
Twice as happy customers means half the marketing spend - bemmu
https://www.candyjapan.com/behind-the-scenes/twice-as-happy-half-the-price
======
icc97
I love this post - it gets across a fundamental concept that pretty much
anyone can understand, which is non-obvious.

What I love, that other's here seem to grumble about, is that he's not using
any specific terminolgy. He doesn't mention 'churn', he doesn't mention
'geometric' series, he only has one '=' in the whole text.

You can print out this article (ignoring the python bit) take this down to
your local baker/cafe/<insert non-tech business owner> that's full of stupid
marketing billboards but sucks at customer service and show it to them.
There's a good chance they'll understand.

Frankly I liked it because I could easily follow his logic without slowing my
reading. There was parity between my understanding speed vs my reading speed.

Plus no-one here seems to be grumbling that he's _wrong_ , just that they can
say it in a different way.

~~~
Grustaf
What exactly is it that the local baker will understand? That he should avoid
losing clients?

~~~
jliptzin
That maybe he should work on improving his cupcake recipe instead of expensive
billboards, hiring a sales team, and wasting money on facebook ads.

~~~
Grustaf
Don't most people know this without math, that acquiring new customers is more
expensive?

~~~
dennyis
Local business owners are hounded by marketing companies everyday promising
the moon. Marketing seems like the great Panacea, but no one is reminding them
that going over the top with current customers could potentially create a
higher return.

$250/mo on Yelp ads gets a few dozen eyeballs on the business.

$250 in free product every month to regular customers creates Fanatics who
tell ever, and could possibly get just as many of their peers eyeballs with a
FB/IG post about their experience.

A lot of people forget the basics because it's not being sold.

~~~
Grustaf
Sure, but still, I don't see why you would need to look at asymptotes and
convergence. It's enough to look at individual customers and ask the baker if
he thinks it's easier to attract a new client than to stop an existing one
from leaving.

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patio11
The falls out of the fundamental equation for SaaS and other subscription
business models:

LTV = prospects * (conversion rate to paying) * (average price point) / churn

This makes a 5% increase in prospects, conversion rate, or price cause a 5%
increase to LTV (and, eventually, to the enterprise value of the company). A
5% decrease in churn (measured against one's current churn rate, e.g., 5% ->
4.75%) has a slightly more than 5% impact to LTV / enterprise value.

So many decisions about running a SaaS company fall directly out of this
equation. Competent SaaS operators memorize it or, for less mathematically
oriented operators, can at least summarize the relationships implied.

~~~
dfee
If you're measuring the LTV of your pipeline, then yes.

The challenge is measuring duration (retention length) -- especially early on
when campaigns are typically run single threaded and have an outsized impact
on LTV of individual cohorts. I.e. My company is 18 months old - what's my
LTV?

One approach is factoring in the period-churn-rate (if measuring MRR then
considering monthly churn). But again, modeling isn't always super defensible.

~~~
brockf
Survival modeling is exactly what's needed for these situations. It allows you
to (a) consider censored data (i.e., active customers who you know stay for
_at least_ X months) and, (b) use flexible survival distributions beyond the
standard exponential distribution assumed in the typical monthly churn rate
calculations.

Source: Run a data science company and we work on a lot of customer lifecycle
modeling projects with companies much younger than yours.

~~~
dfee
I've done a bit of survival modeling, but my purpose was to understand
retention across cohorts with certain attributes (typically, sign-up date,
though occasionally campaign).

I'm interesting in how you've used this to model churn. Is there a blog post
or resource you recommend to learn more about this?

------
jasonkester
Yeah, that's the Churn Equation. The thing us SaaS folks spend most of our
time worrying about (whether we know it or not).

Given a constant influx of potential customers at a known conversion rate,
along with a known churn rate of existing customers, you can find an exact
dollar figure that you will eventually plateau at.

It sucks. Especially when you're starting out because the "In" side of the
equation is small and there's not much you can do about it.

Fortunately, as the article points out, there are a few knobs you can tweak.
Churn is a nice one, since all it takes is a good product. Conversion is
harder, because it involves dark magic like sales and psychology and web
design skills.

Once you get it figured out, though, there's another formula you can use to
determine how much you're allowed to spend to pour one new user into the top
of your Trial funnel. If you can get that up to a level that justifies
advertising, you can open the valve as far as your budget allows and start
moving that plateau point upwards.

EDIT: I've been writing about this stuff lately, if anybody else likes geeking
out on it:

[http://www.expatsoftware.com/Articles/things-worth-
knowing-a...](http://www.expatsoftware.com/Articles/things-worth-knowing-
about-your-trial-users.html)

------
mosselman
I was a customer of Candy Japan for a while (3 months) and I really liked it.
The candy selection was very interesting and fun. A while back I tried a
competitor and their selection was very boring and the candy they sent didn't
feel very special.

The reason I cancelled with Candy Japan was that I found it a lot of money for
candy. Not so much a lot of money for the service. Also, candy is just
unhealthy, so I am probably better of spending that amount on fruit and
vegetables.

