In this episode, we explore a crucial yet often overlooked metric that reveals the true health of your subscription box business: the Subscription Box Profit Spread (SBPS). Unlike traditional metrics such as LTV, CAC, and payback periods, the SBPS provides a comprehensive view of your business's sustainability and growth potential.
Key Topics Covered:
Understanding the Subscription Box Profit Spread and its significance
Why SBPS is not found in your typical analytics dashboard
How to calculate your SBPS and what it indicates about your business
The relationship between churn rate, marketing spend, and maintaining MRR
Practical tips to improve your SBPS for long-term success
This metric is VERY important, and by the end of this podcast, you will fully understand how healthy your business is and what potential it has.
If you have a question you want answered on the show, head over to www.SubscriptionBoxResources.com, join the FREE FB group, and post your question there.
In this episode, we explore a crucial yet often overlooked metric that reveals the true health of your subscription box business: the Subscription Box Profit Spread (SBPS). Unlike traditional metrics such as LTV, CAC, and payback periods, the SBPS provides a comprehensive view of your business's sustainability and growth potential.
Key Topics Covered:
Understanding the Subscription Box Profit Spread and its significance
Why SBPS is not found in your typical analytics dashboard
How to calculate your SBPS and what it indicates about your business
The relationship between churn rate, marketing spend, and maintaining MRR
Practical tips to improve your SBPS for long-term success
This metric is VERY important, and by the end of this podcast, you will fully understand how healthy your business is and what potential it has.
If you have a question you want answered on the show, head over to www.SubscriptionBoxResources.com, join the FREE FB group, and post your question there.
Speaker 1:
Welcome to Subscription Box Answers with your host, liam Brennan. You're no rubbish, no crap. Straight to the point podcast with real, actionable tips, real strategies and insights from the industry which will help you start and grow your own successful subscription box business. You ask the questions, you ask the questions, you ask the questions. Liam gives the answers. It's as simple as that.
Speaker 2:
Welcome back to a brand new episode of Subscription Box Answers. Now, as always, I hope you're having a great day and I hope your business is going well. On today's episode, we're doing something different. We're doing a subscription box health check. Now, the reason why we're doing this is right. There are many people out there at the moment wondering if their subscription box is healthy and they want to be sure that everything's okay and they're heading in the right direction. Now, I know this for a fact because I have people reaching out to me regularly asking what is the best way to measure this. Now, the good news is, there is a very straightforward way to check this. There's actually a very simple metric which will let you know how healthy your business is.
Speaker 2:
Now, I'm not talking about any of the usual metrics right, I've written, I've made the content a million times on LTV payback periods, cac and all of that. Now, obviously, all of those metrics are really important and they play a really big part in how successful your business will be. But today I'm talking about something very different. What I'm talking about will not be found inside your subscription box platform. If you log into ChartMogul, you will not see it listed on the dashboard or any other analytic software. It just won't be there, and if you decide to google it, you're highly unlikely to find many references on the internet, and that's mainly because most subscription content getting produced nowadays is surface level rubbish that was created by people who have never even ran a subscription business before. I don't believe there's even a real name for this metric, right? So for the purpose of this podcast, we will call this metric your subscription box profit spread. Now you might be thinking what's a subscription box profit spread? Let me explain. To put it in the simplest terms possible, your subscription box profit spread is how much profit is left in your business After you pay all your normal expenses Plus your marketing expenses, while maintaining your monthly recurring revenue. Let me repeat that one more time. To put this in the simplest terms possible, your subscription box profit spread is how much profit is left in your business after you pay all your normal expenses plus your marketing expenses, while maintaining your monthly recurring revenue. You Now that may be a bit confusing, right, and if you're hearing that for the first time, you may not know what I'm going on about.
Speaker 2:
Now I don't want to send anybody's head spinning, so bear with me while I break down why this metric is so important. Right, we all know that no matter how good our subscription box is, there will always be churn. It's just part of the game. Now, we obviously want to keep our monthly churn as low as possible, but no matter what we do, it will always exist at some level. This means if new subscribers stop signing up, our monthly revenue will start to decline. It also means that if new subscribers stop signing up for a prolonged period of time, our monthly revenue could shrink to nothing. Now, this is highly unlikely to happen, as for most subscription companies, it would literally take years to churn out all of your subscribers, and if you actually turned your marketing off and stopped getting people signed up, it's highly likely, over time, your churn rate would actually decline, because a lot of the time, the churn in a subscription business is front loaded over the first few months. So if you cut that out, your overall churn rate is likely to decline. In theory, though, this could happen.
