3 Exercises to Help You Launch Your Subscription Business

The early stages of launching your subscription business can be challenging. Try these three exercises to better understand the operations behind your next venture.

subscription business brainstorming

The early stages of launching a subscription business can, at times, feel daunting. There are both “big” questions you need the answer to (like who your customers are and what it is you’re selling them) as well as operational understandings, from actually building your product to efficiently running your business.

But don’t let the details discourage you. By asking yourself the right questions, and working through just a few solid exercises, you can greatly increase your understanding of the business model, and hopefully build a successful, sustainable business for yourself. Consider these few examples, and spend some time applying them to your own business:

1. Create a Map Around Core Assumptions

The first exercise deals with understanding the very basic elements of your business: your customers, your value proposition, and your niche. I recommended physically drawing this exercise out in a bubble graph format, using lines to connect related idea – grab a notepad or sketch pad, a good pen, and a large flat surface. Alternatively, you can use a digital service (I like MindNode).

  1. Create Topic Bubbles
    • In the top center of your pad, write the following words with enough space for 2-3 bubbles between them: customer, value proposition, and niche. Circle these words. These are some core concepts you’ll use throughout your exercises, and will inform the decisions you make in other parts of your business.
    • If you’d like to read more about them, reference our guide on 5 Concepts Every Subscription Business Owner Should Know
  2. Add Definitions (Optional)
    • Customer: The specific type of consumer who would buy my product
    • Value Proposition(s): The reason for buying your product,
    • Niche: Specific interests that define your product
  3. Add Your Core Assumptions
    • Under each Topic, begin to build out your core assumptions. These are the definitive points the make up the topics. Here are a few ideas to get your mind primed:
      • Customer: Write out 5 words that describe your audience. Ask yourself, who would buy your product? Why “type” of person are they? How old are they?
      • Value Proposition: What is the main selling point to our business? Is it a value, an experience, or a novelty?
      • Niche: What make your product unique? How is it different from other similar businesses?
  4. Refine
    • As you start to plot your core assumptions, some descriptive words, reasons, and unique characteristics of your business may change, or you may begin to think about them differently. This is part of the process of defining and fully understanding your subscription business, so as the ideas evolve, refine and redraft your chart.
    • When you’re comfortable with the descriptions around your topics, step back and reflect: you should be able to quickly describe these basic elements of your business relatively quickly now.

2. Build A Procurement Worksheet

When thinking about the make up of your product, it may be easy to define general categories of products that could be included. For example, if you’re starting an subscription for painters, you might quickly rattle of products like paints, brushes, and canvass as items that you’d use in a box. This next exercise will pull those ideas into real life.

  1. Open a spreadsheet (on Excel, Open Office, or as a Google Doc)
  2. Title the sheet on A1
  3. On the third row, define the amount of units you expect to order/procure for (this is important when getting actual quotes from vendors who provide you product)
  4. On the fifth row, horizontally list these terms
    • Your Product Type (Supplies, Books, etc)
    • Unit Cost
    • Shipping Cost
    • Retail Value
    • Total Cost
    • Link to Product
  5. Next, fill out a few sections based on the type of product you expect to be purchasing. If you expect to include 2-3 pieces of art supplies, a book, and 1 piece of art for customers to keep, get enough specific examples added in to the sheet as possible.
  6. Build Formula into Your Sheet (Optional)
    • You can also add Total Per Box Cost, Total Retail Value, and Total Cost to the bottom of the sheet, then use the auto SUM feature to automatically keep track of costs.
  7. Extra Exercise 1: Begin contacting targeted vendors to provide yourself with specific unit costs.
  8. Extra Exercise 2:  Pick up a few examples from stores and have the products in front of you when making decisions. Pay attention to the aesthetics and size in addition to cost when procuring for a perfect box.

Here’s an example of what the sheet will begin to look like:

Procurement-2

3. Spec Out Basic Economics

Completing a procurement sheet with accurate assumptions on cost helps you understand another facet of your business: product cost and how that attributes to your Cost of Goods Sold (COGS). COGS is one of several unit economics that are important to understand when launching your business, and is defined by the total cost of product, packing, and materials used in creating your product. The next exercise deals with specifically laying these types of economics out with the intention of better understanding the financial underpinnings of the business.

  1. Open a spreadsheet like the one above, titling it “Unit Economics” in the A1 cell
  2. Starting in row 3, create this list vertically (for more information, read about the KPIs for your subscription business). For each, take the total cost divided by the total number of shipments:
    • Average Product Cost per Box
    • Average Labor Cost Per Box
    • Average Packaging Cost Per Box
    • Average Shipping Per Box
  3. After you’ve completed laying out the expected average costs associated with your box, sum the total. That’s the amount you need to get from customers just to provide for the product. This doesn’t include profit for operations or salaries. You’ll want to take this number, add a value for CoCA (Cost of Customer Acquisition) + the margin you’d like to make on top of that. This will provide you with a price that has all your COGS, acquisition costs, and profit all baked in.

Want more help with this? Use Cratejoy’s Pricing calculator to learn more.

Take a moment to reflect on your costs and what that means for your price. Are you leaving yourself enough margin?

Final Step: Lay Out Your Subscription Business

I like to conclude this exercise with physically laying out the work I’ve done in front of me, and I encourage you to do the same. Trace over the big ideas that define your business while you physically look at your product and the metrics behind it. By doing so, you provide yourself with very holistic view of operations. Most importantly, by performing these exercises, you’ll work through new definitions and new elements of your business whose understandings are required if you want to a build a stable, sustainable business. From here, you can begin to familiarize yourself with more details, and begin the process of finding better partners and solutions to keep costs down while putting a great product in customers’ hands.

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About Jesse Richardson

Jesse Richardson is an author, educator and co-founder of several successful subscription businesses. He focuses on building engaging communities and has been described as "insanely customer centric." Find him in the Subscription School group or at his blog.

11 Responses

  1. mark

    Hi Jesse, Great Read! I was wondering, do you have a suggested merchant services company for subscription boxes? I want to explore options outside of paypal. Do websites like subbly choose a merchant service provider for their clients?

    Thanks!

      1. Amir Elaguizy

        Cratejoy also supports Authorize.net and Paytrace, we’re in the process of implementin Braintree, Worldpay and a few others as well.

    1. Stefan Pretty

      Hey Mark,

      Subbly uses Stripe like Cratejoy for processing payments. As mentioned by Amir and his team it’s very good for processing payments and has lots of great built in features.

      Stefan @ Subbly

  2. Tiffany

    Hi Jessie,
    I was hoping you could provide an example of a working unit economics worksheet. The product worksheet example was a great jumpstart for me.

    Thanks!

  3. Jeph

    Hey Jesse,
    For the basic economics, can you explain how the revenue you receive per user is different from the profits for operations and salaries? Doesn’t the revenue feed the profits?

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