Overall the candy selection is what would make me choose Candy Japan over a
competitor if I would ever choose a candy service again or recommend one to
friends.

~~~
rwmj
Healthiness is a factor. I wonder if they would be more successful if they
delivered less often, say once every 3 months.

~~~
hn_user2
Or maybe an email prior to shipping.

"Want to send this months shipment as a gift to someone else? Click here to
change this months delivery address."

------
mherrmann
I think this is highly relevant for the early stages of a product: Do you
focus on retention or marketing? I'm developing a cross-platform file manager
[1]. My current problem is that even tough 20 people download it every day,
only 2 use it more than once in the first week. Existing users ask me for
1000s of features. But the real problem I need to overcome for growth is that
I lose so many first-time users. That's a problem with onboarding, not with
features. I blogged about this [2].

[1]: [https://fman.io](https://fman.io)

[2]: [https://fman.io/blog/desktop-app-funnel-
optimization/](https://fman.io/blog/desktop-app-funnel-optimization/)

~~~
annnnd
Retention! Always focus on retention. If people keep using your product then
you have product market fit. If they keep leaving - you have an uphill
marketing battle.

~~~
Retric
Another consideration is getting customers to come back is vastly easier sell
when they liked your product. So, you retention over years can end up
significantly longer than the average subscription length.

------
eterm
This really overcomplicates the mathematics.

Steady state implies Leavers = Joiners.

If 100 people join each month then you'll have steady state when there are 100
leavers, i.e. when 50% of N is 100. N * 50% = 100 solves to N = 200.

In general with X% attrition and Y people joining you'll have a steady number
of subscribers N using the formula

N * (1 - X) + Y = N

Which can be rearranged to N * X = Y.

~~~
smallnamespace
I'm constantly amazed at the lengths some coders will go to in order to avoid
doing a couple of lines of algebra. Have seen people code up complicated Monte
Carlo simulations, with all the attendant estimation noise, when basic stats
and algebra gives the exact answer, sometimes even as a one-liner.

Serious question: Is it simply a strong math phobia, or have people neglected
the skill for so long that they've actually forgotten middle school level
maths?

~~~
Grustaf
I think it's just lack of basic algebra skills. If you have never been taught
to think about math in an abstract way, you will naturally approach problems
this way instead.

In Ancient Egypt for example when they needed to explain things like the
Pythagorean theorem they would give examples, because there was no concept of
abstract variables yet. I think this is similar.

In the same way, many people are comfortable working with vectors,
transforming them with matrices etc but they have never been taught to think
of transforms in an abstract way. So if they want to check if a certain matrix
actually performs the transformation they want, they apply it to a bunch of
random vectors to see if it's reasonable instead of just checking what it does
to the base vectors, because they have no real concept of linear transforms,
and only vague ideas about dimensionality and degrees of freedom.

To some extent it IS phobia, because if you just want to rotate a vector 90
degrees you don't really need concepts of orthonormal transformations so you
might be reluctant to look at it that way, but if on the other hand abstract
algebra is very natural then the abstraction is trivial to do, it just makes
things easier.

~~~
sdiq
Any linear algebra book you would recommend for self study?

~~~
TeMPOraL
I'd like to shift this question a bit - there are plenty of resources for "
_linear_ algebra for coders" (since they're in high-demand in gamedev
circles). But what about recommended books for the _abstract_ , general
algebra? You know, all those rings and stuffs.

~~~
mikebenfield
Abstract algebra is a massive field, the vast majority of which has little
applicability to writing code, so it's hard to know what to recommend without
knowing why you want to learn it.

If you're ready to get very serious with mathematics, I like Algebra by Mac
Lane and Birkhoff. (Note that this is a different book from A Survey of Modern
Algebra by the same authors, which I'm sure is okay, but... a different book.)

If you're not ready to get very serious with mathematics... well, then why do
you want to learn algebra?

~~~
Grustaf
It may have little direct application to writing code but abstract algebra
will definitely make you a better person... And like so many other things, it
helps you indirectly to tackle problems in different ways and see them in a
new light. Just being the most efficient coder possible is a pretty sad goal.

PS I agree about Mac Lane, he's great

~~~
mikebenfield
> Just being the most efficient coder possible is a pretty sad goal.

Well, I agree, but life is short. Why learn algebra rather than complex
analysis or probability theory or functional analysis or differential geometry
or mathematical logic or general relativity or quantum mechanics or any one of
dozens of other topics from physics or mathematics that will almost surely
seem more interesting and fun to a non-mathematician? (Not to mention non-
mathematical topics...)

~~~
Grustaf
I think group theory is both very useful and interesting. There’s no need to
get into Galois theory but the basics are definitely applicable in everyday
life.

I agree there are tons of other things that people should study, like basic
linguistics, relativity, quantum physics, optics etc. Geometry should be on
top of the list, for as Plato said “let no one ignorant of geometry enter”.

But I don’t think time is an issue really, if you just spend an hour or so
each evening reading you csn quickly get a basic understanding of lots of
topics in not thst many years.

