Everything You Need to Know to Take Over With Subscription eCommerce | Evan Padgett
Today’s Guest: Evan Padgett
Evan Padgett is a 20-year ecommerce veteran with experience in subscription commerce. As the COO of Stealth Venture Labs, an ecommerce marketing firm, he works with brands like Crocs, HelloFresh, Factor 75, and MUD\WTR.
When he’s not taking over the world with subscription eCommerce, you’ll find him hanging out with his kids or playing video games. But his true love is American football - he’s a diehard Denver Broncos fan!
Here’s a summary of the great stuff that we cover in this show:
Subscription commerce or Recurring Revenue Models guarantee you downstream revenue from your consumers, at the expense of either product or service. So, anything that provides recurring revenue, where customers are basically engaged in a relationship with you, opt in or opt out, that creates a predictable, forward looking revenue model. It doesn't matter what you sell, with a little bit of thinking, there is always something that you can do to create a recurring revenue model out of it. But it cannot be lopsided, it must be a win-win for both the business and the customer.
Some of the great ways to do that is to engage with your customer through non-sales communications, talking about your company, talking about the brand you're building, the impact you're trying to make in the world. So have engaging, non-sales driven content, organic Emails, SMS, and curate the whole experience for the customer, making it something that feels special.
Stealth Venture Labs is a performance marketing agency that work with clients ranging from the Crocs, Hello Fresh, Factor 75 to small brands just trying to venture out into advertising, on any platform that can be managed behind the screens, such as META, Instagram, TikTok, Snapchat etc.
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Related Episode
Cody Bramlett - How to Take Product into Direct Marketing (Coming up on 8th September)
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Week One: Coaching Session -> Marketing.
Week Two: Expert Workshop -> Everything You Need To Know About Subscription eCommerce. Perhaps Evan Padgett would be the expert teaching this through a series of video presentations that show you how to apply the ideas and principles to your business.
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Matt Edmundson
Well, I am here with our very special guest all the way from Colorado in the USA. Evan, who is a 20-year-old eCommerce veteran with experience in subscription commerce. As the COO of stealth Venture Labs and eCommerce marketing firm, he gets to work with some incredible brands like Crocs, for example. And Hello Fresh. So really keen to dig into this and pick his brains about this whole subscription thing. And when he's not taking over the world of subscription eCommerce, you'll find him hanging out with his kids or playing video games. But his true love apparently is the Denver Broncos. Is that right, Evan? You're a bit of a diehard Denver Broncos fan I see.
Evan Padgett
Diehard Denver Broncos fan, diehard kid at heart still playing video games at 39 years old this year. You do the math, in the industry for 20 years. So, boom, half my life on the internet. So, let's go.
Matt Edmundson
Yeah, absolutely. So, no wonder you're playing computer games.
Evan Padgett
Yeah, exactly. Very understanding spouse.
Matt Edmundson
Yeah, very. You know what, the other day I was on a trip to the States, I was in your wonderful country with my 15-year-old daughter. And we were doing a bit of a road trip. And we ended up in San Francisco. And in San Francisco, there was this place called antique arcade, or something like that. And I said to Zoe, my daughter, I said, let's go in and have a look. And maybe we'll see some of the old sort of games. And sure enough, we walked in, and there were games, like from the 20s, you know, some old pinball machines, and it was incredible. And we were walking around, and I heard the Star Wars theme playing, and I grabbed my daughter's arm. And I was like, no, no, it can't be. And she's like, what are you talking about? I said, it can't be. Because when I was a kid, when I was a teenager, there used to be the shop in the village where I grew up. And in that shop, you would rent your videos a bit like our own version of blockbuster. And they had a few arcade machines in the back, one of which was the Star Wars Atari game, which was all sort of vector graphics. And I spent many, many a year playing that game. And that's the only game, Evan, I've ever been good at. I mean, the only game I've ever been good at. And so, when I heard the Star Wars theme in this place, and lo and behold, there is the machine. I was like Zoe, come on. I spent hours playing this game in the antique amusement arcade. And I was better than my 15-year-old daughter, who is obviously growing up with computer games. So, I still felt pretty good about myself, but that's as much as I can help with that.
Evan Padgett
It sounds like you did the right thing, get some playtime in, be perfect for subscription models, send you one of those to your house. And therefore, look at the value for an hour’s play. I mean, it's amazing.
Matt Edmundson
It's just incredible. Do you know what I went on to Google and I thought, I wonder how much it costs to buy one of these?
Evan Padgett
You don't want to do that.
Matt Edmundson
15,000 pounds. Thank you very much. And I was like, Yeah, I can't justify spending 15 grand on a computer game if I want to stay married if I'm honest.
Evan Padgett
Right, right. You have choices to make. Everyone's got their big choices.
Matt Edmundson
Big decisions to make in life. So why Denver Broncos? Did you grow up in that? Because Denver, Colorado, I suppose is that where you are?
Evan Padgett
Yeah, so I'm in Colorado now. But it's funny. I grew up in a state called Oregon, which is north of California, about seven hours north of where you were in San Fran. But they didn't have a professional American football team. So, I was like, I'm going to pick a team and I happened to like this team when I was a kid growing up. And then lo and behold, I ended up here and it’s just kind of all a happy set of coincidences. I wasn't like "oh now I can move to Colorado and be closer to the sports team I like." It was like this is where I live now. I moved here from Los Angeles. And I was like okay, this is much better for my state of mind, family situation. I have three kids, ages two through eight. It was just a much better move and lo and behold, the Broncos play an hour away from here so that works out well for me. And then the kids and everything are living it up and having a great time. But now it's weird because I forgot about what it's like when you live in Los Angeles, I forgot about what it's like living in a place with seasons. Like Los Angeles just kind of has varying degrees of spring and summer with a couple of rainy weeks here and there. But you know, actually no joke last week, this time, it was about 24-25 Celsius. Pretty toasty. It snowed Saturday.
