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Why Subscription Business Is a Good Buy

A few months ago, I spoke with someone who is quite focused on buying and then selling subscription businesses, primarily SaaS.

The fun thing about subscription businesses is that with bit of a work, you can increase the valuation by a lot.

Let’s dig down a bit to see the valuation at play.

Suppose there’s a subscription business with $9.99 monthly ticket and 1000 users. This business would generate $119,880 ($9.99 x 12 x 1000) per year. Assuming that the business has 50% margins, the annual net profits come down to $59,940. Further assuming that the small-cap internet businesses are valued at 4x annual net profits, this business would be valued at $239,760 ($59,940 x 4).

My acquaintance would buy this business like this.

He would then focus on trying to improve the basics for the business: optimizing the sales funnel, getting the optimal value out of the user by offering additional membership plans and up-sells, offering better customer support etc.

By the end of the optimization process, he would try to push the average order value to $11.99 instead of $9.99 and the user-base to 1100, up from 1000.

Upon revaluation, the business would be worth a lot more. Annual gross revenues would be $158,268 (11.99 x 12 x 1100). Annual net profits would be $79,134. And the new valuation would be $316,536; an increase of $76,776 or 32%.

All with minor optimizations.

What to Work On?

A few days ago, I wrote a bit about doing the right thing. The emphasis was that you shouldn’t just do things right, you should also do the right thing. It’s certainly important to do your work well, but it’s even more important to work on what’s more worthy of your time. That was a financial advice so you can identify the work that’s going to pay you off better in the long run. And I’d follow this advice if I’m looking for financial rewards.

But not always are we just looking for financial rewards. Sometimes we need gratification of other kinds. Like emotional gratification. And since the eventual goal is actually to seek happiness, sometimes this is even more important than simply achieving financial gratification.

As of lately, I only work on things that I like to work on and I never work on things that I don’t like to work on. I do this regardless of the financial rewards associated with either of the options. At some point in your life, you’re going to want to make that decision too. But when you do so, make sure your basics are covered.

Staying Consistent Even When You’re Low

I started this blog to develop work ethic. To be able to stay consistent despite how I feel. Today is one of those days when I felt indifferent. In fact, last week was that kind of week. I didn’t want to write and I didn’t want to work and if it was 2019, I simply wouldn’t have worked.

The problem with giving in to these feelings is that you go further deep into these feelings. And not working for a day or two, or a week is not problematic. Going further deep into these feelings is problematic and it drags that week into a month, and month into an year.

Because I’ve to write here once a day everyday, even at my low I’m working and writing and that’s the kind of push I needed to give to myself.

I recommend that you introduce certain challenges in your own lives. So when you’re low like me, you can make an attempt to turn things around.

Not Killing A Dying Product In E-Commerce

When scaling a dropshipping Facebook campaign, you will feel at some point that despite all your optimizations, your cost per purchase is now more than what you can afford to pay to run your ads profitably.

Most people at this point believe that the product has saturated. That the product has already been sold, profitably, to most potential buyers and reaching out more potential buyers will not happen profitably.

I believe that more than product saturation, the cause of higher CPP and decline in sales is ad fatigue. Hence, my first course of action in this situation is to create and try more creatives.

Before the buyer has received the product, the product is only as good as it’s creative. Hence changing creative can reduce some of the ad fatigue and may revive the life of your product. It’s not often product saturation, it’s the creative saturation.

The second course of section, after the first one stops working, is to scale down the campaigns and ad-sets. You might want to see what will happen if you consumed lesser budget, and hence lost more bids. By losing more bids, you can have a winning campaign.

Once the scale down stops working too, and you’re sure it’s time to kill your dying product, you can consider moving to manual bids with accelerated delivery.

You can set the maximum amount you’re willing to pay per purchase. If Facebook is unable to get you a sale under that price, no budget will be spent. By enabling accelerated delivery, you’re asking Facebook to spend your budget ASAP as long as it can do so by maintaining the manual bid. This ensures that as soon as there are cheap bids available in the auction, you want to spend all your budget to get them.

