gets it done overnight.
James McKinney: There you go. There was a question, or a statement and a question, "In my mind I associate subscription model with novelty products. What can brands do to feel more necessary and less a novelty that'll feel old after a while?"
Chris George: Yeah, so again that's the discover/delight versus the replenishment. So add a product like that is a replenishable product. For example, us at Gentleman's Box, we thought through this for years. For years, we're like okay so we've got a men's subscription, but they've got too many ties, they've got too many socks, they've got too much. So how do we make it not novelty? Well, do we come out with a cologne subscription, because it depletes? Do we come out with like the bathroom subscription like your gentleman's bathroom subscription where we give you shampoo, conditioner, deodorant on a monthly basis? To make it non novelty, you really have to be thinking about how do I come up with a replenishable part of my business and then offer it to the customer.
James McKinney: Awesome, okay. So we have a bit of a commonality in an entrepreneur that we know. A few weeks ago we released a bonus episode of a Startup Story podcast where we highlighted the incredible story of Chef Zack Sass in which we heard about, we as in Startup Story, heard about it because of your Hope in Crisis YouTube series. And for those that are unaware of the story, I spoke to you a little bit about yesterday when we had our web flow demo, but Chef Zack had a career as a chef and he was with a restaurant, a Gavin DeGraw owned restaurant, in Nashville. Coronavirus came through, shut the restaurant down. It wasn't one of those restaurants to have a curbside delivery type. So he had no source of providing income. No entrepreneurial leanings whatsoever but found himself without a way to provide for his family.
So he talked with his dad, came up with this idea of creating a menu planning service. So from that, you can hire him to say, "Here's all the contents of my pantry, create a menu for us," and it was an amazing episode because I just love the hustle that he is going through but there is so much more that can be done with that. So knowing what you know about the subscription industry and consumer expectations that come from a subscription relationship, if you were Chef Zack Sass how would you build out a business to provide for your family and maybe even change the trajectory of your future altogether in that space?
Chris George: Zack, he's great. Paul actually did that Hope in Crisis with his dad Jeff. He's been a huge supporter of SUBTA and Sub Summit, so I know them very well. I love what he's doing. If I'm him thinking about a subscription and I haven't even talked to him about this but one thing that me and Gary V talked about was this particular thing, where a restaurant chef could have maybe you pay a monthly fee and they would give you some cooking techniques. Gary V made a really good point is that it works for a very small percent of people because you're going to talent now and it makes sense. There's a lot of free content out there on cooking. Zack's a very talented chef so this could work for him, but I might be thinking about can I build a subscription box where I'm sending ingredients every month? Not the food, maybe it's ingredients like you still have to buy the chicken and the pasta, but I'm going to send you certain spices and certain ingredients to make certain dishes.
So I might have this whole package where for X amount of money per month you get this box that's got these ingredients, or at least spices or these pantry items, that I'm going to help you make three meals out of it. What I like about doing that right now, he's jumping on personally doing it one on one with the family. That's not scalable. You can't have 1,000 people, he can't do that with 1,000 people. But he can pre-record cooking it with those ingredients that he sent you, and then it's like he's there showing you how to do it. That's how I'd be thinking about it and I think it could work.
James McKinney: Yeah, and I think there is someone who had asked specifically what innovation the food subscription services, I think that is something that would be highly interesting. Also too when I think of chef Zack's platform, I don't know maybe you do know, is anyone doing what we just spoke about right here? Is anyone doing that?
Chris George: I don't think so. There's subscription for spices and other things, but no I don't know of anybody doing that specific model. I think it could work, I mean he's got a well-known name. He's got a following and he's a really good chef, so it could work.
James McKinney: I think what's interesting too about that model right, and just again the spices and you get your own beef and chicken, the main proteins if you will, the pastas, but you get everything else. What I think is interesting about that is from a scalable perspective you can then bring in other chef brands to be that secret chef of the month, if you will.
Chris George: Yeah, that's great.
James McKinney: I think it's incredible. I think from a scalability perspective it could be remarkable. Let's get back to some of these questions. Again, this is what I love jiving through ideas and thinking oh, how can you do this?
Chris George: It's the best, yeah, for sure.
