How to create compelling offers that go beyond discounts by understanding customer behaviour & desires.
Matthew Holman shares from 5 years of experience helping ecommerce businesses master subscriptions, increase profitability & maximizing lifetime value.
He explains why subscriptions are not just a revenue model but also a way to generate more of your most valuable customers, how to create compelling offers that go beyond discounts by using post-purchase survey data to understand customer behaviour & desires.
Christian Hoppe
Matthew, welcome. I'm super excited to have you today. Thank you for joining. I have a bunch of questions about subscriptions.
But before we start, for people who might not know you, maybe you can share a little bit about yourself, who is Matthew Holman and how did we end up to speak about subscriptions today?
Matthew Holman
Absolutely, absolutely. Yeah. And first, thanks Christian for having me on. Obviously, I love talking about subscriptions because it's what I do all the time.
I actually first got into subscriptions, I joined a small bootstrapped SaaS company called Qpilot, primarily on WooCommerce at the time. It was like five years ago now, I feel like four or five years ago.
And, you know, as a SaaS marketer, you're trying to figure out how to get more customers onto your platform. We're also charging for usage. So, we started spending more time working directly with our customers to try to drive up their subscription retention so that we could make more money.
And the more time I spent doing that and working directly with our brands, I decided I just really had a love for helping people figure out and crack the code as it comes to subscriptions.
So a lot of my understanding of this space comes from very data-backed. We had a lot of data related to what was working and what people were doing with the platform.
So, for me, we started some content around that, that turned into some part-time consulting and Subscription Doc is the brand that was born out of that. Essentially, a desire to try to help people diagnose what was going on with subscriptions.
Because as you mentioned, there are a lot of things that are maybe sometimes counterintuitive. Retention can feel tricky because you're trying to give discounts to get people to stick around, but you're not really paying much attention to who's coming in the funnel, right? From your ad. So a lot of what I talk about is trying to help people complete that picture of what goes into a great subscription program.
Christian Hoppe
That's really interesting. I think retention is more important than ever. I mean, we've seen after COVID phase and the peak in ecommerce and direct consumer brands, they're really struggling.
And I think retention, everyone wants to improve retention, but it's very hard to really get active advice and super interested to dive into the subscription space. You already touched on a lot of topics like discount codes and stuff where it can definitely go deeper.
But maybe first of all, why should brands focus on subscriptions? Why is it so important for brands and what can they get out of it?
Matthew Holman
Yeah, I've got two answers to that.
I think the first one is kind of obvious that most people think about. They think about it's predictable revenue. It's a way to be able to acquire a customer at a higher acquisition cost because you're able to pay back that cost like over time. And so that's a little bit more predictable.
And while that's certainly true and that's like a foundational piece of building any good business is trying to build a profitable customer acquisition channel and retention… I think that one of the most compelling reasons to do subscriptions is trying to start to shift your focus from just acquiring just anybody and everybody that will buy it and instead focusing on people that will get the most value out of it.
And so, when we look at subscriptions through that lens, we start to, like, unlock memberships, we start to unlock higher subscription tiers, we start to unlock more offers and those types of customers are a lot more profitable for the business.
And so that's why I think makes them really, really appealing to get into.
Christian Hoppe
So basically, are you saying that the businesses can focus on those customers that are already the most profitable for them and get even more out of those that are already valuable?
Is subscription, only relevant for certain businesses? For example, if I'm selling mattresses or something, is this as relevant as if I'm a consumer brand?
Matthew Holman
Right. I was like asking the question, like thinking through, like, purchase behavior.
So, mattresses are a great example. How often do people switch out their mattress covers? How often do people change their sheets? Are they buying new sheets?
I think one of the fun things in mattresses is, specifically, is people will spend like a hundred thousand dollars on a car and they'll bulk at a thousand dollars for a good mattress.
But then they'll also not spend very much money on buying like clean linens, cooling linens, all these other things. So there might be subscription options available for that if you're thinking about those consumables that go into it.
So I would say that initially, no, subscriptions aren't necessarily for everyone.
Like, I had a friend who was running a skincare company, they would do like quarterly really big drops. They do big price discounts. And so their business was built around like quarterly, they would do these huge sales pushes.
