The TL;DR:

• Let’s Chat D2C: Subscription Management 101. How to communicate with your subscription customers, and why you need to offer them as many options as possible to manage their subscription: Ship next order now, Skip next order now, Delay next order, Change next delivery date, Change interval, Swap current product (SKU or variant), Update billing info or shipping address, Out of stock retry, Failed charge update credit card, Gift an upcoming order, Apply discount to next order, Add a one-time or subscription product to the next order, Reactivate canceled subscription, and Reactivate canceled subscription and apply discount code.

• What I’m Thinking about this Week: Klaviyo Files S-1 to go Public and What it Means for the Shopify Ecosystem and App Builders.

• The D2Z Podcast: In this week’s episode, I sat down with Jon Snow, Co-Founder of the Snow Agency and now CIO of Avenue Z, a PR and digital media company. Jon’s background from dentist to multiple successful entrepreneurial exits is fascinating and one you won’t want to miss!

• App Updates & Highlights: Klaviyo CDP

• Upcoming Events: I’ll be in South Carolina 9/10-9/12, Chicago 9/16, and LA 10/2-10/6 for the Shopify Enterprise Partner Summit, and Cleveland 10/8-10/11 for the Forbes 30under30 Summit.

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Let’s Chat D2C - Subscription Management 101: Minimizing Churn and Maximizing LTV

Ten years ago, the thought process most subscription brands had was, “Let’s make it as difficult as possible for customers to cancel so that they won’t cancel.”

Now, brands are smartening up and looking at the data. Customers who take more management actions on their subscriptions actually end up being worth MORE than customers who don’t. It’s a GOOD THING if a customer skips their order because guess what? They would’ve canceled otherwise.

In this guide, I break down all the different subscription management options you should offer your customers. Some of them are proactive churn mitigation, some are AOV boosting cross and up-sells, and others are cancellation win-back actions.

I recommend providing these options in the customer portal, but more importantly, send customers an email and text at least three days before their next order so that they can take these actions before a shipment.

Ship the next order now

Allow your customers to ship their next order immediately if they need the product sooner.

Skip the next order or delay the next order

One of the most common reasons customers cancel a subscription is because they have too much product. Allowing them to skip or delay their next order increases their LTV because they would be canceling otherwise!

Change the next delivery date

Out of town and not able to receive the order? Easily allow customers to change and select their next delivery date.

Change interval

At least for me, one of the hardest things about a subscription is figuring out the right replenishment cadence. Make it easy for your customers to update their interval frequency (i.e., from 4 to 6 weeks) so that it’s more manageable for their schedule and needs.

Swap the current product (SKU or variant) and out-of-stock retry

Sometimes it’s nice to switch things up, or maybe you’ve run out of stock of a certain variant, and customers need to select a different flavor.

Update billing info or shipping address

People move all of the time. This one is a no-brainer to have.

Failed charge update credit card

Give customers the chance to update their payment information to keep receiving their subscriptions. Expired credit and debit cards, canceled cards, gift cards, etc., are all reasons a customer’s card will fail.

Gift an upcoming order

This is a nice alternative to offer customers instead of skipping or delaying their next order, they can gift it.

Apply discount to next order

There are a couple of use cases here:

• Churn mitigation: Based on your data, if you know that customers are most likely to churn between order #1 and order #2, why not proactively offer a discount to the 2nd order?

• Loyalty program: Offer all customers who reach a certain order # a special discount.

Add a one-time or subscription product to the next order

Increase product discovery, AOV, and LTV by offering customers the chance to add a one-time product or subscription product to their next order.

Reactivate canceled subscription

So your customer has canceled; now what? Target them with email and SMS marketing (even push notifications and direct mail if possible) to win them back and reactivate their previous subscription.

Reactivate a canceled subscription and apply a discount code

Given your churned subscribers the extra push they need to reactivate their subscription by auto-applying a discount when they restart.

What I’m Thinking About This Week - Klaviyo Files S-1 to go Public and What it Means for the Shopify Ecosystem and App Builders

This week’s section is brought to you by Andy Cloyd, Co-Founder of Superfiliate and Venture Partner at Revolution.

If you’re reading this newsletter, there is little doubt that you’re already familiar with Klaviyo, the behemoth marketing automation platform serving over 130,000 customers worldwide and truly the darling of the Shopify app ecosystem.

Late Friday, Klaviyo dropped their S-1, which is the document a business files with the SEC before going public, and it did not disappoint. The beauty of a company deciding to go public is that suddenly, all of their business information becomes, well, public, and there is a lot to learn.

Overview

Klaviyo is a profitable, fast-growing business that is maturing beyond its roots as an SMB email marketing tool into an enterprise customer data and marketing automation platform (Klaviyo One). With recent product launches of SMS and reviews, Klaviyo is expanding its offering to take over “owned channels” for its customers, but the jury is still out on the success of that transition.

