Boosting Profits in Your Subscription Box Business: Tactics to Increase Average Revenue Per User

It's as simple as that .

So the question was let me load it up here . Hello , I feel as if our profit margins are too tight . We only make about 30% gross profit . We would love to figure out a way to earn more profit in our business . Do you have any advice ? Very good question . Okay , there's a couple of different ways this can be approached .

The first thing you can do would be to drive down the casks in your box . Come up with a way to get things for cheaper . That may be going to manufacturers directly or manufacturing stuff yourself .

The more people who touch your products before they get to your box , the less cash you're actually going to make , and that is a viable way of increasing your profit margins .

But for the purpose of this episode , we are not going to focus on that and that's mainly because I don't actually know where you are in your business and sometimes to drive down the casks . You have to reach a certain number of subscribers before economies of scale actually kick in .

On this episode , we are going to focus on something called your average revenue per user , and I'm going to explain why this metric is so important when it comes to actually making money in your subscription box business .

Because if you drive up your average revenue per user , you're actually going to make a lot more money and you don't normally need economies of scale to actually kick in . It's something you can do right now and your business would be so much more sustainable and healthy if you have a grasp on this metric . So what is your average revenue per user ?

Well , your average revenue per user measures the amount of money that a company can expect to generate from a individual subscriber . That was pulled directly from Google and that is 100% correct . So in your subscription box business , it's highly likely you are going to offer different prices depending on what plan a customer actually signs up to .

So if they sign up for a one month plan , it will usually be your most expensive plan . If they sign up for a six month , it will be a bit cheaper . If they sign up for a three month , it's going to be a different price . If they sign up for a 12 month , it's going to be a different price again .

So your average revenue per user allows you to see what is the average amount you are generating from each box sold . Now I definitely don't recommend trying to figure this out yourself . The calculation to actually do it is your monthly recurring revenue divided by how many active subscribers you have . But we don't calculate it . We are signed up to ChartMogul .

We can see all of our metrics . I'm always going on about this , but it's actually really , really important . If you don't want to use ChartMogul , check out Bear Metrics or Sublitix or Profitwell . Any of them will be able to give you your average revenue per user , plus a lot of other riggy , important and critical metrics .

Now , to put it in the simplest way possible , if you drive up your average revenue per user across all of your plans , well then you're going to be making more money and that will solve your problem .

And you can control that to some degree because you can test different things , you can come up with ideas and if you come across the right idea , you can significantly drive up your average revenue per user and , yeah , your business will just produce a lot more profit . Now there's a few different ways you can drive up your average revenue per user .

The most obvious way of doing it is to increase your prices . You increase your prices , people are paying more and your average revenue per user rises up across all of your plans .

Now I have a couple of podcasts recorded on this already , and if you haven't listened to them , I highly recommend going back and checking them out , because we increased our prices in Busterbox towards the end of last year and I document the entire process across those podcasts , so you'll definitely find value in them .

It's highly likely that you probably can increase your prices by a bit and it won't have any effect on your business whatsoever , apart from you actually earning more money , because when people get involved in this industry , we were the exact same .

It's highly likely you never did price testing correctly at the start and you're probably leaving a bit of money on the table , so definitely go back and check out those podcasts Now . The other way to drive up your average revenue per user is actually just to sell more things to your subscribers and get them to opt in for subscription upgrades .

Now I'll explain to you what we do in Busterbox around this . So if you sign up to Busterbox , you have the opportunity to sign up for a one month , a six month or a 12 month subscription , but before you complete your purchase , you're then given the opportunity to no matter what subscription you've picked .

By the way , you are given the opportunity to pay a additional $7.99 per month to add an extra toy to every single box . So a good proportion of people actually go for this upgrade and it drives up our average revenue per user .

Now , after you complete your purchase and you've put in your car details and your shipping details and all of this information , you then move into our post purchase funnel and in this post purchase funnel we are selling a number of subscription upgrades and even a extra subscription .

So when you reach this part of the sales process , you're then given the opportunity to add even more toys to your box each month .