And they had a hard time getting people onto subscriptions because their customer base was used to the drop process. So for them, no, but maybe a membership where people get early access to drops or they get special pricing on drops.
So, if you start thinking about like, what can I do to incentivize the types of behavior that's working or is there an unmet need? Is there something that we could be selling a little bit more of or in a way that's more compelling to customers? Then subscriptions or memberships can be a really good option.
Christian Hoppe
Interesting. I can very much relate because the last D2C I worked for, waterdrop, had similar issues. So it was a little cube that you put into water, giving water flavor.
But we also had a lot of limited edition bottles and you start from having one drop, a quarter, or something to eventually you know, falling into the trap, offering more and more discounts and more and more campaigns.
And, in the end, you know, it's very, very hard to launch a subscription out of that for exactly those reasons that customers think: How can you go on subscription if I can save with every drop and it's very hard going away from this behavior.
What I also found is that these heavy discounts are actually not necessarily helping your bottom line and you're losing actually incremental margin. So that was very tricky.
Matthew Holman
Right. I was going to say another thought on that is, I think to understand that there are two kinds of like, types of subscriptions.
There's the convenience factor. So, like we mentioned mattresses, I have a subscription to… we have a hot tub at my house. And so I have a subscription to the chemicals I use to clean and replace it. And that, I put that on a cadence for every three months.
So that I know, okay, when the chemicals arrive, I replace them. So there's a convenience factor there. I want that happening so I don't have to think about reordering it every time I go to try to clean the hot tub.
Then there's this extra value add where we're making like a lifestyle change or we're trying to suggest to someone that they should be taking it. So like if you're trying to sell a weight loss supplement, you want people to subscribe because they need to take it consistently to see results.
So, trying to, like, think like you can put it into one of those two buckets is also a way of, like, trying to guide how you want to think about it.
Christian Hoppe
I hate ordering online or I forget about it, as you just mentioned. And then I push it out and say I will do it end of the week, next month. And then, in the end, I think the gap between orders gets larger and larger.
So, I think subscription helps me as a consumer to get the things when I need them and help the brands. That's a very good point.
And for the other topic, what we did at waterdrop is we figured out, “Okay, we can, we also had a loyalty program with points”. So we said we're going to give double points for those that are on subscription for every purchase.
But how do you get subscriptions right then when you think as a brand, what should you consider? There are a lot of factors, as you also touched on.
Matthew Holman
Yeah, absolutely. I think that first, I always start by saying, like you mentioned discounts, like if, if people are only buying because of the discount, that can be fine, as long as you're okay with, as soon as something else comes up for them or changes that they're going to buy it somewhere else.
Um, so like, if I'm selling like a very unique product, I'm not going to, you shouldn't discount it very much because people can't get that somewhere else. You need to invest more in how to sell and demonstrate the value of that product better than just relying on discounts.
If it's something that's somewhat replaceable, like say I'm selling, like, a vitamin C subscription and that can be very commoditized and people can get that somewhere else, then I'm trying to figure out ways that I can bundle that product together so that there's more value instead of looking at it from a discount perspective. Like, can I sell it with, like, other supplements? Can I lean into is it a specific type of how that product was sourced?
So, when we're first thinking about subscriptions, we're trying to think about like, why would somebody buy it in the first place? What makes it compelling? What makes it interesting? Why should people have it?
And as we start to sell subscriptions and we start to get a little bit of traction, you need to be paying attention to why people are buying it from you. So this involves post-purchase surveys.
We want to start, like, figuring out, you know, vitamin C is actually a really good example because it's fairly commoditized.
Why are people buying it? Is it because they're worried about getting sick? Are they worried about they're trying to be healthier? Their doctor told them they had a significant other that passed away. There's an outbreak in their area that vitamin C is gonna cure.
So, we start to like figure out why people are finding this offer interesting. And that lets us like lean more into that from a messaging standpoint.
You know, if again, if we're talking about preventing sickness, then a lot of my copy of my emails and my order notifications are going to be related to health and hey, flu season's coming up and all this stuff, like making sure you're getting ahead of the curve, right? Again, it was a very simple example, but that's how I'm trying to think through that process.
And then when we're looking at cancellation surveys, like when people cancel and they tell you those reasons, what are we learning from those insights?