After bootstrapping profitably for 3 years, the company maintained its capital efficiency, and despite raising about $450m, it still has nearly all of that on its balance sheet today. The founders, Andrew and Ed, still own over 50% of the company even after taking a collective $80M off the table in 2021. Bravo!

The Numbers

When compared to other public SaaS companies, Klaviyo is impressively in the top decile or quartile in nearly every metric that public investors look at.

In the last twelve months, Klaviyo did $585m in revenue, growing 57%, and recently crossed into profitability in the first half of 2023. Its gross margins have improved significantly to 75%, but they expect gross margin to decrease as more revenue comes from SMS, which is traditionally a lower margin given the cost to send a text (hello push notifications).

Klaviyo has over 130,000 customers at an ACV (annual contract value) of about $5k/yr, with nearly 1,500 customers paying over $50k/yr. Revenue from customers paying over $50k/yr is growing nearly twice as fast as the overall business at 94% YoY, which makes sense given their move upmarket.

Their customers tend to stick around and expand over time with best-in-class NRR (Net Revenue Retention) of 119%.

Investors often look at a metric called the “Rule of 40,” which is the sum of LTM (Last Twelve Months) growth rate + FCF margin. Klaviyo’s impressive 65% (57% growth + 8% FCF margin) is truly best in class and shows the company can grow fast while remaining efficient, which bodes well for the long-term health of the company.

Finally, 95% of Klaviyo’s revenue comes from retail/ecommerce, and 77.5% of all revenue comes from Shopify merchants, which shows there is still a lot of market concentration amongst their base, but it also shows the opportunity for growth if they can successfully transition into other markets and ecosystems.

Takeway

Klaviyo is world class business on nearly every vector, but huge success in the public markets will hinge on them sticking the landing on a transformation of their business from an SMB email platform into a true enterprise customer data and marketing automation platform which will be no easy feat. The move upmarket also exposes them to competitive threats in the SMB to mid-market segments which gives newer entrants like Sendlane a chance to build great businesses focusing on serving the SMB and mid-market customer base.

All this said, Klaviyo is the first true “Shopify app” to go public and the size, scale, and quality of the business bodes well for app developers in the ecosystem. Not everyone will grow up to be Klaviyo, but it shows its possible to become a massive company in the Shopify ecosystem, and even a business 10% the size of Klaviyo is a business to be proud of that will make a lot of founders and investors happy.

ASIDE - I can remember when I was on the VC side of the table passing on companies because of “Shopify platform risk” or the “TAM” (Total Addressable Market) was too small inside the Shopify ecosystem. Well, Klaviyo simply puts that logic to shame with its nearly $500m in annual revenue coming from Shopify merchants despite Shopify having a directly competitive offering, so that shows how much I knew I guess.

Congrats again to the entire Klaviyo team, and the Shopify ecosystem is cheering for a long and prosperous life as a public company!

This Week’s The D2Z Podcast

#72 – Modern Agency Insights and the AI Revolution with Jon Snow

🎧 Listen Now 🎧

In this week’s episode, I sat down with Jon Snow, Co-Founder of the Snow Agency and now CIO of Avenue Z, a PR and digital media company. Jon’s background from dentist to multiple successful entrepreneurial exits is fascinating and one you won’t want to miss! Specifically, we explored the following:

💰 The journey from an affiliate marketing platform to a Shopify holding company to one of the fastest-growing Shopify agencies in the world.

📲 How public relations and paid media can synergize to create compelling narratives that scale to reach the right audience at the right time.

😎 How to balance work and life in a way that allows for massive success.

🚀 How AI is revolutionizing the online marketing industry.

App Updates & Highlights - Klaviyo CDP

Klaviyo preceded its S-1 filing with the announcement of Klaviyo CDP, allowing brands to more effectively unify, manipulate, transform, and activate data in Klaviyo.

Traditional CDPs were built to centralize and prepare data for marketing analysis, but only elsewhere. The amazing part? Klaviyo CDP requires zero additional setup or implementation and allows you to action the data within its own platform.

So what does this mean for brands?

A Single Source of Truth

Eliminates the need to manipulate data in disparate systems.

No-code Data Transformation

Analytics

RFM (recency, frequency, and monetary value) analysis to group customers based on purchase behavior. Audience performance summaries to address negative trends and compare audiences. Funnel analysis to identify stages in the customer journey to improve conversion.

Personalization

Group Membership API

Allows you to query a website visitor’s segment or list membership to deliver dynamically personalized web experiences.

Data Warehouse

Pre-built data warehouse syncing with Snowflake, Redshift, BigQuery, Azure, and Amazon S3.

Pricing

Starts at $500/mo for 100K profiles.

Upcoming Events

I’ll be in South Carolina 9/10-9/12, Chicago 9/16, and LA 10/2-10/6 for the Shopify Enterprise Partner Summit, and Cleveland 10/8-10/11 for the Forbes 30under30 Summit.

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