Matt Edmundson
Wow, that sounds a lot like England. I'm not going to lie.
Evan Padgett
Okay, is that what that's like, because it is May 20th and on 21st, we had snow hitting the ground after it was 80 something degrees Fahrenheit, in the mid 20s Celsius there a few days before. So, things are weird here.
Matt Edmundson
Yeah, that's rough. What can I say? We also have our own quirky weather. But you know, it is what it is.
Evan Padgett
I've only been I've been to the UK once. And it seemed like an awesome place. But I had just a cliche seemingly normal the sky is grey. Yeah. And everything's a little bit damp.
Matt Edmundson
Yeah, everything's damp, it's just, it's grey. And no, I mean, there are a few days when it's not as grey, there's a bit of blue in the sky. But grey becomes rapidly your favourite colour.
Evan Padgett
Just because of your palette, okay that works.
Matt Edmundson
It's why every house in England, a lot of houses have this sort of grey or white paint, sometimes beige, but it's usually that kind of paint and everybody accents stuff with colour, so you know, it'd be like the cushions bring the colour into the room, because that's how England is. It's like, this is great landscape. But there's a lot of green, which sort of accents the sky, and that's just kind of how we get colour out of it.
Evan Padgett
So, if I were to go build a subscription there, then it would need to be a colourful box and colourful product. Is that you're saying?
Matt Edmundson
Yeah, and it should contain an umbrella.
Evan Padgett
Can't have too many of those. That make sense.
Matt Edmundson
Yeah. Exactly. So, let's get on to the whole subscription thing. I said in the intro there, you're the COO, the Chief Operating Officer in England, I assume it’s the same thing in the States, of Stealth Venture Labs. Now before obviously, you were in Stealth Venture Labs, you seem to have this this wild history, sort of how you got there. But what is Stealth Venture Labs? We call it an eCommerce marketing firm. But is that what you guys specialise in?
Evan Padgett
Yeah, so we are a performance marketing agency managing media dollars to the millions and millions per month for all of our clients ranging from the Hello Freshes of the world to small brands just trying to spend their first 10, 25, $30,000 in advertising, on any platform you can manage behind the screens. So, all things META, I'm still going to call it Facebook. But yeah, everything Facebook, Insta, Snap, TikTok, Pinterest, Google, Bing, anything we can manage. From here, I got a team to do it. You know, performance marketing experts focused on all things funnel, optimisation as well, creative development, which has changed quite a bit in the past few years especially. And then we also have an incubator arm here at Stealth, which we call our Founder Lab, which is basically a place where we work with brands looking to expand their product line or launch a new brand and want to know what the market is going to think about that brand. So about a half a dozen times a year, we get these experiments where brands big and small, but usually they're either big privately held family brands, or brands you all know of that are like, hey, we want to expand into this. Will you guys make an experience, a brand and do some marketing and let us know what that looks like? And we do that in our founder lab side. So if you have an idea, or if you're part of a big brand that has an idea, instead of buying the inventory, hiring the team, sinking a million dollars into it before you even get it off the ground. We have brands that have come to us and say, tell us what that looks like first. Tell us what our pricing needs to be, what does the promotionality look and we spend real advertising dollars to get customers to sign up. And then when they sign up, we say, Hey, you're part of a beta, you're not going to be charged. We'll give you a deal when it goes live yada, yada so that we could actually say, Hey, here's the customer acquisition cost. Here's the pricing and the promotion and the positioning that we know works, that backs into what should be a good model, run with it. We'll build it for you, fully if you like. And go on from there. So that's the other side of the house, but we're primarily the agency.
Matt Edmundson
Yeah, well actually, that sounds a lot of fun to me, that whole incubation thing.
Evan Padgett
That's great. And we do it for our own products, our own in-house products as well. Like we have an idea. It's like okay, take a few weeks, launch it, see what it looks like.
Matt Edmundson
Yeah, see what people think, there's a lot to be said for that actually. Throwing some money into things like that, rather than trying to figure it all out from day one. The brand that you mentioned HelloFresh, I'm familiar with here in the UK, this is a subscription service, which you sign up to, and they deliver fresh produce to your house every week, or every month, or whatever timeframe you sign up for. So when we talk about subscription commerce, or subscription eCommerce, in my head, Evan, this is what I'm thinking, I'm thinking things like HelloFresh, you know, and it's sign up, you get a box. There's a beauty one, I can't remember what it's called now, the beauty box or something like that.
Evan Padgett
Birchbox?
Matt Edmundson
Yeah, Birchbox. That's the one I'm thinking of where you sign up, you pay your 10 bucks a month, and they send you a few bits and bobs. Is that what you're referring to when you talk subscription commerce?
Evan Padgett
So, to me, I look at subscription commerce as another way, I like to say it as recurring revenue models. So, these are models that guarantee you, for lack of better words, downstream revenue from your consumers, at the expense of either product or service. So now that's broadly subscription. But every business loves to have predictable, forward looking revenue, right? So, when I look at subscription commerce, there is what you mentioned, the food in the box or stuff in a box, it shows up, but then there's also services, there's also memberships that give you access. One of the companies that I was a chief marketing officer for before joining Stealth is a company in the States called Thrive Market, which is an online grocery company that worked off an annual membership model. For like $60 a year you get access to the best prices, you're going to get on these organic and non-GMO foods that is "healthier for you and better for you." And sometimes necessary, if you have things like gluten intolerance and stuff like that. So that's an annual membership model, but there's still a recurring revenue model there. So, I look at subscriptions broadly, anything that provides recurring revenue, where customers are basically engaged in a relationship with you, opt in or opt out. That creates a predictable, forward looking revenue model.