------
wjnc
A practical application of a geometric series [1].

Before my study of statistical distributions I once re-invented the Poisson
distribution. It took one look of my physicist colleague to give everyone a
good laugh. That was the moment I decided an economists needs more than linear
models, the normal distribution and some non-parametric tests.

[1]
[https://en.m.wikipedia.org/wiki/Geometric_series](https://en.m.wikipedia.org/wiki/Geometric_series)

~~~
raverbashing
Yes, there's no need to do the actual sum, there's a closed formula for that

------
laumars
> _For simplicity suppose 50% of people cancel every month. That means that if
> I do some clever marketing and manage to get 100 new people to join, then
> after a month 50 of those would be left. After another month, 25 of those
> would be left and so on._

> _Because of this fall-off, even if you run a subscription business forever,
> you will not have infinite customers. Instead you reach a steady-state
> number._

You should also factor in returning business as well as new business. eg I'm a
very happy customer but since this is a luxury it is often the first thing I
cancel whenever money gets tighter. For example when moving house or, most
recently, when my wife gives birth to our new baby girl. However when finances
stabilize again Candy Japan is often one of the first luxuries I re-subscribe
to again.

I'd also like to take this opportunity to say thank you for providing such a
great service. The extra effort you put in with regards to the emailed
descriptions of the candy as well as the mixture of normal and alternative
snacks make it an absolute delight receiving the box.

------
eddz
Good post, but it does not consider conversion of former customers.

I develop a subscription service which launched in January and now has ~9,000
MAUs. This above metric accounts for ~10% of "new" subscribers each month,
despite not yet making an effort (such as by sending reminder or "sorry"
emails) to re-capture them.

The post does make a good point about retaining existing users, though.

I would like to add that we saw MAUs spike when redesigning the cancellation
process to be more thankful and apologetic than spiteful. (Being a service for
Japanese users, we included a little "thank you bow" animated character at the
end of the process.)

One more point – our cancellations for the first days of the month often come
close to outnumbering new users. We have concluded that the reason for this is
that users 1. perform their financial housekeeping around this time, and 2.
find a low-numbered charge date easier to remember.

~~~
hammock
Not just easier to remember but related to payday.

------
cbhl
What are your thoughts about Amazon moving into the subscription box business?

[https://www.amazon.com/b?node=14809330011](https://www.amazon.com/b?node=14809330011)

------
no_gravity

        Even if you run the business for a million years,
        you will still only have 200 members.
    

If the churn rate is steady. It usually goes down over time though. Because
long time customers have a lower likelihood of canceling.

In other words: The past does not equal the future. If you look back on your
business and see a churn rate of X%, you can expect a lower churn rate in the
future. Because the "survivors" will have a lower churn rate then new
customers.

In e-commerce, this effect often is pretty significant. I know multiple
online-shops that make the majority of their business with long time
customers. Even though over 50% of new customers drop out after the first
month.

------
koliber
There's an old saying: It's a lot more expensive to acquire a new customer
than to keep an existing one from leaving.

------
maweki
Main takeaway: The function f(x) = 0.5*x + 100 has a fixed point at x = 200.

------
exabrial
Most annoying thing ever: instead of "Disable this feature", you get "No not
now".

Stop forcing things down peoples throats. If you are making a great feature or
product, it wil sell itself without a heavy hand. I've determined this is a
way to tell who is struggling with innovation and who is leading the way.

------
cluoma
Implicit here is an assumption that the lifetime of subscribers is
exponentially distributed. Which may or may not be the case.

~~~
patio11
"Churn rates are constant given age" is a model which is generally false-but-
useful at SaaS companies, particularly for ages over 2~3 billing periods
(months), while folks are basically on extended trialing before really
deciding on adoption or not.

------
cdevs
My companies current scenario is about 64% renewal rate from all years before
but a 50% of that is from the year before current and 25% percent of that is
from 2 years before current and so on and so on..

So how does all this differ if you're looking at renewal from year before and
renewals from all time ?

------
vmp
I don't suppose CandyJapan has something for the lactose intolerant? :)

~~~
kristofferR
Why not just use lactase enzymes instead, way easier than always finding
lactose-free products.

~~~
baxtr
Because you have to have a supply of lactase pills always readily available on
you.

I often forget my pills and thus rely on lactose free products, e.g. Lactose
free cappuccino... which by the way is much easier to get in Germany than in
the states (for whatever reason)

~~~
kristofferR
I had the same issue, but I got a metal pill keychain holder from Ebay for $2
that helped a lot.

I also think this is quite different since it's an order process, where the
candy naturally stays at home except when you bring it somewhere, and then
it's not too hard to remember to also bring some enzymes, versus randomly
discovering an appealing lactose product when you're out.

~~~
baxtr
The keychain holder is a good idea, never thought of it. Will check it out :)

------
petraeus
The reason developers don't use math is because it never fits the real world
models.

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majortennis
100+50+25= 175

~~~
robotnoises
Keep going!

------
JoelEmbiid
Python and first checked the previous result

