How to Start a Subscription Business

How I Added $1030 in Monthly Recurring Revenue in 4 Days

Max

April 2016 Update: This same micro-continuity business is now doing a little over $4k per month. So this model still works very well and has grown organically with almost no additional time dedicated to the project. I’ll continue updating the growth every few months.

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Original Post:

Monthly recurring revenue, often abbreviated as MRR, is a form of subscription income.

I believe it’s the holy grail of online income for two main reasons.

  1. Recurring revenue gives your business predictability. With predictability you can hire employees, order supplies, and forecast allocating resources toward your business.
  2. Recurring revenue gives your business (and life) consistency. Consistent revenue removes the volatility that some businesses face. It eliminates stress associated with one time sales or having to repeat launches for income.

So you’re probably wondering how I created $1030 in MRR in 4 days, and why I decided to run this micro-continuity test.

Simple.

A few months ago I saw this site. For $5 per month, customers receive a meal plan for every day of the week.

5-meal-plan

The meal plan is presented in a nice format with all the ingredients one needs to go to the grocery store, purchase the ingredients, come home and make a delicious meal for their family.

Well they have over 12,000 members on their fan page with a lot of engagement. So my assumption is they have at least 3500+ members paying $5 per month. That’s $17,500 per month for a micro-continuity product.

At the time I didn’t think anything of it other than it being a good way for the owner’s of the program leverage and moentize their following.

I had no desire to create a similarly priced program at that time.

What was interesting to me is that the whole program was built on the backbone of a Facebook private group. It got my wheels turning.

They didn’t have to fumble around with deciding on a membership platform or login credentials.

They brought the membership to where most people spend a lot of time on each day – Facebook.

Then a month later I stumbled upon this site.

superhuman-habits

For $10 per month, customers get to discuss and share resources related to self improvement and “becoming superhuman”.

I was familiar with the creator Joshua Pellicer who I had studied previously when a book he wrote was a top seller on Clickbank for over a year.

For those who don’t know Clickbank, it’s a marketplace where you can list your digital ebook or course and affiliates can promote it.

Clickbank is very competitive and difficult to move your way to the top so there was something about Joshua’s approach that intrigued me.

His VSL (video sales letter) was also gaining viral traction. In order to write a great VSL, you have to be a student of marketing.

And since Joshua had a viral and high converting VSL I thought surely he knows marketing and I began studying his work.

He took his book called “Tao of Badass” and got it to the top of Clickbank for over a year.

And then he proceeded to do generate $11 million in sales that year plus grow a large team and create a company around his product.

Shortly after I went to this conference and randomly met a couple of interesting guys who turned out worked for Joshua’s company.

It seemed like I couldn’t go anywhere without seeing some form of Joshua Pellicer’s work.

So I joined his group of 159 members to get further inside his mind and see how he runs things.

The “Becoming Superhuman” group was only open for a month and had a MRR of about $1500.

And Joshua wasn’t very active in the group. I’m guessing he spent 20 minutes per day reading, posting and making an occasional impromptu video filmed on his iphone.

I know Joshua wasn’t doing it for the money but it was still interesting to me that a guy who recently did $11 million in revenue created a group like this.

Around the same time I started thinking about how I can monetize a site I own that was getting about 3000 unique visitors per month.

What Came Of All This?

I decided to run a little test to see how many paying members I can get in a few days into a Facebook group.

I ran the test for four days and it now has a steady income stream of $1030 MRR through a micro continuity program hosted on a private Facebook group.

ep-fb-group

How Did I Do This?

The cliff notes version is this:

Step 1: I ran Facebook ads to get “likes” to a general Event Planning fan page (I spent about $700 and 7,178 fans liked my page).

Step 2: I created a promoted post visible only to fans of my fan page to join the paid private group (I spent $26 and got 103 paying members).

Step 3: During the 3 days I was running ads, I was constantly adding value and engaging the private Facebook group. I wanted members to see engagement and get value immediately after signing up to pay the $10 per month so they don’t unsubscribe. I’ll write a post later about how to give major value and get engagement on Facebook groups. There are a lot of great tips.

Step 4: The end. Now I have $1030 in MRR to do whatever I’d like with.