If you’re unable to spend any budget at all on manual bids either, you might consider killing your dying product.

I’m interested to know if there are other, smarter ways to delay the death of a dying product. Please let me know in the comments.

The 1/2 Rule For E-Commerce Metrics

Although there’s no standard for e-commerce metrics, you should still aim to hit certain floors for your metrics in order for you to have a working funnel. I call this a 1/2 rule.

When a user lands on your product page, you need to track the progress between the different steps he needs to go through. A large or unexpected drop at any step should make you want to investigate that particular step of the funnel.

After landing on the product page or landing page, the user may have to add the product to cart. After adding the product to cart, user would land on the cart page. At this point, user would need to initiate check-out to land on the check out page. The user then needs to input his shipping and billing info in order to place the order.

While what percentage of users reach on each of these pages will largely vary depending on the type of products, price of products and the source of traffic, for typical dropshipping stores selling products between $20-$100 I recommend to at least watch out for the 1/2 rule.

The 1/2 rule suggests that if 20 people added the product to cart, at least 1/2 of them should initiate check-out which should lead 10 users to the check out page. And if 10 made it to the check-out page, at least 1/2 of them should purchase giving you 5 purchases in the end.

Landing page optimization is very important and I recommend that you use heatmaps to optimize your funnels. If you get your advertising, creatives and product selection right, but there’s a problem with your landing page, cart page or check out page, you’ll end up wasting all your efforts.

After all a chain is only as strong as it’s weakest link.

The Fast Moving World of Digital Marketing

As I mentioned earlier on this blog, our first e-commerce store was launched in 2016. Our primary customer acquisition strategy since then has been through Facebook ads.

While I had run Facebook ads a long time before, it wasn’t until 2016 that I spent a major budget. Since then, almost everything about the ads has changed. Many new strategies have been introduced and a lot of strategies that I learnt in 2016 are irrelevant.

Case in point, tech moves really really fast. Digital marketing moves even faster. And I’m curious what value could business schools add in your marketing career in this day and age.

It’s likely that my perspective is limited too, since I’ve never been to a business school. But help me understand, do business schools, including international, teach anything about this kind of marketing? If they do, how do the teachings stay relevant since the minimum length of a masters business degree is 1 year. Let’s not even talk about the bachelors degree here. In my opinion 1 year is a long enough time in digital marketing to unlearn everything and learn new things.

In my 15 years of career as digital marketer, I’ve changed my job roles 15 times. If I hadn’t, I would have found myself with no work. My primary source of revenue came from selling ads and our publishing company Socialoholic mastered that area. Only a few years later, we found ourselves buying ads instead. Now all of our revenue comes from buying ads.

In digital marketing, if you’re not pivoting every few months or even weeks, you’re being left behind.

So if you’re looking for a marketing school, let me tell you one. It’s where I went to. It’s called YouTube. The course length varies from 4 days to 4 weeks. And after that, you can get shit done.

Mudding of Pixel Data

I saw strange metrics on my Facebook ad account today. The ‘add to carts’ in pixel were twice as much as the ‘add to carts’ tracked by Shopify and Google Analytics.

This had me concerned because I thought something is wrong with my landing page. My first intuition was half of the users are somehow trying to add to cart, the pixel is getting fired, but they are unable to open the cart page in a proper manner.

On further digging in, store, landing page and cart page seemed intact. The problem was that ‘add to cart’ event was getting fired twice; once on the click of a button, and once on the cart page which was being caused by a buggy app.

This was mudding our pixel data as we were reporting twice the amount of add to carts to Facebook than originally initiated.

When you take a long time off from work, it takes bit of silly mistakes like these to get back to work!

Protecting Your Ad Campaigns From Yourself

Lately, I’m writing only about Facebook ads & e-commerce. That’s because since 1st January, we’re busy with the launch of our new store. We took a big part of 2019 off and planned to do some work from 1st January 2020. It has consumed us so far. But today is a good day because today we made it profitable.

In 12 hours, we have done $415 in sales. We’re projecting to close the day at $700.