If somebody says, “Hey, I still got the flu”, and that's a really big problem, then maybe that's not the right market to sell to.
So, we start out by selling, trying to figure out what people want to buy. We start paying attention to what they're excited about, and then we start paying attention to as that builds over time, why they cancel. And we're supposed to go back and create a feedback loop of how that's working or not.
So, a really quick example of this, a brand that I really love and talk about a lot is called I Heart Dogs. They sell pet food and they donate a percentage of every sale to feed sheltered pets. So pets and shelters can get free, get their meals.
They started with a subscription and they're running it for a while and collecting that data. And like most brands, they found that one of the number one reasons for cancellation was people had too much product and they dove a little bit deeper.
And that's something I always urge is diving a little bit deeper into what's actually happening. And people told them they just didn't know how much to order.
So, there was a disconnect between I have a small dog versus a big dog. I'm not sure what the frequency is, so I end up with this situation where I have too much pet food.
So, they went and they redesigned the product page. So, if you think about that, isn't too much product, typically somebody might try to give a discount to get somebody to stick around. But now you're left with customers who have too much product that are getting a discount on the next one, and maybe it's just too much to juggle and figure out. You go back to the point of acquisition.
So, they explain to people they make a toggle on their website, you can go and look at it right now: iheartdogs.com. Depending on the dog's size, you can pick. What you pick changes the amount that you should get and changes the frequency you should get.
So, that did two things. For them, it increased their initial conversion because their website spoke more clearly to what people should order, like by 30% and their retention increased by 40% because now their customers were getting the amount that they needed, and that addressed their number one problem, subscriptions.
And that's very much like that approach. We start paying attention to what's not quite working or what we can do more of and then we go and try to improve that for our customers, for our subscribers.
Christian Hoppe
I love that. It's super valuable looking at post-purchase surveys. I love it for so many reasons. And what you mentioned is a great example. I think in general, brands often start talking, as soon as you acquire a customer, the brand starts shifting the conversation towards "these are our values".
I see that very often. This is what we stand for. This is the USPs of our products instead of continuing to speak about actually the desires and the problems of the customers.
That's often just in acquisition and then as soon as we acquired a customer, we switched that. And I think very few brands do that, at least from what I've seen that that was very, very valuable.
Matthew Holman
Yeah, they do. And actually with a lot of brands I work with, that's one of the first places we start. And I call it onboarding people to the subscription. So, and again, this happens across the board.
If you started your vitamin brand because you felt like everybody needed to be this, this much healthier in their day-to-day life, that's great. But customers start buying it and they have their own assumptions around the product. Like, yeah, this is going to make me healthier, but this is going to give me more energy too.
And you'll find as you do this that people are coming up with things that have nothing to do with anything they saw in your ad. It's just an assumption they're making. You're making an assumption about why people buy it. They're making an assumption about the product.
So, post-purchase surveys let you start to uncover that and you can use that information to sell better. Like that energy thing, if people are buying it because of energy, maybe it doesn't really have an energy benefit, but you mentioned people report better energy taking it. That's going to speak more directly to why people get it. But then the other side of that comes down to retention if it's a new habit.
Something they haven't used before, something that's new to them. You invest time in onboarding them through emails, through direct mail, and through unboxing to get somebody to start using it.
Because if you can get somebody using and hooked on the product right away, then those first couple of months aren't going to be a danger zone for a subscription anymore. They're going to be easy retention.
Christian Hoppe
100%. Read once that the friction is always there to purchase again. For subscriptions, it's kind of to cancel. So you have to take an active step to not order again. And if you have just a transactional way of reordering, then you need to actively go there and order again.
And what I've also seen in these post-purchase surveys from a purchase motivation point is we've seen also sometimes higher customer lifetime values for certain people. So, certain people that want to, for example, lose weight or build muscles, they might have a bigger lifetime value than just people who want to save time using the product because someone who knows, okay, I need 30% protein in my nutrition, they are actively aware of what they're eating.
And so they have a higher motivation than just someone who usually orders delivery food and wants to get some convenience meal now and save some time. And also it helps acquisition, right? The process.
Matthew Holman
Absolutely. It really does. And you hit the nail on the head, you can get better at acquiring people and also understanding what they're doing, what their expectations are. That allows you to go after more of those people.