James McKinney: Let's see here. Do you use any particular agency to run focus groups or do you run them yourself?
Chris George: Finding an agency definitely makes the process easier. If you try to do it yourself you're going to grab like 20 people you know and they're not going to give you the honest answer. I don't care if they say they will. It's like asking your friend what he thinks about an idea. Most cases it'd be like yeah. I'll tell you straight up like no, this is not a good idea. But I think hiring an agency makes things easier. They've done it, they know the questions to ask, they can understand your goals. My recommendation would be to use an agency to do that.
James McKinney: Awesome. Someone asked about the food subscription services, what's trending, what's unique, what's missing. I think we unpacked something that's missing, so that's awesome. What do you see trending in that space though?
Chris George: So to be honest I'm not that involved on the food subscription side.
James McKinney: Are there not a lot of members in SUBTA that are in that space?
Chris George: No, there are. There are some but you've got Hello Fresh and Blue Apron and Home Chef that are these three pioneers in that. What we see, what I've seen, what I've noticed is that we have a pretty high churn in the food subscription space but what tends to happen is you get these small percentage of lifers. They get to the point where they can't cook unless that Hello Fresh box is sitting at their doorstep, so you want to build that delta. You're going to acquire a lot, you're going to have churn, but you're going to have this percentage that stay on forever. As that percentage grows, that's when you're going to start to see value within your brand and that's where you're going to see profitability and building a really good business. It's not an easy task.
James McKinney: And I laugh about that, I laugh when you said that because my parents are the Hello Fresh lifers. They can't cook without Hello Fresh. If they're backed up on a box, they give a box as a gift. They are all about Hello Fresh. Okay now, I'm going to put you on the hot seat. We've got some ideas people are throwing out, what are your suggestions for this industry? So we're going to see what we've got here. Someone says, "Hey Chris, any suggestions for a yoga or shamanic service biz?" I don't know what shamanic is.
Chris George: I don't know what shamanic is either, but-
James McKinney: Let's go with yoga.
Chris George: Yoga subscription boxes, that's a great business. First, they exist but that's okay. But any time you're building… well, if you're running a yoga club where you actually go do yoga, you already probably have them on a subscription model. They're paying you a monthly fee to be a part of a certain amount of classes per month so that's already happening. But if you build a subscription box out of it the great thing about something like yoga is there's a community around yoga. You go with people you know to go do yoga. So then they're like, "Oh, what is that?" You're building a community, you've got a targeted niche. People that love yoga are going to love a subscription box to yoga. That's why a golf box would do really well because golfers all golf together. There's community around golf so those tend to do really well.
James McKinney: Question from Deedee Martin, "Do you suggest collaborating with other brands in a box or stick to one brand?"
Chris George: I guess it's your goals. So I think when you have multiple brands, it's giving discover and delight to the consumer, and it's exposing them. That's what your pitch is to the brand is hey, we're going to give you exposure to an audience that you might not be exposed to. And I think eventually you'll see a lot of subscription boxes pivot to the point where they're sourcing their own items. That's where you start to see more profitability and you're able to put more value into the box because you're not paying a wholesale price or distribution price. You're sourcing yourself.
James McKinney: Yeah. Any advice on sourcing products at the beginning of your subscription box biz when you do not have high customer numbers that would allow you to provide a 3X value?
Chris George: I would be talking to brands and finding out what they have in terms of closeout items or last year items. These are products they want to move and the pitch is look, I'm not buying this from you at wholesale because I'm going to resell it for more, I'm simply putting your brand into my box. We're essentially a marketing tool. The subscription box is the new magazine. I go to the brand, "Hey, I want to get a pair of sunglasses." I go to Ray-Ban and I say, "Hey, what glasses do you have from last year? We're a subscription box. We want to expose them to Ray-Ban. What do you have on closeout that you can distribute to us? We're not going to be reselling it so we're not going to devalue your product," and that's an approach that I would take.
James McKinney: Awesome. What is something out there that needs to leverage the subscription box model that isn't using it yet?