Matt Edmundson
Okay. And so, like you say, that can be products, it can be services, it can be a membership, and it can have all kinds of different things attached to it. I guess, if I'm going to back up just a little bit. So, it's this sort of recurring revenue model, a predictable recurring revenue model, I suppose the clue is in that definition, as to why maybe as an eCommerce entrepreneur, I should think about having some kind of subscription, if I don't currently have one, right?
Evan Padgett
Yeah, I always encourage people to find a recurring revenue model, because like eCommerce, economics, you want recurring revenue anyway, you're not building an e commerce store saying like, Oh, I'm just going to sell one of these to everybody. And that's it. Perfect. That's all I ever need to do. Right? So, you're already thinking recurring revenue anyway, all I'm saying is fine, the way to expand your service that creates a recurring revenue model that provides a mutual benefit, not just to you as a company, but to the customer as well, and creates a longer standing ongoing relationship with them is the best way forward. So again, brands and entrepreneurs are already thinking like this, you do not build an eCommerce site to sell one of one thing to every person, you're trying to get three to four purchases a year, well, subscription models kind of guarantee you that, at what expense? Maybe some more attrition, maybe subscriptions not for everybody, but the predictability that you get, your ability to grow and scale and advertise because your LTVs will be higher, you'll make more money, candidly, over the long term in nine out of 10 situations or 99 out of 100. Probably. That's why I encourage brands to sit there and sort out what would be something I can offer as a recurring revenue, and it may not be as obvious as you think. Right? But that's, I always drive for that. And all of our clients that come to us. I'm like, alright, have you got a lot about recurring revenue? If they, have it, let's just talk about that. We're going to still do what you need to do. But how can we create a recurring revenue model for your brand? And you can almost always find one?
Matt Edmundson
Well, that's interesting, isn't it? I mean, when you were talking about no one wants to sell one product to just everybody. The only thing that I can think of, I was talking to a chap called Adam Pierce, who's also coming on the show. We recorded his interview actually earlier today. He was saying one of the things he's getting into was coffins, which is probably the only product that I think of that you could sell one time to one person. But if I can be slightly flippant here, is there space, let's say I do so, nice wooden caskets and is there space, do you think for me to also think about recurring revenue even though it's obviously a one-time sale?
Evan Padgett
This is a unique one. Let's see what would bring revenue for that coffin. Um, well typically coffins got to go somewhere. So, you could have a recurring revenue model on the plot of land that it's going on, instead of buying the land itself, you could create a lease for it, there's a little bit of recurring revenue. There are other services. Wow, this is going places, didn’t think we're going to go to coffins, but you can offer things like other things you're dealing with, if it's your coffin you're shopping for, are a service that could provide support and relief to people around you, because of consultative services, it sounds really schlocky, this is going to be on the internet forever on this podcast. But could you sell or potentially create a recurring revenue model on the grief counselling needed, were you told to pass and be placed inside coffin, to support the ones around you? Yeah, maybe there's a recurring revenue model there, taking advantage of the bereaved, but not in a bad way. But just from the fact that that is generally needed. Or other end, if you're the one going in that coffin, other things to wind down your affairs, that could be a, once said coffin is filled, what would be some draws from an estate, for example, that would be a recurring revenue model to handle? Sorry you might hear a siren in the background, but to handle the end-of-life affairs, that could be reasonable as well. Coffins, that's a unique one.
Matt Edmundson
So, I don't mean to be flippant
Evan Padgett
I mean, hey, we're all going to go through that journey at some point, that's just like, I have not been challenged with Coffins on a recurring revenue model.
Matt Edmundson
Like it's just top of mind from the earlier conversation, but like you, I'm sitting here thinking, well, what could I do? So, there's managed services, for example, you've got to maintain the plot of land, haven't you? Could I create some kind of membership so that maybe I'm in my 50s, my 60s, I'm starting to think about it. And so, I can use your services, not only to pick out my casket, but also to plan my funeral, to host my will, you know, you can help me with.
Evan Padgett
What about the legal services side of things? You are on a plan to pay out and have your affairs covered. And that is something similar to another policy, and that could be actually, you start modelling that out, that could be a really relatively low expense, depending on people's life expectancy. This is like really weird, but like, depending on their life expectancy, so let's say you're a 60-year-old person, but generally in good health, and you're just planning ahead and getting this stuff squared away, put them on some plan to be like, hey, any basic, legal or end of life type services you need are included in this package. And you're paying for it. So, you or somebody on your behalf, picks up the phone and gets things handled. So, if you're creating a will and testament, if you're establishing your estate, if somebody that has the ability or need to do that, or your finances, getting them in order and how that's going to look like, I suppose it'd be a recurring revenue model that would at least come from that. Now, is the coffin company selling that or are they creating a relationship with somebody else here or there, but there's a recurring revenue model involved that could exist.
Matt Edmundson
Yeah, absolutely. I think the point from this is, it doesn't matter what you sell, there is with a little bit of thinking something that you can do to create a recurring revenue model out of it.