Our ad spend for today is $154.81 which is about 37% of our gross sales. The net-margins are low right now but since we’re just getting started and the pixel is developing, we’ll see improvements with conversion rates over time. We also haven’t introduced any kind of lookalikes at this point in time.

These aren’t our desired results. We have to make up for the losses incurred with ads in the first 15 days. We need to optimize the ads after removing whatever segments aren’t converting to bring the costs down. We also then need to scale this campaign. If everything goes right, we should be able to do that in the next 7 days.

The reason why I’m not touching the ads right now despite that there’s room for improvement is because campaigns take time to optimize. Many people suggest not to touch your campaigns for 24 hours after you make them. While this could work if your campaign is completely off, I generally suggest 48 hours if there’s some sign of success. And so I’m going to let these go on for at least 48 hours and will not modify them.

After 48 hours, I’ll decide how to modify them by looking at breakdown data.

So if you want your campaigns to work, you need to protect them from yourself. Stay away for 48 hours, be patient. The cash might burn and it is going to hurt you, but the profit lies after that.

What to Realistically Expect From Your Drop Shipping Business

If you’ve read this blog before, you may have read some of the content that I’ve already written on dropshipping thus far. While e-commerce and dropshipping are very profitable in general, they are not as simple as most people market them to be.

I wanted to share my experiences with dropshipping so far to give you a more realistic overview of the journey, instead of the flashy end-result that you often see.

We launched our first store in Sept 2016. Our first sale happened in the first week. But it wasn’t until Feb 2017 that we were profitable. So it took us 5 months, 68 unique products in testing, and $10,000 in ad-spend before we figured out how this was going to work.

We targeted primarily english-native markets hence the competition was higher. It was also our first attempt with sales of any kind so we were inexperienced. But collectively we had over 10+ years of experience of running various internet businesses mostly related to content. So we weren’t completely inexperienced either.

From Feb 2017 till May 2017, we had achieved the flashy status that you often hear about. The margins were 40% initially but after scaling, came down to be about 23%.

Since then we’ve launched many stores targeting many different industries but drop shipping as a whole has gotten way more tougher. This is due to the obvious: more competition, higher ad costs, and lesser margins.

But it’s also because that in addition to ads getting more expensive, Facebook ads machine learning has gotten more advanced too. What it means is many marketers are now able to achieve results with little to no targeting options. Many times strategies have gotten as simple as running a broad ad with no targeting.

Since there’s lesser room available to outperform your competition with ad strategies, the competition now lies in creatives and product hunting. If you’re able to create better video ads than your competition, you stand a much higher chance of winning.

Over all, in the next few years, it’s going to be best product/creative takes all kind of game. Facebook ads are going to dumb down to just budgets and optimization goals.

What I’ve written above is related to my e-commerce experience in international and primarily english-speaking markets. Others may have had better or worse performances. In addition, e-commerce in developing and under-developed countries including Pakistan, has much lower competition and related ad-costs.

In summary, Pakistan is a much more potent market for early-stage entrepreneurs for e-commerce. We choose to work in global markets for a bigger scale although it comes with much larger set of challenges.

Chinese Are Eating The World

Everyone knows it. You may have already read other variants of this article. A different angle through a different lens. May be in terms of One Belt One Road initiative. But I’m only interested in how they are doing that in tech, and most specifically in the e-commerce industry.

When we first got into dropshipping, there were nearly no Chinese in the industry. They were mostly just suppliers of the goods. Dropshipping in essence began with AliExpress. Chinese would just host products there and fulfil on behalf of other dropshippers.

In the following year, Chinese learnt that they are being duped. For every $5 they get in gross sales, the dropshipper gets $20 in gross sales. The first change we saw happen was the prices went up at least 100% on AliExpress. They needed an equal share in the dropshipping business.

By following year, many new dropshipping stores popped up that have now become some of the largest in the world. Chinese didn’t just want to fulfil orders, they mastered the business end to end. From advertising and sales to fulfilment. They replaced most dropshippers.

A similar trend can be seen on Amazon FBA as well where most new and top sellers are based out of China.