And that's what I said at the beginning. Like when we think about subscriptions through the lens of I want to find more of the people that really find what I sell valuable.
And you start to think about that. It's okay if we lose some people who don't get it, or didn't like it, or didn't have a good experience. We can try to improve those experiences, but we go after more and more of the people who see tons of value.
They're going to keep spending. They're not going to cancel because of the price. Like you're going to be able to launch new products into them. All those things.
Christian Hoppe
Exactly. Yeah. It's also interesting because in a lot of these post-purchase surveys or churn surveys that some brands run, I've seen that the number one reason, at least what customers say why they haven't purchased again, is because they still have a lot of product at home.
And I think also it fits exactly into what you said because you first need to get used to people to use the product before they're going to reorder. And if you just look at some of the post-purchase communication, it's like, okay, the average order lag between first and second order is, like, 30 days.
So, after 30 days, I'm just going to send a message to a customer, “Hey, you want to purchase again.” And the customer says, “Hey, I still have the products at home”, but how you get them to use the products is exactly what you said, you know, understand their motivation, their desire and help them, you know, take the steps to achieve that instead of just pushing brand value towards them.
When we talk about subscription success, how do you measure success for subscriptions? Are there any specific metrics that you look at?
Matthew Holman
Yeah, I mean, I look at lifetime value and contribution margin, ultimately, I think this is the core metric and you can look at it from an average lifetime value or average contribution margin to be able to make comparisons to other things.
But that's ultimately kind of what you're shooting for. That should be the North Star is finding, like, really profitable customers that contribute to the bottom line. For some businesses, it's like the core business: subscription is like the only offering. For others, it's part of the product mix, right?
So, like you might still be selling the other things successfully one time and using typical life cycle marketing to drive repeat purchases there. But then subscriptions are potentially a really profitable cohort or subset of your customers. Um, but yeah, obviously thinking about it in terms of contribution margin is the best way.
Christian Hoppe
And how do you do that? Because obviously the subscribers will be the part of your customers that are in general already the most loyal. So, if I compare the CLV of subscribers, probably that will be generally higher automatically.
Matthew Holman
Yeah, I mean, that is that's kind of like the nature of it. You can, I mean, depending on like how you're pulling data out of Shopify you can start to segment people based on like understanding their CLV.
And then obviously the offsetting of like, you know, CAC is going to be higher for subscribers typically than it is for a one-time purchase, but the payback period is going to be different, it's going to be a lot more committed, right?
You're going to have an average of, like, four or five months for your typical subscriber for a payback period as opposed to, like, a little bit more nebulous on the repeat purchase side.
Christian Hoppe
Obviously, that's also cash flow discussion for brands, but something that is at least predictable, as you mentioned in the beginning.
But it's good to know that there are not a ton of metrics that you need to look at. So, it really comes down to, as you said, CLV and contribution margin.
Matthew Holman
Yes. Yeah. You definitely, like you mentioned cash flow, like, yeah, you do want to pay attention to if you're spending a lot of money to acquire a lot of subscribers that will tie up cash, especially if you're discounting and the payback period is like, if you're not hitting profitability till month three or four, you do have to be a little bit more careful on how you grow to make that happen.
So, I would just be careful of that. Like, um, but you start wanting to run a test to see how efficiently you can acquire subscribers with that conversion percentage looks like.
And then what's your first two to three months churn looks like or retention, I should say. Like, how many people you're keeping to get an idea of what, like, that cash payback window looks like.
Christian Hoppe
Yeah, absolutely. So, you mentioned discounts a couple of times. And I think you also write a lot about offers.
How does a great subscription offer look like? And if it's not discounts, because also you want to avoid that you just have these bargain hunters, right? That comes to save 20% and cancel immediately.
Matthew Holman
Yeah, I'd say a great example is, like, go look at ButcherBox.
So, they're a fun subscription brand in the US. They run specials all the time. What they offer are free lifetime things. So, say around Thanksgiving in the US, get a free turkey with a subscription to ButcherBox. Get lifetime chicken wings with a subscription to ButcherBox.
And so they're actually not discounting. They're just trying to throw more stuff that because of their size, it is cheaper for them to get that stuff, right? They have better margins on it and how they're acquiring, you know, they're buying a million turkeys, right? So it's cheaper for them to do it that way.