Evan Padgett
As long as both sides are winning, that's the part. Like lopsided recurring revenue models are, I think, one, they're not great. That's just the easiest way to put it. But I also think that they put a bad name on the recurring revenue model industry, and I'll give you one example that's off the top of my head right now that I've said on different podcasts before. But I'm also like, I hope that this stops quickly, is vehicles becoming smarter now as they are, you start having features that are going to be subscription. A lot of new cars have, you know Sirius XM Radio, right? Or they have like satellite radio, that's one subscription. But like subscriptions for features that are electronically blocked that could just be added on for like, hey $10 a month and you want a better braking system or when autonomous driving comes out, if that is more of a subscription instead of a one-time theory feature, those sorts of things are going to start bothering me a little bit if I'm being honest, because the things that you truly want are only available on only on a recurring revenue model. And we're starting to see that now. I've seen more and more cars come out with like, pay walled features. I don't know the name of the brand because I wouldn't know it off the top of my head. But there was one car coming out that has like climate control settings that are not as advanced unless you pay for a subscription to their service. And I'm like, that's horrible. I'm sorry. But that is not great. Because that is a lopsided, one side winning in this type of subscription. But you find a mutual win, you provide a service that they need. A normal person, what do they want, they want something relieved from their life, they need a little less gravity in their world, they want to not have to go to the grocery store so they get food delivered, they want to save themselves time and money, they want something convenient that they normally have to deal with that they don't want to, showing up ready to go and knowing that if they don't want it, they can call up and get support that they need or email up and make that happen. Like, all you're trying to do is make people's lives better. And when you got a subscription or recurring revenue model that does that, then you have an excellent business. So that's not trying to crap on the car industry. But that's one of those things that bothers me are when the necessary things are put on recurring revenue model.
Matt Edmundson
That's fair enough, I'd be hacked off with that as well. And I think you are right, every man and his dog is jumping on the subscription model system in some respects. And I like what you say, can't be lopsided, it has to be a win-win. Otherwise, people just aren't interested. One of the mistakes I think we made with a subscription model in one of our own businesses was we sort of went right, well, if you subscribe to these particular products, you'll get them at a lower price. That's the whole reason we want you, you can buy them straight off the website. But if you want them at a lower price, we'll send them to you every two months. And it was just like a box, we're going to ship out every two months or every three months.
Evan Padgett
Nobody really did this Subscribe and Save or they asked why can't I get it for this price instead of subscribing?
Matt Edmundson
The issue was not so much that. The issue was more that I had not taken into account the customers that we were serving, who were very sustainability savvy. And so they're like, well hang on a minute, why can't I buy more and have it shipped one time, maybe twice a year, as opposed to buy less, and have it shipped every month? It’s the same product, it's the same discount, I still want to buy the products, I just want to ship it less because I want to offset my carbon footprint. And that was something that I personally was not expecting. I was a bit shocked. Shocked is the wrong word. But surprised, maybe.
Evan Padgett
Yeah, well, that is a more and more common thing, actually. So you hit on something around sustainability. And the biggest rub that has now turned into sustainability wants for subscriptions for a while is the amount of corrugate and especially if you partake in a meal at home company, you get a box that is lined with insulation, that usually also has a couple of different frozen ice packs in it. Like there's reasonability with the ice packs, but I mean, who needs more than a few ice packs in their life. And then you have just so much corrugate, so many insulated boxes, that insolate is usually recyclable, but it is still being produced and there's still a big footprint there. So, you know, I'm really proud of the former company I was at called Thrive Market like they've actually become a certified B Corp and reduced their footprint down to more neutral, just officially their fulfilment centre or warehouse actually got its certification to be carbon neutral, which is amazing. But that is something that is coming up more and more. And actually, if you're coming up with a new brand right now or you're creating a new market, which is certainly happening as well, you have to be a lot more conscious about that because otherwise people say like yeah, your products good, but I what am I going to do with 30 boxes and why am I getting a box with boxes and boxes and stuff in it depending on what you're selling? That's a real problem that I think is going to be kind of coming to pass right now. And you either start getting confronted with more challenging shipping rates and guess what if shipping goes up, that cost goes to the consumer. Or I was thinking how to do it because the economics, I've struggled with this one for a while but like, there's got to be some way to create a business that reclaims corrugate as well, because everybody suffers from this that orders off of the internet.
Matt Edmundson
You say that. There's a company that we subscribe to called Riverside, which is a bit like HelloFresh. They're a fun and organic farmer here in the UK. And my wife subscribes to them. I have to be honest with you, I have nothing to do with it. It's all my wife. And I just go to it every now and gawk bloody elbow, this is expensive, but she's like, No, no, it's good because of x, y, and z. But what happens is, every Tuesday morning, they drop off the latest order, but they pick up all the cardboard boxes. They've designed them in such a way that they fall down. And they pick them up, and they just reuse them until they really are there. And we're like, that's awesome. So, whenever they drop this stuff off, they pick up all their all their cardboard from before. And I think, fantastic. I can see that they've thought this through that. And it's one of the things that my wife loves about it is actually they've gone Oh, yeah, that's really clever.
Evan Padgett
Yeah, so you could do that in smaller markets, right? So, like companies trying to be here in the US nationwide, they would need agents and regional areas to handle that. But I've seen that actually in a similar space of meal at home, where there's well, not the exact same space, more like the last mile delivery services, say like the door dashes or whatever of the world, GrubHub, etc. In some areas, there'll be localised versions of those that actually you could buy, for example, like stay hot bags, like tote bags, and they'll swap them out. So, they'll deliver your stuff hot in a tote bag. So, they are not having to give you the restaurant's packaging, other than the container, but they don't have to use their bags and stuff like that. And then you'll just switch out bags, and then they'll take the one that you leave, you'll get a new one. And that stuff works on like local regional markets where you basically are in control of the last mile delivery, it starts, I would say falling apart more, even though I would say Amazon could do this. Amazon being arguably one of the biggest corrugate providers here in the US for sure to customers. You know, they're doing their own Amazon delivery, which I see plenty of Amazon delivery trucks, not just the USPS and everything like that, you think at some point, they would try to reclaim the corrugate if you were able to leave it out there, but not existing yet.
