How I decided the price for my Japanese candy subscription service

This is just a small update to show that Candy Japan is alive and well. There are now 180 subscribers. My ramen-profitability line of 300 subscribers is fast approaching.

In my previous posts I revealed the initial price I came up with, 16.50 EUR. That is about 23.95 USD / month for this club. For this price the subscribers get two envelopes of candy each month. Why this price?

Of course I realize that my costs have almost nothing at all to do with what the right price is, but just to test the viability of the idea I settled on starting with cost plus pricing.

It is based on the following estimated costs:

• 6.84 EUR for shipping, 400 yen twice a month.
• 3.42 EUR for the actual candy. Yes, it disappoints me that this is not a larger part. But on the other hand more spent on this would mean it could not fit in the envelopes.
• 0.91 EUR for PayPal fee.
• 0.80 EUR for packaging materials, including some leeway to allow for fancier custom packages in the future.
• 0.74 EUR for hiring part-time help to make the packages. I guessed it would take 2 minutes to create each bi-monthly package. It would cost about this much to hire a starving student at a typical 1000 JPY / hour to do it.
• 0.40 EUR similarly for the time spent responding to customer support emails.

Total estimated costs 13.11 EUR / month. This leaves a pre-tax profit of 3.39 EUR / month per subscriber if I calculate it Groupon-style, totally ignoring marketing costs. Later on I plan on starting to test different price points. I already started A/B testing the landing page for layout modifications, the price will be a similar test.

The marketing costs are nebulous. They might turn out to eat up all the profit.

I am not tracking this accurately yet, but with 180 conversions from 15800 visits the conversion rate is about 1.13%. All of this traffic is from various blogs that already explain the idea of the club, so probably most of the people visiting were already considering to buy. This means some other channels might do a lot worse.

As a starting point with 88 visits required for a conversion, at 0.20 cents per click I could get a customer for 17.60 euro. If they subscribe for at least 6 months I would be at break-even. This is pure fiction of course since I have no idea what the conversion rate for AdWords or other paid channels would be, what a click would end up costing or even what my average subscription length will be.

It might be that reaching out to bloggers to cover the service is a better way to grow, but can that be sustained over a long time?