Longer version:

I ran Facebook ads to a fan page. These fans were acquired for about .10 each and was up to 7178 fans who “liked” event planning.

So I created a post on the fan page to a landing page that made a simple offer to the visitors.

The offer was to join a private “Event Planning Business Growth Group” to discuss ways to grow their business, get new clients, ask questions and share photos of their events.

The cost was $10 per month.

Since I hadn’t engaged the fans on the general Event Planning page for several years and I know Facebook has continually decreased the organic reach of fan page posts since I first grew the page, I knew I had to I immediately boosted the post.

So I boosted it for $16.

Then I added $4 to that boost about 8 hours later.

And after 48 hours when the initial boost ended, I added another $6 to the boost to get me over the 100 paying member mark.

So there you have it – 4 days of work (1 day setting up the page and 3 days boosting) and $26 dollars spent to create a recurring income stream of $1030 every month (unless members cancel).

Of course you have to add in the cost of acquiring the initial 7175 fans which on average cost me .10 so thats another $717 I had spent bringing my total spend to about $743.

If you have never promoted a boosted post on Facebook it is one of the easiest things you can do and I highly recommend testing it.

Every time you make a post on Facebook in the bottom right corner a “boost” button appears.

It’s so easy I made a 4 step diagram to show how to do it.

boost-post-example-steps

I rarely say something online is easy but I’m convinced this method above can be replicated over and over in many different niches.

The key to this type of micro continuity is finding targeted niches that people are passionate about.

So go out and brainstorm possible niches and see if you can do the same!

How to Pick Your Subscription Business Idea

Max

Here is what I love about recurring revenue – you pay to acquire a customer once (and as long as you deliver a good product), you collect money from the customer every month going forward.

Recurring revenue has made a lot of people very rich. It has skyrocketed the values of companies like Amazon, Dollar Shave Club and The Honest Co. And it has created amazing lifestyle businesses for many others.

So how do you pick a niche for your subscription business?

My criteria is four-part.

  1. It must be an industry people spend money on (ie: fitness, arts and crafts, parenting, children).
  2. It must be an industry that doesn’t have a ton of competition PPC’ing for your keywords.
  3. It must be an industry where you can create a product offering with high margins.
  4. It must be a product or service you can deliver on.

You can use all four criteria points or pick just a few of the points but the important thing is making a brainstorm list of potential products and narrowing down the list until you are left with a product you are excited about.

Hopefully you have some ideas in mind already but if you don’t here are a few places you can look:

  1. Sign up for brand’s email lists and see what they profile in their email newsletters.
  2. Go to your local mall and walk around looking inside of department stores like Macy’s and pay especially close attention to the mall kiosks.
  3. Turn on QVC and see what sells well.
  4. Check out MySubscriptionAddiction for ideas (read comments and reviews on different products to see what customers say).
  5. Attend trade shows and walk the floor.

Now that you have decided on your product it’s time to find wholesalers you can buy your product from.

You can check general product sites like DollarDays as a first step but you should also Google search by typing in “[your product] wholesale”.

Most wholesalers will require that you make large quantity purchases. This is referred to “MOQ” or minimum order quantity.

At this point you are just looking to find that you can buy your product at low enough prices to make a healthy margin. You will not make your purchase yet.

Validation

Validation is the most important thing to do before you go all-in.

You have to validate the fact that there is demand for your product.

You have to validate that you can acquire customers and sell your product.

You do this by creating a Minimum Viable Product offering.

We’ll go into this in another article but for now you have chosen your product and know what your subscription is. You should roughly think about pricing and what you want to charge every month.

 

 

5 Things Every Subscription Business Needs

Max

Understanding the Landscape: The 5 Things You Need to Run a Subscription Business

I’m going to show you a mindmap and it could be worth over a million dollars.

Why?

Because this is the exact mindmap I used to make $1.7mm last year on a subscription box.

You can apply it to any subscription or ecommerce business too.

It’s a great checklist. It’s magic. It’s the best guide you can find for recurring revenue.

(insert full mindmap)

So you want to create a subscription business but need a game plan of everything that goes into creating one.

You’re in the right place.