Speaker 2:
So that means you always need to bring in a minimum number of new subscribers every month to maintain your current monthly revenue. The lower your churn rate, the fewer new subscribers you need. Now I'm not even talking about growing here, right? I'm just talking about the minimum number of subscribers. You need to stay exactly where you are revenue wise. Now there will always be a marketing cost associated with signing up this minimum number of required subscribers. Now, obviously, the lower your term rate, the lower the marketing cost. So in reality, you could actually argue that your monthly marketing bill is a fixed cost. It's a fixed cost because your monthly revenue will drop if you don't pay it. Now you should know off the top of your head what marketing spend is needed to maintain your current revenue. Here's a really simple formula to work it out quickly. Say you have 2,000 active subscribers and your churn rate is 10%. In that case you need to replace 200 monthly subscribers to maintain your current revenue. Now say your customer acquisition cost is $20. Then it's 200 subscribers multiplied by $20 equals four grand. The imaginary business would need to spend $4,000 per month to maintain revenue. $4,000 per month to maintain revenue.
Speaker 2:
Now that we have that out of the way, let's go back to the subscription box profit spread. Your subscription box profit spread is the total profit left after you pay all your costs and the minimum marketing spend to maintain your current revenue if you have a good amount of profit left over, you have a healthy business. Now, when I say a good amount of profit, that's all relative to the size of your company. Okay, so I'm not getting into any specific figures, but I'm just saying if you can pay all your costs, you can pay yourself and you can pay the minimum marketing spend to maintain your current revenue. In theory, you have a healthy business. Now, all of the other metrics like churn, cac, lifetime value, payback, all contribute to this, but the subscription box profit spread is a overarching metric which will let you know how sustainable and healthy your business is. I would class this as an overarching metric because it reveals if you can maintain your current monthly revenue without burning money. It also reveals if your business supports growth without needing to take on debt or outside investment. The more profit that is left, the more you can reinvest into scaling.
Speaker 2:
Now, if I was buying a subscription box business in 2024, this is the main thing I would look for. 2024, this is the main thing I would look for Now. It's the main thing I would look for because there's certain things subscription box owners can do to boost profits in the short term but more than likely hurt the business in the long run. Let me explain. One example would be to cut back the marketing budget drastically. In the short term, cutting back the marketing budget would significantly boost the growth's profit, but in the long term it would hurt the company as the monthly revenue would decrease and growth's profits would shrink. Now that's why I think the subscription box profit spread is a critical metric for measuring a company's health. Once you can see the monthly recurring revenue is being at least maintained and profits are being produced, then you know you have a healthy company.
Speaker 2:
Now there's a lot of different things you can do to increase your subscription box profit spread. You can sell more stuff. You can increase gross profit per box. You can reduce your churn rate. You can decrease your customer acquisition cost. All of those things are levers which can be pulled to increase that metric. Now. I have covered a lot of that stuff in the past, so feel free to check out my blog at leanmichaelbrannoncom, my book, the subscription box blueprint or previous episodes of this podcast. Now. It's highly likely in the future I'll probably make another episode talking about how you can pull different levers to increase your subscription box profit spread. But just for now you can check out those other resources.
Speaker 2:
Now I hope what I cover today makes sense. I know there are a lot of people out there wondering how healthy their business is, and I honestly believe your subscription box profit spread reveals as clear as day what kind of potential your business has, and everybody should look deeply into this because it's not hard to work out. You know, obviously you have to be at a certain size for this to be relevant. You have to be running a while. If you're only a brand new business, this isn't really going to be relevant because you're not going to know, but it's something you should definitely think about and be aware of.
Speaker 2:
Now, moving on to something different, sub Summit will be coming up very soon, from the 17th to the 19th of June in Dallas, texas. I'll be there and I will be doing a couple of different things. On the 18th of June, I will be speaking, and the name of my presentation is seven secrets to high converting meta ads, and then later in the day, I'll also be recording a live episode of this podcast with low from passion and growth. If, if you're attending Sub Summit, you're more than welcome to come to both of those events. It'd be really great to meet as many people face-to-face as possible Now.
Speaker 2:
We'll be back next week at the exact same time and, as always, if you have a question you want answered on the podcast, head over to subscriptionboxresourcescom, join the free Facebook group and post your question there. It could be about your subscription box profit spread or anything to do with running a subscription box. Also, can I ask you for one favor? If you've been listening for a while and you've got value from this podcast, would you mind giving me a review on Apple, spotify or whatever you listen to this on? It just really helps me get the show out to more people. Thanks very much and chat to you next week. Bye, bye.