Chris George: You know, I had this conversation about like where an auto mechanic could build a subscription and you would typically think that they couldn't. but then I thought about it a little bit more and like I could envision a sort of subscription model where I pay X amount per month, it got me four oil changes per year, it included a fuel change, it included washer fluid, it included a change of the wipers. You could build something around that. I think things like even the nail tech industry. People get their nails done every single week, so have them pay you a monthly fee so they get once per week that way they don't miss a week, right? For the mechanic and the nail tech they will not think about going anywhere else to have that stuff done because they have a subscription with you.
James McKinney: There you go. We've got Jasmina here that is going straight to the source. "According to the SUBTA 2019 annual report, subscription boxes in the lifestyle category saw a 15% site visit decrease. What is the reason for that?"
Chris George: Subscriptions were booming from 2015 up until 2019. In 2015 and 2016, it was like a sky rocket and it's starting to plateau a little bit more, and some of the mom and pop subscription boxes either got weeded out or they're slowing down, and you're seeing that there's some that have survived and those ones that are sticking around are still sticking around. So that's why there's been a decrease. There was a huge jump and then things are starting to plateau, as they would in any sort of industry. So that's why there's a little bit of a drop in the lifestyle side.
James McKinney: Excellent. Any tips on starting a STEM subscription box for kids outside the US? Subscription boxes are relatively new in my country and not sure how parents would take it. I would love for whoever that is to just quickly comment what country you're in because I'd really like to know where these are new. That brings up two points. I do want to ask again any tips on starting a STEM subscription box for kids? And then two, based on your data that you're seeing in the Subscription Trade Association, I know you probably focus on the US but what are you seeing globally as far as subscription boxes?
Chris George: The US is definitely number one with purchases for subscriptions. We're starting to see Canada starting to grow, and then it goes into like the UK from there. It's still not very big in even Canada and the UK. It's starting to get bigger. It's definitely more prevalent here in the US. I think with STEM, I think any subscription that's targeting kids one, is great. The tips is though you've got to focus on marketing to the parents, and focusing marketing on what's the value to them to give this subscription to their kids. One thing to keep in mind is the target customer is buying it for their child versus buying it for themselves. I think that in other countries it's just about getting exposure to the subscription model and getting them to understand that it's about relationship and providing value, so there's a sort of unique learning experience for those consumers in those countries still.
James McKinney: We have three minutes left so I'll make sure, there's a couple things I want to cover. One, can you unpack, there's a lot of interest in the subscription business model obviously and SUBTA is the only unifying body if you will for that. So can you unpack some of the perks of joining SUBTA? We have one question, it sounds like someone is just curious why join SUBTA when you start a subscription business. I think that's a little short sighted, I think if you can unpack some of the perks of joining SUBTA.
Chris George: Yeah, for sure. So one, you can join SUBTA for free and we built SUBTA because we want to help facilitate this community. When you join SUBTA, one we've got an exclusive Slack channel where Matt Arevalo, founder of Loot Crate, he's in there. The founder of Scentbird, she's in there. So there's really good conversation happening around the industry and individuals that can help you with growing your business. We've also as SUBTA you get access to our White Papers and content that can help give you documents and help give you resources to help you build your business. If you're in the subscription space, there's no reason not to be in SUBTA. Again, it's free to join. There's a premium model that costs $300 a year but you get so many perks for the free model. It just allows you to give you resources and access to individuals that can help you build your business.
James McKinney: Awesome. Outstanding. Lastly, as we head out there's a question about how is it different when marketing to male customers and female customers in the subscription box business?
Chris George: I mean it's different in the sense that your marketing messaging is going to be different. Men and women, they have different buying behaviors so I like to say that men typically buy, they don't shop. They don't generally look for whether it's a discount or we don't like to walk into a retail store and go through racks of clothes. We like to buy the shirt that's on the mannequin or the shirt that's on the wall facing out. So helping the male consumer see the product very quickly, make sure it's attention grabbing to them, and that helps convert them. On the female side, it might be offering more options, giving more personalization, I think that's going to help convert.
James McKinney: Awesome. Well, we have hit our mark. Thank you so much Chris for all the incredible knowledge you shared with us. I hope for those of you watching again back to just that new wave thinking. I hope you will consider a subscription business model within your business.
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