Matt Edmundson
No, I think until consumer demand demands it, they're just going to leave it, aren't they? They will talk a good game, Amazon, but I think you're right, how complex would it be if they just made reusable packaging? Right, it can't be that difficult. But I appreciate England is a very different place to America in terms of size. So, it's a lot easier, I think, to do some of these things in the UK. So that's some of the problems I suppose. And so, what are some of the other problems that you see in terms of not creating a win-win scenario? So, we've talked a little bit about the packaging sustainability, you've mentioned the car industry, is there anything else that sort of winds you up the wrong way?
Evan Padgett
There's plenty of that. But when it comes to eCommerce, I would say I feel like entrepreneurs think about subscription commerce as something they're trying to push to consumers. But it's actually the other way around, your consumers will tell you what part of your product should be subscription. And you just got to listen. So, like what irks me is when I see subscription models, where I would say I'm fairly certain at this point was not backed by a data driven decision more just like a want like, I want to ship you this every month, and nobody's going to need that much stuff every month, they're not going to need that much of your product. I know they're not. Now, are there some of every product? Sure, right, but not enough people are going to need your stuff every single month to do that. So that's one thing that irks me when I see brands doing that where it's somebody that was of the mindset of just like, I need to create a recurring revenue, so I'm just going to put two of my stuff in a box and ship it every month and I'm like, you're just going about the wrong way. Like you're not listening to your consumers. So that's one thing that bothers me.
Evan Padgett
The other one. This is like a complicated one. So, bear with me in the sense of like, it brings out visceral emotions, I might cry. I don't know, is Subscribe and Save. And Subscribe and Save/related, I guess is also people that are Amazon dependent and wanting to own their own brand, they're like, there's a lot of similarities between the two. But I'm going to talk about them independently. Subscribe and Save is the one thing that a lot of eCommerce brands do, to try to then invalidate their need or ability to create a subscription model because they'll say, Well, we did Subscribe and Save, and I'm giving people 5% off and nobody's taking it. So, subscription is not for our product. I'm like, Oh, my gosh, you didn't create an experience, like, subscription is meant to be an experience, it's not enough these days to just say, my stuff's in a box, and you're going to get it every month, whether you like it or not, that was like, subscription 10-15 years ago, and trust me, I was there for that, that's really what that was. Now, it's about creating a service and an experience for the consumer, that makes them feel special, like it was curated for them, that addresses their problems more directly. And that, is now effectively a monthly or a quarterly or whatever frequency bill, on their bank statement, you can't just say like, I'm just going to put two of my stuff in a box and call it a subscription now, or I'm just going to do Subscribe and Save and say, Oh, that's my subscription model. Because there's enough data that shows that people want flexibility, and they'll pay a lot more for flexibility. Therefore, you're working against yourself there. But if you curate that same experience, if you say, we're going to send you my skincare product, but because of that, tell me a little bit more about your skin type. Tell me a little bit more about other skin problems or health and wellness problems you're having. And then what we're going to do is send you our hero product, which is what we are known for. But we're also going to send you two or three other products that are either experimental or curated for you. And now that makes me feel like oh, you're thinking about my skincare regimen, or my dietary preferences. So, you got to make it special. And that is one thing that bothers me is like people that just try to go off with the subscribe, and you get 5% off or 10% off, like that's not, you're not winning.
Matt Edmundson
So, isn't it? And that's why everyone sort of copied it is I saw subscribe and save on Amazon. So, it was a clever idea and I'll do that.
Evan Padgett
So now, I'm talking about Amazon, there's some idea with several times a year at Stealth. I had run these conversations, not more than a week ago, a brand comes to me saying, Hey, we do X on Amazon, you know, hundreds of thousands of dollars in monthly sales in their product, they want to do, they want to own their site now. They don't want to say oh, we're still an Amazon business. But now we're going to make blahblahblah.com. And we want to run some advertising there. And we want to sign up our own customers and we have our own warehouse for our main product and other products. Subscription or not, it's just not going to work or how you think it's going to because every dollar you spend on advertising, people are going to you know, look it up. And then boom, they're going to buy on Amazon because you know, history there, you have four star or five-star reviews, right? You're on prime. Amazon's got that clout, whether you like it or not. So, brands and brand owners will be like, I want to have my cake and eat it too, so to speak. They want to say, I want to keep my massive growing Amazon store. But I also want to send people directly to my website and expect to what beat Amazon? No, it doesn't matter what kind of subscription or deal you offer, like the security to know that they buy on Amazon, they're going to be taking care of it. That's all people are going to need. Now I'm not saying it's the right decision for you to kill your Amazon store. But out of all my 20 years doing this, I have not seen that work perfectly how anyone wants it to work ever. Now, doesn't mean you can't have your own store. Sure, you can get repurchasing there and everything. But if you maintain a strong Amazon presence, you're going to pay advertising to feed and improve your Amazon presence. That's the one that bothers me. It is simply controversial.
Matt Edmundson
I don't think it is at all. And I think you're right. People say to me all the time, you know, what platform should I use to do my business on? I'm like, you want to go where your customers are going to be? Right? And it’s not rocket science. If your customers are on Amazon, go to Amazon, if they're on Etsy, go to Etsy, if they're on the web, build your own website. Now, yes, you should have your own website. And yes, you should build your own email list. And there's a lot of reasons why that's a good idea. And we've had guests on in the past talking about that. But fundamentally, you go where your customers are buying, right? Like when you're fishing, you put the hook where the fish are, do you know what I mean?