Then you're given the opportunity to add even more treats to your box each month and finally , before you complete the purchase , you're given the opportunity to actually add a extra Bust a box to your order each month , in case you have a second dog or you want to buy a box for a friend's dog .

So we've all these options going through our sales process and a lot of people take different options , and that compounds and drives up our average revenue per user quite substantially . Now we're testing things all the time in here . We've so many different ideas , other upgrades that can actually go into this sequence .

Some of them are easy to implement and some of them require time and planning to make sure it's done correctly and does not become a logistical nightmare . And that's really important .

When you're doing something like this , you have to ensure it's streamlined and does not become a logistical nightmare , because if it's a logistical nightmare very quickly , that will create problems in your company . Trust me , we've been there looking back at the very early days of Bust a box .

We did some very crazy things , we tested some very crazy things and we never really had the logistics set up properly . This has gone back a long time ago and it came back and caused us some issues . So nowadays we're very careful and we're setting something up to ensure that the logistics are 100% .

Now I'm challenging everybody who is listening to this podcast to start testing different ways of driving up your average revenue per user . Come up with some other subscriptions that you can add in your sales process , whether it's a pre-checkout or post-purchase checkout , that are complete no-brainers for your customers .

And the easiest way to do this is usually to sell more of the same stuff . So say , you do a makeup subscription . Well , give the customer the opportunity to purchase more makeup from you , different kinds of makeup . If you sell craft beer , give them the opportunity to add more craft beer to their subscription .

If you sell educational stuff for kids , give them the opportunity to add more of that to their subscription . You know that they're already interested in these kind of products , otherwise they wouldn't be signing up to your subscription in the first place . So give them the opportunity to buy more of the same from you .

You'll be pleasantly surprised by how many people decide to take this from you . Look at us in both their box . We haven't reinvented the wheel . We're just giving people the opportunity to add more toys and more treats to their box , and a lot of people are going for this opportunity .

Now there's more complicated stuff you can do , but before you even think of trying any of that stuff , keep it as simple as possible and just give them the chance to add more of the same stuff and see what the take rate is . Nowadays , it's really not a good idea to just focus on selling one subscription with no kind of upsets or add-ons .

Custom acquisition costs are going up all the time and we can't control them . We literally have no control over the CPM prices across different platforms . That's something that's just completely out of our scope . But the one thing we can control , if we're clever , is our average revenue per user .

We can influence our average revenue per user by coming up with more offers and add-ons along the sales process .

Think about it this way If you have a higher average revenue per user , well then you can pay more to acquire a customer and you're not too worried about your ad costs increasing , and that's a mindset that everybody in this industry needs to have going forward .

If you're in the mindset where you're like , oh , the ad costs are going up , we can't afford to advertise , we don't know what to do , well , if you can't afford to advertise , you won't be able to get customers , and if you don't have customers , you don't really have a business .

So this is a challenge that needs to be overcome , and it can be overcome by increasing your average revenue per user . Pay more to sign somebody up and you'll earn more money from your business . I'll give you an example . You may have a number of competitors who offer something very similar .

Their subscription box and their subscription boxes may be very , very similar and from the outside , looking in , everything looks pretty equal . You offer a similar product , you have a similar website , so you probably have a similar conversion rate and you probably have similar businesses .

But behind the scenes , it's actually completely different , because you've put a lot of effort into building out a backend and you sell these add-ons and upgrades , so you have a much higher average revenue per user and your business is a lot more sustainable and a lot more healthy .

And that puts you in a very great position , because you're able to actually spend more to acquire a customer than any of your competitors . And that's really where you want to be with this business model .

So yet , take up the challenge , do what we covered in this podcast and come up with a few different add-ons that you can add to drive up that metric , because , trust me , it will make a massive difference .

Even if you can only raise your average revenue per user by a few dollars , that can have massive effects on your business over a number of months , especially if you're a growing company . I hope this helps . As always , we'll be back next week at the exact same time .

If you have any other questions at all about increasing your average revenue per user , your profit margin , anything to do with your subscription box business , then head over to the free Facebook group at subscriptionboxresourcescom . Join there , post your question and it will be answered in a future episode .

Thanks very much for tuning in and speak to you next week , bye , bye .