Community-supported business models provide an opportunity not only to raise local awareness for your venture, but also to generate revenue for your products from subscribers who trust you.
A wide range of food ventures can reap the benefits of offering prepaid subscriptions by returning up-front investments with their chosen products.
Photo by Fotolia/Pathathai Chungyam
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You are probably familiar with some form of community-supported agriculture, or CSA. The earliest CSAs in the United States were based on models already popular in Europe and Japan. In these traditions, farmers and a community of eaters add up the farmers’ total costs of living for one year, including operating the farm itself, and divide that by the number of members who commit to being part of the community. Each member pays a share of the farm’s costs, usually in advance of the growing season, and receives a share of the farm’s produce every week. In true CSAs the farmers have no other source of income outside of the cost shares contributed by the association of CSA members.
These days CSAs like those just described are rare. When most people think of CSA, they think of prepaid subscriptions for weekly boxes of produce. And the benefits of this model are no longer limited to fruit and vegetables. A wide range of food ventures can reap the benefits of offering prepaid subscriptions, in which the return on investment up front takes the form of products, usually of the producer’s choosing. There are also community-supported bakeries, dairies, restaurants, and other types of food businesses that raise money by selling gift certificates or other forms of stored value that customers can redeem for their choice of products later on. This chapter covers these forms of community-supported financing.
The city of Gloucester, Massachusetts, is the oldest settled fishing port in the United States and home to a community-supported fishery (CSF) program. In 2008, the Northwest Atlantic Marine Alliance (NAMA) brought local fisherpeople and other concerned citizens of this coastal town together to start thinking about a way to preserve the working waterfront and its fishing infrastructure, which was under threat from development pressure. That same year NAMA also started the Fish Locally Collaborative, bringing together a diverse set of stakeholders representing fisherpeople, local fishing families, seafood consumers/users, local community-focused marine and social scientists, and other fisheries advocates with a clear mission: the recovery and maintenance of marine biodiversity through community-based fisheries. The Fish Locally Collaborative creates tools for fishing communities to succeed at changing the marketplace and policies that put them at an economic, social, and ecological disadvantage. “Most of the stakeholder initiatives in the past only included members of the fishing industry, but this time we wanted to broaden it to the eating part of the community as well,” explains Niaz Dorry, a tireless advocate of the rights and ecological benefits of the small-scale fishing communities as a means of protecting global marine biodiversity. Based in Gloucester, she is also coordinating director of NAMA.
The Fish Locally Collaborative meetings unearthed some of the unique opportunities and challenges in Gloucester. “Though it is under threat, Gloucester still has a fishery infrastructure here. Some fishing communities do not, such as Port Clyde, Maine, where the nearest markets and buyers are three hours away,” Niaz explains. Fish buyers are very much part of the community in Gloucester, and most shared fisherpeople’s concern about the possibility of losing the fishing infrastructure; they also welcomed the possibility of improving it. “We also realized that fisherpeople here had a reputation for being extractors. This was because most of the small-scale fishermen had lost power to the larger, extractive boats that did most of the damage to the fisheries. Unfortunately, they also did most of the lobbying,” she says. “Many of the small-scale boats were edged out of the market because of that.”
The Gloucester Fishermen’s Wives Association joined the conversation, bringing in its deep roots and knowledge of the community. The combined group determined that a CSF could solve many of the issues they faced in Gloucester, provided it could do the following: it had to highlight the role that the remaining small boats could play in achieving marine conservation and providing local seafood while helping maintain and preserve the community’s fishing infrastructure. And eventually the CSF would need to help channel that awareness into political action. The Cape Ann Fresh Catch community-supported fishery was born and made its first deliveries in June 2009. They offered two different whole-fish share options, of five and ten pounds each. The response was far greater than anyone expected. “We hoped one hundred people would sign up in the first year,” Niaz says, “but the CSF started with eight hundred!” All in all, Cape Ann Fresh Catch netted nearly $1 million that first year. Twenty percent of this went to the Gloucester Fishermen’s Wives Association to cover administrative costs. The fisherpeople themselves received about 30 percent more than the traditional market would pay them for the part of their catch that ended up in the CSF.