Evan Padgett
Yeah, no, that's a really great point like, I've known several people that have made All businesses on Amazon. Now you ride the ebb and flow of Amazon and vertical, and you have to compete for everything. But you can no joke make, you know, several I know people that have made several, like five to 10 Hour Work Week type businesses, basically just supplying their stuff to Amazon make a great brand. And it'll do well for a little while, and maybe it falls off. But at that point, you've made a couple million dollars in gross revenue off that brand, or you sell it to another company and make them deal with it. But you are you have a decision to make when you're launching a brand. And I think a big part of that decision is do you want to build your brand on Amazon? Or do you want to build your brand yourself, and then maybe consider Amazon later, there are very different cost benefit analysis pieces there. Because bootstrapping a business is guess what, not cheap, capital markets right now, not necessarily lending out money at this exact point in time in history. But Amazon businesses can be created more quickly, you know, you still have to buy inventory. But marketing is a lot less, it all comes down a little bit more to brand, compared to acquisition marketing and building your own brand from the ground up. But you're also, I mean, this isn't necessarily an Amazon podcast, but in this particular case, but you're kind of beholden to how well your capacity is on Amazon. Because if you want to transcend that and say I'm going vertical myself, that is a challenging uphill battle. At a certain point, depending on your brand and what you own and what can be copied, right? Because the rub with Amazon is they see oh, this is how skincare is doing right now, or this is how mixers and alcohol, and spirits are working right now. And as soon as like you take your revenue away, somebody's going to come up and take that spot, or Amazon will develop their own products in many cases and do it themselves. So, point being, bottom dollar there is, as you're bringing a product to market, anybody listening to this bringing a product to market, come in with a plan that separates if you want to build an Amazon product first, or you want to build your own brand and experience first for subscription or not candidate.
Matt Edmundson
Yeah. Very good thing to try and understand. And can I just circle back a little bit? Like you said about a subscription service? It's not about subscribe and save, you've got to make it special. Right? I thought that was a great phrase. I've double underlined it in my notebook, Evan.
Evan Padgett
Double underline, I'll take it man.
Matt Edmundson
These principles, which I think we so often miss, and they're not rocket science, this is old school marketing, you've got to make the experience special. So, what are some of the things that we can do or should think about in terms of making the experience special?
Evan Padgett
So, there's a lot here, a lot of that comes down to your CRM. So, it's how you're emailing the customers, how you're doing text or SMS, if that's part of, which I think it should be to anyone out there that's not doing so. But making sure that you, above all, establish a relationship with the consumer. And that is a one on one that talks about your brand, your email presence, your organic social presence that people are experiencing you there. But people sleep on organic social, some brand owners sleeping organic social, that's a place where there's the free advertising in the sense of having an awesome organic social presence will get you extra eyeballs with your biggest fans, at pretty much free as long as you're maintaining that free isn't you're not having to pay for the ads behind it, right? So, you got to develop a relationship. That's really what it is, a subscription is built upon a relationship and the things that strengthen a relationship are the things that strengthen the relationship in human beings if I'm being honest, it's good communication. It's making sure that needs are being met by both parties, you're giving a company money, you're expecting a quality of service. And if that expectation is missed, then you need to address that with the company, right? And if the company is going to change the way it's delivering on its expectation in a way you don't like it, then you break off that relationship, right? So, I look at a subscription like an eCommerce product can just be supply and demand. It's the most basic principle of you got a thing I want, I have money, take my money. Give me the thing. Okay, great. We'll send you a receipt. You want a receipt? Cool, great. See you later. Come back in if there's anything else. But subscription, that is a bill that is an ongoing relationship that doesn't end after that first order. And it only ends when either party, namely the consumer, but candidly when either party decides it's over. And as a consumer, you have an expectation, and it needs to deliver on a few different things. And if it doesn't, it's going to fall flat. So, some of the tactics, I always recommend engaging non sales communications, talking about your company, talking about the brand you're building, the impact you're trying to make in the world. All those things to the right audience. They're not detractors. Very few people are going to be like, Man, I buy from this company and what they're trying to save whales, like, they're a bunch of jerks. So, find a little cause, find something about your company that people bring up to you. Because there's a k factor component here, that with the right amount of stuff that brands are sometimes doing anyway, they'll talk about you like, Hey, do you buy brand X? And people be like, no, well, you know, so I get my coffee from them. And it turns out that they are giving some money back to the coffee farmers or the privately owned farms from these families in Colombia, whatever, right? Like, Oh, wow. And then it creates content for you, organically with people. So that's really important. So having engaging, non-sales driven content, organic email, SMS.
Evan Padgett
Curation, so if your product can, if you have variations of it, a meal at home company is the easiest example, every meal at home company out there, HelloFresh, Factor, Green Chef, anything, you name it, they ask you a handful of questions. What's your dietary preference? Do you have allergies, okay? So, if you're like, I don't eat fish, and you open up and you get nothing but fish dishes, you're probably not going to be pretty stoked about that. Right? So, the same thing goes with if I'm ordering clothing, and I say hey, my shirt size is this, I wear a size 42 shirt, around the shoulders, or whatever. And you're giving me stuff that is way too large, or way too small, or one size fits all, but it doesn't work for me. That's not living up to my expectations. It's not curated but give me the product I want. And I know that there's multiple sizes of it. Also include a little printout in there saying like, hey, blah, blah, blah, we picked this for you. And Evan, we know you're going to like this because you love summer and you love colours, and you love the beach. So, here's our product for the beach. We think you're a beach going, you know, whatever ocean guy. I'm a marketer, as you could tell.
Matt Edmundson
Yeah. Like save whales, absolutely.
