One of the biggest concerns for subscription businesses is extending the lifetime value of their members. The greater the lifetime value, the greater their worth to the business’s bottom line. But one of the biggest challenges for subscription businesses is delivering to real people in the real world.
At Subscription Show 2021, attendees had the opportunity to hear a case study on extending the lifetime value of subscribers. Jordan Salvit — one of the co-founders of KitNipBox, a subscription box for cat owners, — spoke about his experience in creating and running a subscription business and retaining a loyal base of customers.
KitNipBox was founded in 2014, a time when subscription boxes weren’t as prevalent as they are today. At the time, he and his team knew they wanted recurring revenue in their new business. Their goal was to acquire a customer only once.
Salvit and his co-founder assessed all the spaces where subscriptions already existed. Clothing, beauty and dogs were already covered. But at the time, no one provided subscription boxes for cats. They asked why there wasn’t already a cat subscription box, asking questions like: Don’t cats like toys? Is it simply an underserved market?
At the time, they knew nothing about running a subscription business but decided to launch anyway. Once they had subscribers, it helped them figure out how to evolve the website to meet the needs of their customers. They learned many of the pain points of running a subscription business as they went along.
Lesson 1: Build your product so it can be scaled.
Because the KitNipBox team started with 67 customers, most of their business processes were done manually. When they reached 1,000 customers, they discovered they couldn’t do all the shipping and box stuffing on their own. At that time, they didn’t realize the importance of efficiency in subscription boxes. They sought to create a personalized touch with each box that went out. But that style of running a business simply isn’t scalable.
“That first week, those 67 customers took us almost a week to build because we knew nothing,” said Salvit.
When they hit 1,000 customers, they knew they needed to bring in a fulfillment partner that could help them figure out how to maximize output. Once a fulfillment partner was brought in, they discovered they could focus on retention — fixing the issues with declined credit cards, customer retention and churn.
Lesson 2: Credit cards are not quite as good as cash.
“We learned a couple of things: credit cards aren’t as good as cash, debit cards are not as good as credit cards, things along those lines,” says Salvit.
In 2014, many of the tools that subscription businesses rely on today were not yet available,so they built the subscription billing platform from scratch. Unlike when they first started when there was no account for customers to log in to, now customers can go through the process of becoming a subscriber and getting an account they can manage themselves. And when they first become a subscriber, they get their first box right away and then every month until they decide to cancel.
“What’s now a seamless process took a lot of trial and error,” says Salvit.
One of the biggest reasons for churn is failed credit cards. This happens for a few different reasons: 1) the subscriber’s credit card changed and they didn’t update their account, 2) they don’t have enough credit on their card for the payment to be processed, or 3) fraudulent purchases.
In some cases, the KitNipBox team would reach out to let customers know about the declined card. But in other cases, they adjusted when the card was charged to better account for paydays and other factors in their customers’ lives.
“We got phone calls all of the time saying, ‘My paycheck comes in on the 17th of the month and that’s when the money clears. Charge me on the 17th of the month.’ And we immediately said, ‘Of course!’” says Salvit.
Early on, KitNipBox implemented a custom billing cycle. That decreased churn dramatically because the number of declined cards plummeted.
“We talk a lot about decline and recovery, but how many people reach out to the customer and say, ‘We want you to pay for our product because we need customers. But we also love your cat? So what day of the month would you like to be charged?’” pointed out John Sullivan of Paul Larsen Consulting.
This personal touch showed customers the KitNipBox team cared and helped reduce churn.
“By giving [them the] option to maximize their own lifetime value [our customers] did,” says Salvit.
That’s a huge piece of running a subscription business: looking at the technology needed and the small tweaks that affect huge change. Whole scale change can affect the business, but minor changes can have a greater impact on the customers’ experience with the company and, therefore, their lifetime value.
Lesson 3: Continually assess your payment processor.
After choosing an initial payment processor, about a year later, Salvit and his team assessed whether the one they selected was still working for them.
“About a year in was when we [operated] at a much bigger scale. And when we first signed up, everyone was offering 2.9% plus 30 cents. Our price point is between $20 and $30…right off the bat that’s not actually 3%, that’s closer to 5%. That’s a huge hit to any margin,” says Salvit.
When selling a physical good, every penny is meaningful. This drove Salvit and his team to compare the breakdown of his customers and the use of debit cards versus credit cards. Once they had those numbers, they negotiated a better rate with their payment processor and continued to do so over the years as the company grew.
Changing the payment processor was the right move for KitNipBox internally. But the outward-facing aspects of any payment processor can affect the customer, too. If it’s easy to make a payment, quickly process payments and identify fraud, then a customer’s lifetime value will naturally increase.
Lesson 4: Every day ask, “What will make our lives easier?”
Salvit and his team asked themselves this question every day, which allowed them to adapt and evolve based on the needs of their company and customers.
In addition to finding the right payment processor, Salvit and his team had to start finding the right people to help them grow.
“Our first hire was a developer,” says Salvit.
Even though Salvit has a coding background and created the first website himself, he quickly realized he couldn’t run the business and the backend of the website. Salvit and his team decided to hire a developer instead of going with another service because, at the time, many of the services they looked at for the backend lacked a subscription component. Building out the entire site was the right solution for them and meant they needed to hire a developer full-time.
For the KitNipBox team, customer service operations were another area where they could make their lives easier.
“We realized we needed to hear [from] customers wherever they were. [And] customers loved calling,” says Salvit.
In the beginning, they had actual phone numbers they advertised to their customers. The team “round-robined” the calls – having every member of the team spend at least one hour a day answering the phone.
“We set up customer accounts…so once they did call, we took notes about them. We knew people’s names, we [could] look people up and see when was the last time they purchased, and the full customer history,” says Salvit.
Though the phone was one place customers could reach out, the KitNipBox team had as many avenues as possible for customers to contact them.
“Anything you can possibly message on, we message on,” says Salvit.
Creating clear lines of communication made their lives easier in several ways. First, it helped them increase the lifetime value of their customers because customers were able to air their grievances or solve issues with the team directly.
Second, it provided a focus group for the KitNipBox team where they could better understand what customers wanted to see in their boxes each month. This again increased the customer lifetime value because customers wanted to continue receiving boxes that felt personally curated.
Third, it created a culture where the customers were valued not just for how they supported the bottom line, but as people who absolutely love cats and love talking about cats.
After the pandemic, the need to move to remote teams became tantamount for many businesses — including KitNipBox.
“We gave up our office in June after the pandemic started, and our team is fully remote at this time,” says Salvit. “They’re distributed across the country, and we have not pushed anyone to come back.”
Allowing their team to work from their homes has created ease in their operations and allowed them to adapt to the shift in work culture. In making their own lives easier, they make it easier to better serve their customers and focus on the aspects of the business that will increase the lifetime value of their customers.
Though increasing the lifetime value of customers isn’t always a quick and simple process, Jordan Salvit and the KitNipBox team demonstrated that small changes can make a huge impact. From building a scalable product to creating customized billing cycles to allowing customers to speak to a real person, KitNipBox increased the lifetime value for their cat-loving customers.