But I think the lesson there is, like, if we're trying to build a business that's based on discounts, the discounts should start small. And then that way you still have plenty of margins to play with.
But the reason I say always test the offer is because you should be able to try to find something that's more valuable to somebody than a discount, right? So, if we're talking, I'm selling say, like, sleep, a sleep gummy, you know, maybe adding in a free white noise machine that costs $5 and another $5 to ship instead of discounting my $50 product 10% or 20%, I guess, to get at that $10 amount.
So, it's like thinking through that, like, okay, new subscribers get a free white noise machine and they get our little reminder you put by your bed, the three things you need to do every night to help yourself calm down and get ready for sleep.
So, it's like stepping outside the box a little bit. And this one isn't necessarily a subscription offer, but a friend of mine that sells heavily on Amazon, and he told me this story of they were selling stuffed animals.
And if you go onto Amazon and you look for stuffed animals, you're going to see a million stuffed animals. But they started bundling the stuffed animals with a storybook, like a bedtime book that the parent could read to the child that involved that stuffed animal.
And that just alone is not that expensive for them to make, but it boosted the perceived value of their order first. So, you get a bear and a book for the same price as everybody else is selling a bear.
But two, you're speaking very directly to like what a parent is looking for is something to help their kid fall asleep at night. So, it's a really simple thing to start putting together.
So, depending on if you're only like a single product SKU, it can feel a little bit more complicated around building offers, but you want to start thinking outside the box a little bit related to content. I would always suggest like doing other ways to pick up more information around quizzes and things you can do on site to learn more about what people are searching for and why.
There's a lot of ways to test that to get into that kind of data, but starting to understand what somebody is going to find compelling. You can start testing those with content, with offers, with other products.
You know, sometimes that means changing up the subscription as well. Maybe instead of selling one bottle at a month cadence, you're selling three bottles at a three-month cadence, right? So that's cheaper for you to ship and you can offer a bigger discount because you're getting three purchases essentially all at once, right?
So, it's like just trying to like get a little bit outside the box instead of just here it is, here's 10% off if you subscribe.
Christian Hoppe
100%. Adding something on top, as you said, is, it costs the business maybe the same as the discount, but the perceived value is much higher. So that's, that's always great.
What I've also seen brands start doing is offering kind of digital products, kind of an online course or something like this, which also costs them nothing in the fulfillment or community or something like this on top which can always help.
So there, there's this discussion, right, between subscriptions, memberships, loyalty programs, are they kind of competing against each other, or is this something that can be complemented?
Matthew Holman
They are a little competitive.
I think loyalty programs are probably the easiest to understand because you're essentially getting a certain number of points for a purchase. And so having a subscription and a loyalty program together means you're just earning points on the subscription.
And like you mentioned, waterdrop, like you can 2X the loyalty points for certain subscriptions. You can even build another thing like say, like if month five is a big drop-off point for you, then you could like, triple your points in month five for people and let them know that so that it gets them over that hump a little bit better.
Memberships, it's not so much that they don't play well together, it's just difficult to sell it all all at once, right? Like a loyalty program, usually, people don't buy because of how they understand the loyalty program looks on a product page or landing page. They might know the loyalty program is good because a friend referred them.
But it's hard, like, loyalty programs aren't necessarily, like, the number one reason why people buy. And memberships… can be hard too because usually memberships don't sell like right away.
So, you can try to get subscriptions to sell right away. There are a lot of things you can do to do that. A lot of times people do like to try the product first, but you can sell subscriptions right away. Memberships are harder to do that because you just want to make them kind of like a no-brainer.
So, like some, I've interviewed a couple of people recently on my podcast about this, like Carnivore Snax and XEndurance. And for them, it's like, once you start trying the product and people like it, then the membership is a no-brainer.
They go back to the site for, like, a second or third purchase and they're like, “Oh yeah, wow. This is so easy. I'm going to get cash back. I'm going to get a store credit. Cost me 50 bucks, I'm already imagining I'm going to spend $200 in the next couple of months on this, that's a no-brainer for me.”
So, that's how you gotta kind of think about that. You can layer them on there; it's just again, trying to build out the right sales funnel for how people are first exposed to what and when.