Evan Padgett
Like, say whales. But you curate that experience, make it something that feels special, makes it feel like, hey, somebody over their cares about me, even if it's just an illusion, even if it's just AI and VI making those decisions, whatever. It feels unique. And that's what people want to do to in a relationship. You know, if me and my wife wouldn't get along if she just like, oh, it’s you? And I'm like, hey, yeah, it's you. And then like, we have kids? Yeah, they're over there. What are they doing? I don't care. Would that one work? It takes a little bit more than that. So that's the other thing. So, you curate something? Do you make customers feel special? And if you engage with them real in an actual, like relationship building manner, and let them know about your company and let them know about the challenges you're having. You'll find that like, hey, guess what, you might have to raise your prices someday. But because you've been transparent about them, or with the customer all the way throughout the way and you give them, Hey, you want to opt in, we don't want to raise the prices without your permission, we could but we're not going to. So, stay here. And here's what we'll do. We're going to give you a free gift on your first couple orders once you do that, you'll find that people will trust you. And people are looking for reasons not to trust a company, you create trust, they will stay your customers forever, and they will find you 10 more.
Matt Edmundson
Yeah, it's very, very true. Good point. I see what you're saying in terms of you know, building the relationship that's also going to build loyalty and obviously, the whole thing about recurring revenue is you want them to pay the subscription on a fairly regular basis, right? You there's not a one-off transaction. But is there a way you being the marketing guy, are there things that I need to think about when it comes to acquiring subscription customers as maybe a little bit different to acquiring normal or non-subscription customers?
Evan Padgett
Yeah, that's a very good point. And I like that thinking that actually, which is why I guess if you do think that way, you can be a little bit more creative with a slightly more expensive marketing strategy to get the customers in.
Evan Padgett
Yeah. One, you're first order economics. That's the biggest difference when you're an eCommerce company, you're focusing on row ads and you got to make, you're never going to buy a customer and acquire customer with paid advertising dollars and lose money, not that game. But with subscription, if you plan it and you understand what your LTV could, should, might be based off of modelling and things like that. You acquire customers Most subscription companies. In fact, I can't really even recall one I've ever worked on out of hundreds, that entirely makes a customer acquisition costs back in margin dollars on that first order. So, you are losing money on that first order, or break even before your team and salaries and everything at best. But you know that you're going to get two, three, five more orders throughout the rest of the year. And every single one of those is margin rich, you're not reacquiring them, you're not having to spend a dime and they come back. That's very uncomfortable. That's very counterintuitive to a lot of businesses, even subscription businesses that have been around pre internet, the gym, your utilities, things like that. You're not expected as a consumer to lose money out the gate. So why would you think that way as a business owner? The utility company isn't going to give you, Hey, don't worry, we're just going to let you have free power for like a few weeks until we figure billing out so don't even worry, but like, no, they're billing you the minute you're out the gate. But you have to be ready for that. Now, with proper planning, proper financial planning and analysis, pro forma modelling all the things you should do, you know what to expect, because subscription businesses are frequently higher LTV, more purchasing, more product, moving up the door, more transactions, have the ability to grow and continue to keep growing beyond most eCommerce companies in a predictable manner. But what you need to do is invest into it. And you got to have a grip on your numbers. And when you're a product that's selling, you're like, hey, I have $100 T shirt, I got to get a four row ads on it, on an eCommerce perspective, which means I can't buy a customer for less than $25. But if you're a T-shirt of the Month Club, selling T shirts for $75, but maybe every month or every other month, knowing that LTV is going to be $300 to $400 a year. And your margin, maybe it's 50%, which in fashion, the margin's way better than 50%, for easy numbers. So, LTV is $400, margin's 50% You're making $200 per customer you acquire, all of a sudden, even if you paid $100 for that customer seems like it wouldn't make sense. But annualised, it does. You're making 25% profit margins after your advertising, right. But it's uncomfortable, and you got to have capital to do it. And that's not easy. But that's like probably the backside entrepreneurial mistake that I see made is you just can't be expected to make your money back if you're paying in the advertising game out the gate with that.
Evan Padgett
Like promotions. You have a lot more promotionality like, I especially in certain verticals, I won't name which ones because I have clients in these, but a lot of brands are like, we never do promotions. Okay, I hear you, I hear you. But like, look, everybody that's on social, they're taking a chance on you for the first time. They need something that shows you as a company have skin in the game. Yes. Does it make my job easier and more doable? Candidly, if you have like a first order 25% off instead of first order, buy a bunch of stuff. And you know, you can be happy about it. Sure, absolutely. But like, it also shows the consumer that you're willing to risk something and say, hey, my product is normally worth $100 per quarter, month, whatever doesn't matter. But today, you can try it for 50. Because I want you to feel happy about it. I don't want you to pay full price if you're not sure, because we're new to you. In the future, we're going to be 100. But we're going to show you that that's the value every single time. And that is kind of just table stakes for a lot of advertising. It's not enough. The promo is now, marketing is now convincing people it's not just the discount, used to just be who has the bigger discount, and I'm going to go with them. It's actually showing a discount is our commitment to saying price is not going to be an issue. We're going to eat a little bit as a company to show you that price is not an issue. And now we can also get more fun with marketing and say, Hey, your first nine meals or you have nine free meals over your first three shipments or four shipments or whatever, right? So, it's just really important not to be stuck in the perception that a brand that discount is a cheaper brand. That's not entirely true. But things like fashion sometimes fall into that. Things like beauty products and things that are about aesthetics, tend to fall into that category, which we just try to say, hey, at least do something like free shipping on an order of x or more, or, you know, free overnight shipping or free two days, like, give people something that makes them feel like a deal is coming, because everyone also loves a deal on the internet. And so many websites just have deals like that's just the Internet brings deals. I didn't start it that way, I guess. But it is.
Matt Edmundson
Yeah, no, that's very good. I'm writing lots of notes now. So, what do you what do you see the future of all this? Evan? Where's this subscription commerce thing going?