Two years ago when I created my first ecommerce subscription business I wrote out these five things you need before you can safely take your first few sales.

They are all operational. Some are boring, but they are all mandatory.

Product

This is one of the most exciting parts to me because most likely the exact spin you put on your product offering doesn’t currently exist in the marketplace. You are going to create something from nothing.

And even if similar products and services exist, none will be exactly like yours. You can let your creativity run wild on this in terms of what your whole product offering will be, how you bundle it, how you present it, package it, etc but there are some important questions to ask yourself.

Are you going to offer a physical product or digital product?

I’ve had businesses with both digital and physical products. I even had a mobile subscription product. Whichever option you choose, you’ll want to execute very well. Both digital and physical product subscriptions can make you a lot of money.

Are you going to source the product from a wholesaler or manufacture it yourself?

I recommend you start by sourcing the product from a wholesaler. When you start, you might even have to buy it at near-retail price on eBay or Amazon just to test and validate that you can successfully sell these items.

It’s much better to overpay a little for 10 – 15 items and sell those at break-even, than to pour in hundreds of hours and thousands of dollars buying at wholesale prices but in bulk without first knowing or validating that you can get customers for it.

So I recommend you find wholesalers who can get you your desired product and ask them for samples. But do not buy your first 10 – 20 items from them because the wholesaler most likely won’t sell you such a small quantity. You also don’t want to spend thousands of dollars on it prior to validating that you can get sales.

Will you get creative with your product bundling?

For example, I have a friend who was selling video workout courses digitally but through testing learned that if he also mails each customer a physical DVD to go along with their online material, his refund rates drop by 50%.

Fulfillment

You always want to start product fulfillment by doing it yourself. Fulfilling products is relatively easy for your first hundred orders or so.

It’s important to do it yourself when starting so you can get a good grasp on how your packaging looks, what type of box you should use, confirming your postage printing is working correctly, etc. And that’s not to mention the fact that it’s most economical to do it yourself.

Eventually you can outsource this by hiring employees or to a fulfillment house but either way you’ll have to know how your packaging works inside and out before you can give the task to someone else.

Product fulfillment includes the packaging of your product and connecting your CRM to your postage printing.

I recommend using Shipstation which uses Indicia to print your postage. Shipstation connects to most CRM’s.

CRM

It used to be difficult to find a reliable CRM to handle all your subscription needs but with the rise of subscription businesses in the last five years three great solutions exist:

  1. Cratejoy – least technical knowledge needed
  2. Shopify – excellent for pure ecommerce but you need to integrate with subscription apps to make it work.
  3. WordPress + WooCommerce – if you have technical knowledge this is the best and most customizable set up but it’s the most difficult because it requires programming knowledge.

If you have programming knowledge go with WordPress + WooCommerce. If you don’t have technical expertise and want a quick solution you should go with CrateJoy.

Payment Processing

Prior to Uber coming on the scene, Stripe was my favorite company. And Stripe is hands down the best payment processing solution available to you. All good CRM’s and programs integrate with it, you can open an account with them in five minutes and the ease of use is amazing. Plus they deposit money into your bank account every two days now.

Customer Support

Customer support is an often overlooked part of a subscription business. Do you want to offer customers email support, phone support or ticket support?

I’ve offered all three in the past and my main subscription ecommerce business right now offers a contact form and phone support options. I only give out my company phone number to customers who get the number as soon as they subscribe and again in every package they receive from me.

If you don’t mind fielding inquiries all day over the phone then you can put your number on the website. Depending on how clearly you explain your product and all questions online, you may or may not get a lot of calls from non-customers.

Overall it can never hurt to talk to your visitors so if you don’t mind answering calls and have time during the day, I’d give out a company phone number on your site to everyone. If your time is limited or you don’t like being on the phone, then only give your phone number after a purchase is made. Everyone else can reach you through a contact form or email address.

There you have it – the five basic operational components you need to have in place before you launch.

We’ll talk about minimum viable products in another article but the only time you don’t need all five of these pieces is during your validation phase where you are looking to get 10 – 20 customers at breakeven cost to see if you should invest more time and money into building out that particular product or service. In these situations you can use Excel as a CRM; Stripe to process the payments; and Stamps.com to print postage.