In plain words
A welcome gift is something extra in a subscriber's first box: a mug, a scoop, a printed guide, a sample. It is there to make starting feel worthwhile, and it does not come again.
Because it ships once, it belongs to the first order's costs and to no other. Charge it on every order and renewals look worse than they are. Leave it out and the first order looks better than it is. Both mistakes distort the one comparison a subscription depends on.
Formula
- First-order margin = first-order price − recurring costs − first-order-only costs
- Renewal margin = renewal price − recurring costs
Worked example
The coffee subscription's first box holds the bag, a $4.00 mug and a printed insert that costs $0.85. The engine charges the mug and the insert on the first order only, which keeps $2.94 of its $32.00.
Each renewal ships the bag alone. The engine charges $0.00 for the insert there, and the renewal keeps $11.68.
The example order
A $40.00 bag of coffee, shipped free, every cost counted
2 declared kinds cost nothing on this option
| Step | Grain | Amount |
|---|---|---|
| Revenue | – | $40.00 |
| Cost of goods | per unit | −$12.00 |
| Pick and pack | per order | −$1.18 |
| Packaging | per parcel | −$0.50 |
| Shipping label | per parcel | −$7.50 |
| Card fee per order | per order | −$0.30 |
| Refunds | percent | −$2.00 |
| Card processing | percent | −$1.16 |
| Contribution margin | – | $15.36 |
| 2 kinds costing nothing | – | $0.00 |
Computed by the margin engine in Offer Suite's own code, in whole cents, from a $40.00 bag of coffee with a $12.00 unit cost.
A welcome gift is not a gift with purchase
A gift with purchase is repaid by the one order it ships with. A welcome gift is repaid over the renewals that follow. That lets it be more generous, and it also means it is wasted on every subscriber who cancels before the second order.
Using it
Add the welcome gift to the first order's loss, and ask how many renewals it takes to earn back. Then look at the first renewal's rate with and without the gift. A gift that wins subscribers who leave after one box has raised your acquisition cost without raising what you earn.
In Offer Suite
In Offer Suite a line that does not recur ships on the first order only, and a cost kind can be scoped to first orders. A renewal is costed without either.
Source: Offer Suite's margin engine.