Evan Padgett
I think subscription commerce is going a few different ways. There's, if I think what will come next is the evolution, the continuous evolution of consumer and company communications, and flexible subscription models that are triggered by like, let's say SMS or opt out SMS or SMS shopping? I'm pretty bullish on long term, something that's saying like, Hey, by the way, you know, your products coming next week, you're good with that. Yes, no. If no, then when. Because you want it to be people want a little bit more on demand a little bit more flexibility there. So, I think that's that'll continue to evolve with subscription commerce. I think advertising and like I mean, not just in the vein of subscription commerce, but there's a major shakeup if anybody who's running advertising right now knows that like the past two years have been a wild ride of pandemic driven success. And privacy changes with good ol apples and Facebook. And now a real struggle to find scalable growth advertising, which I've been refocusing in, you got to be a lot more data literate than you needed to be. Because in platform metrics are unreliable at best. You also got to be more creative with your brand. This is like I think there's a really fun stage of 10 years ago, 15 years ago, you could have a still image with a little starburst that says, today only 25% off and be like, I'm crushing it. That's crushing it. What do you do? I changed the starburst from a light orange to a darker orange. Yeah, like oh, man, like that was crushing it, now you got to be storytelling with your creative, you have to be creative production more native for the platform. Because Insta ads don't work the same as Facebook ads don't work the same as SNAP, tick tock or Pinterest. So, using the platforms and what people are interested in on these platforms to speak to them, you know, on the platform that they're on, so don't talk to somebody that you're trying to acquire on Facebook the same way you talk to them on Tik Tok, you will not get scale on the platform you're making creative for or you're not great at making creative for. So creative is now shifted to much more of a storytelling mechanism. Your brand's got to stand for more, you got to be focused on creating a valuable relationship for the consumer a lot more. And then be smart about your marketing. So there, it's harder to get data these days. You're never going to get the same data picture we used to get two years ago three years ago at this point. But you can still understand your total business economics, you can still understand the influence a channel has for advertising by running structured incrementality tests saying hey, we're on Facebook IG and Google right now commentary Oh, for most, right? I want to add Tik Tok. Okay, so here's what I do is I run tick tock at this budget for this period of time. Look at what that does to my overall traffic. Look at what that does to my CAC. Look at what that does to my order volume, and say, okay, when I run on TikTok with these ratios, don't take away budget from the other two. But running out these ratios. This is the kind of lift I get, now I optimise the whole thing I optimise say now I take some Facebook budget, move it to tick tock. And does my cat get better or worse? You have to do things a little you have to slow down a little bit because the instant gratification isn't there anymore. I can't do anything about it. I wish I could. But that's what it is. But what you can do is still understand the influence because, you know, I always tell people that like, yes, your Facebook has and will always continue to drive people to Google, you will see somebody will see your ad and then Google you and then purchase on your Google ad. Does that mean you don't want to pay for that Google app? You probably don't want to pay for that. Does that mean you're mad that you paid for that Facebook ad? No, you're happy you paid for it even if it led to them searching on Google, right? So, get a hold of your numbers as best you can. To not make mistakes.
Matt Edmundson
Yeah, brilliant. Let's never know there's so many questions I have and so much I could get into, but I want to be respectful. and such, like I say lots of notes, double underline and everything squares stars, you name it. We've got an RS. All right, yeah, boxes and boxes are the critical ones. So, thank you so much. If people want to know more, right, they're going to have questions. Can they reach out to you? How do they talk to you? Go.
Evan Padgett
All right, first place, find me on LinkedIn, Evan Padgett, not too many of us, especially ones that have big beards and stuff like this, you find me there. You can email me, evan@stealthventurelabs.com or evanpadgett@gmail.com, I'll throw out my personal one that I check most frequently, because why not? I love talking about this stuff. And then also just check out our company at stealthventurelabs.com. See what we're up to. There's a forum there, I see every form that goes through. So, if you're trying to get to me, that's another good way. And just see what we're up to. We also have a really fun thing that I like talking about, too, which is our impact lab. The last part of our three labs is one where we actually run a 501 C three nonprofit organisation, enabling inner city kids, young entrepreneurs, we built an academy for them to actually learn how to build a brand, launch it, set up the advertising for it, and then we actually fund them, the first five to $10,000 in advertising, to bring the product to market. So, we believe in building out this next layer of entrepreneurs and starting it at a young age with kids who may not have that opportunity. So, looking for ways to help. They're always looking for more thought leaders or people that want to donate or donate their time, or just help out. That's also really awesome. So, find me anywhere. Yeah, happy to talk about this at all times. Because this industry is fun. And again, it's been half of my life at this point. So here we are.
Matt Edmundson
And it will probably be the next half of your life as well.
Evan Padgett
Yeah, I mean, now we're starting to get to the two thirds of it. You know, I'm working on that, the one-thirds two-thirds, which is scary, I guess, but we'll get there.
Matt Edmundson
80-20 Rule, go for that one.
Evan Padgett
There we go. 80% of my life on the internet to get 20% of what, anyway, we'll figure that out later.
Matt Edmundson
Yeah, you can work it out. That'd be a spreadsheet, which will help you, I'm sure. Yeah. Listen, Evan. Seriously, huge thanks to you for coming on the show. We will of course link to all of the links that you gave in the show notes and people can get ahold of you that way. Do reach out to him. He’d love to hear from you. I have no doubt. But Evan, love to get you back on the show at some point. Such a lot of good stuff there. Really appreciate it man.
Evan Padgett
Thank you so much, man. Thanks for having me. And anytime, I'm going to get more boxes. It's my goal now. Now that I know there's the hierarchy boxes.
Matt Edmundson
Brilliant.
