Why Most Subscriptions Brands are Losing Money on Paid Media Channels

Managing media spend while optimizing for eCommerce success is a science.

Leading brands start by researching the competitive landscape, including identifying how much is being spent and where, what messaging works best, and which channels are being prioritized.

After identifying their total addressable market and gathering data on marketing performance and overall returns, brands then determine how much and where to spend marketing dollars.

Often, this evaluation process leads to channels like Facebook, Instagram, and Google, but not necessarily the expected ROI.

To help, we’ll dive deeper into some of the top challenges subscription brands face around paid media, as well as different strategies to incorporate to increase performance and returns.

Traditional Paid Media Challenges for Subscription Companies

Lengthy and Costly Customer Journey
For subscription brands, the customer journey is significantly longer, meaning it costs much more to acquire new customers through traditional platforms like Facebook and Instagram. Brands typically have six seconds (at best) to convey value and encourage potential customers to sign up for a subscription. This limited timeframe isn’t substantial enough to convince a customer to subscribe, let alone to convince them to do so for the long term. In many cases, it can take upwards of 10x the Monthly Recurring Revenue (MRR) of a new subscriber to break even on acquiring a new customer, though they’ll likely churn before reaching this point.

Unknown Returns
Many subscription brands determine their applicable Customer Acquisition Cost (CAC) at or above the day one revenue generated by the customers they acquire. These brands need customers to stay active on their subscriptions for multiple cycles to turn a profit. Investing in existing and new channels presents a significant problem – it’s a calculated risk brands take without knowing the actual Customer Lifetime Value (LTV) at the time of purchase. Additionally, the true profitability of marketing channels is unknown for months and sometimes years, as it takes time to determine churn rates and generate statistically significant numbers.

Lack of Transparent, Standardized Reporting
Many mainstream analytics platforms like Google Analytics (GA) aren’t built for subscription companies. While GA does a great job of tracking conversions back to UTM parameters on an initial purchase, there’s no visible way to determine the LTV of a customer by different marketing channels after day one. A standard gauge of performance is an LTV:CAC ratio. In other words, what is the LTV of the customers you are acquiring from a specific channel, and what multiple is that over your acquisition cost? To calculate this number, you need to centralize marketing behavior and billings on a channel and customer basis to determine what’s working. From there, you can optimize appropriately and determine where your marketing dollars are best spent. Many subscription brands use a Business Intelligence tool, like Looker or Tableau, or a subscription-specific analytics platform like Sublytics or Profitwell to generate these KPIs.

Cash Flow Concerns
Storytelling is the key to winning new subscribers for the long haul, but relying on top-of-funnel marketing channels and platforms like YouTube, TikTok, CTV, and traditional TV can get expensive quickly. Due to the delta of marketing investments compared to customer-generated revenue, brands start in the red with hopes of getting deep into the black with high retention customers. The more the brands scale, the larger the up-front investment and cash outlay become. Those with the most cash available typically win. Businesses like Clearco have become popular as they provide many brands with much-needed funding on their media investments so they can continue that growth trajectory. Brands must understand the level of investment they are making and the timing it takes to break even and be profitable to manage investments wisely and track the right details to ensure success.

Ways Subscription Brands Can Increase Revenue and Win

Increase LTV by Presenting Upsells and Add-on Products
One way to boost LTV for your customers and keep them happy is to offer post-purchase and engagement upsells. These products are often complementary to the core product(s) the customer purchased and can be paired with an incentive such as a percentage discount or free shipping. Customers already exhibiting buying behavior are likely your best-targeted customers for an additional product. The best place to showcase add-on items is in the shopping cart or order confirmation page. Creating segments of active and inactive subscribers, additional subscriptions, and one-time products can be helpful in testing strategies to further engage customers who are happy with their existing product and re-engage customers who have discontinued. Tiege Hanley does an excellent job of this by presenting one-time products on both the checkout and order confirmation pages.

Lengthen Retention by Understanding Churn Reasons
Many subscription brands have begun presenting surveys at the end of a cancelation event to help them understand the reasons for churn. Sometimes, these reasons are related to easily identifiable issues like price. Other times, churn is driven by product-specific characteristics that are difficult to quantify in a survey. Juan Palacio, CEO of flower subscription business BloomsyBox, abandoned static surveys with pre-selected drop-down options in favor of free-entry forms. In doing so, BloomsyBox could pinpoint a unique cause for churn they would never have caught in a traditional survey: dog owners were canceling because they received flowers that were dangerous if their dog were to ingest them. After learning of this unique cancellation reason, Juan and his team created a segment of churned customers known to have dogs and marketed a “dog-friendly flower subscription” to them. This tactic successfully won back these previously churned customers, something that would have been extremely difficult without free-entry forms. With personalized messaging and segmentation, BloomsyBox demonstrated an understanding of their customers while addressed the core issue they faced.

Drive Results Using Personalization on Owned Channels: Email and Text
How are you marketing to the overwhelming number of people that visit your website without making a purchase? The most personalized messaging that results in the highest conversions is browse and cart abandonment communication. Through owned channels, brands can truly market the right product to the right person at the right time. The most successful brands orchestrate email and text communication to deploy these messages and reap the benefits in revenue. The trick here is to open the pool of marketable individuals as wide as possible by identifying as many site visitors as possible without relying on log-ins and active device-specific cookie windows.

In Summary:
Running a successful subscription business comes with several challenges that traditional eCommerce companies don’t have to consider. Fortunately, with challenge comes opportunity. By leveraging solutions like Wunderkind that are designed to increase engagement and build relationships with your customers across owned channels, you can increase your retention and associated revenue, building loyalty to your brand.

About Wunderkind: Wunderkind helps 950+ brands like HelloFresh, Weight Watchers, BattlBox, and Corkcicle scale their digital revenue by 11-15% by identifying more of their site traffic that is otherwise left anonymous. This identification enables the delivery of one-to-one messaging at scale delivered at optimal times in the customer’s buying process.

Please reach out today to walter.long@wunderkind.co to see how Wunderkind can help you scale your digital revenue for your subscription business.


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Greg Lawrence and Walter Long

Greg Lawrence is a Senior Manager of Strategy Consulting at Wunderkind. Walter Long is the Director of Business Development at Wunderkind.