Christian Hoppe
Yeah, got it. It sounds like you say subscription is basically the only thing that you can sell right away from the first purchase.
Is this something you recommend doing? Or do you still say, “Hey, let's look at customers that love the product and then sell the subscription because it's maybe cheaper to acquire them with a transactional first purchase and then upsell the subscription in a second purchase?”
Matthew Holman
It's something I certainly would try to test. I mean, I guess I haven't seen too many. When you get really, really big brands like Costco, they're selling memberships right away. But that's again because there's so much people, they’re walking in a warm audience.
So, I'm thinking, like, cold audience. They've never interacted with your brand before. The membership is probably going to be a bit of a reach.
Even the loyalty program is most likely going to be a reach. It's not until they start thinking to themselves as a repeat customer when those two offers can work.
The subscription can be compelling if you're starting to sell like an outcome. Like I mentioned, like, better sleep. If somebody's trying to fix a sleep problem and you're selling them a sleep supplement and it's something they're going to be taking and they know they're going to be taking if they do take it at all and it works, they're going to keep taking it.
So, the subscription can be a way to get somebody to start committing to that. The levers you could use is yes, you can use a discount. You could use like a second month free or you could use digital content or like I mentioned, like a white noise machine, some kind of other add-on to make that subscription feel more like a deal is how I would approach like, how do I make this feel more like a deal and overcome any maybe objections somebody might have on the commitment.
And so I would say I'd like to try to start testing there for brands, a lot of brands start with the one-time, add a subscription. And then they get to this point, man, can we test to get opt-ins to subscriptions right away? And so you can test for that and go for that.
But, you know, if you're talking about like first-time purchases, I can get 10% of them to come back on a subscription. Whereas I can convert people to subscriptions at a quarter of the amount I can one-time purchasers, like most brands that those numbers will still match up because the subscription people are going to be worth more than in the long-run.
Christian Hoppe
Wow, interesting. I've seen brands that just add a subscription without promoting it, without preselecting it. So, it was still one-time purchase was preselected, but there's a subscription and actually 10% of first-time customers switch to the subscription without any benefit, without any promotion.
But what you said that's really, really smart. If you have a product that you need to use, maybe some facial products, cosmetic or supplements, then you want to sell the outcome, which is, which is extremely smart.
And it seems like you are selling, for example, a bundle of three items for one month supply each, right? So, basically three-month supply. And instead of selling the bundle and then waiting for the customer to come back, you basically sell it in the form of a subscription and it might have the same savings. So, you're not actually losing margin.
Matthew Holman
Right. Yep.
Christian Hoppe
That's really smart. Matthew, I could ask you a lot more questions, but is there anything I haven't asked you, that you would like to add?
Matthew Holman
Hahaha.
Um, yeah, I would just say like the two things are, try to get better at understanding what people are doing with the product, like right away, how they're using it. Is it casually? Is it every day and doing what you can to like kind of reinforce that, like help them create a new habit, help them change their lifestyle, or whatever.
And then always, I'm always just testing different offers, different specials, whether that's price. Whether that's the discount I'm using, whether that's how people buy it, the frequency they buy it, what else they get with it, is their content, other things. That's what I've seen be really transformative for subscription brands.
Christian Hoppe
Very good. Matthew, if people want to learn more about subscriptions, if they want to work with you, what's the best way to get in contact with you, and you also run your own podcast?
Matthew Holman
Yeah, so yeah, I've got a podcast and a newsletter and then you can subscribe to those and find out more about that or contact me at thesubscriptiondoc.com
Christian Hoppe
I'll put the link in there. Thank you so much for all the value. It's been extremely insightful and thank you for joining.
Matthew Holman
You're welcome, Christian. It's been a pleasure.
Hey, I'm Chris 👋
I started out in marketing & ecommerce 15 years ago.
Building websites, online shops and running ads.
In 2019, I built waterdrop's direct-to-consumer business, growing it from $5 to $100 million in three years.
And worked as a fractional CMO with several 7- to 9-fig brands.
Today, I help winning ecommerce brands grow faster & more profitably with Forwrd Agency.
I also run my own businesses and invest in the ecommerce sector.
People know me for my straightforward, honest, and critical insights.
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