Of course, any community-supported program needs ongoing maintenance to keep shareholders in the loop and happy over time. Cape Ann Fresh Catch has had to carefully communicate issues to members, such as why they couldn’t honor all of their delivery dates or extend the season in the winter of 2010, when strong winds prevented small boats from going out, or why they chose to include cod in the CSF shares. “There’s such a stigma around cod. People have this idea about what sustainability means when it comes to seafood. They assume all cod is bad,” Niaz reports. “The ocean is made up of microecosystems. If you’re getting cod from some parts of the sea, particularly offshore, where the huge boats fish, that’s bad. But in some parts of the sea, particularly near shore, where small boats fish, cod is considered a healthy fishery now.”
Despite these minor setbacks, the Cape Ann Fresh Catch CSF has been a huge success and an inspiration to many other communities. Nearly thirty CSFs have started in North America with the help of the tools NAMA and the Fish Locally Collaborative created, including financial forecasting tools, best practices, principles, surveys, and public outreach materials. Niaz points out that the usual system of economic efficiency in fisheries — bring in the greatest possible volume of fish, even if that means earning less per pound — leads to environmental destruction, while also destroying communities. “In terms of sustaining the local economy, we designed a system in CSFs where the fisherpeople are paid more for the fish they catch, versus having to catch more fish.” In places such as Port Clyde, Maine, the CSF was the catalyst for rebuilding the community’s infrastructure and bringing a processing facility back to town. In many coastal communities with CSFs, cooperatives have started to give fisherpeople more negotiating power and control over their livelihoods and their impact on the ocean. Just as important, the CSF conversation has sparked a broader debate around sustainability of seafood. As a result, NAMA and the Fish Locally Collaborative are now working to scale up the model to reach institutions, in particular health care, that are looking to go deeper than the previous standards they used to define sustainability. This work has led to a regional look at aggregation, processing, and distribution needs of the fishing communities in New England and how community-supported models can help achieve those.
There are plenty of financial benefits to prepaid subscription models. One is that your shareholders, members, and subscribers are more likely to understand should you find yourself in the position of needing to make compromises (such as choosing to use less expensive, nonorganic feed for your chickens rather than raise the price of your eggs). Another is that they may be more likely to trust your own reports of environmentally and socially responsible practices, saving you the time and money required to secure formal certifications. You can also use your subscriptions to move products that you might have a difficult time selling in other contexts, such as cosmetically challenged items that don’t meet the size or visual quality standards for your other sales channels but are otherwise fine. (This isn’t to say that you should try to fleece your subscribers by giving them subpar products; you still need to set expectations and effectively communicate what you are doing and how preventing waste benefits everyone.) In the case of farm-based businesses, you’ll likely do the majority of your marketing for your subscription program before the season even begins, giving you more time to spend your energy in the fields or marketing to other types of customers when the season is in full swing. Subscription programs that encourage members to pick up their shares at retail locations also encourage your loyal customers to walk through your doors more frequently. And who knows? They might be tempted to buy items not in their regular share while they’re at it.
The subscriber benefits of community-supported subscription programs vary depending on how each is structured, and there are several choices that you can make during the design process. “The first thing that you need to do is really understand the purpose behind your community-supported program, and from that you can pick the right model,” says Niaz. “I’m not interested in just pushing seafood. I’m interested in pushing broad social change that comes from community-supported fisheries,” she explains. “In different communities there are different needs to meet and different challenges to overcome. So we have to use a variety of different models.”
Here are some of the subscription program design decisions you will need to work through:
• Which stakeholders to include in the program design process. This will depend on many factors, including the motivation for starting a subscription program, how deep a connection you hope to foster with your community, and your willingness to engage in group process. Many organizations and individuals contributed to the design process for the Cape Ann Fresh Catch CSF program, but this need not be the case. Frequently, farmers or retailers will design an entire subscription program based on their own assessment of what would be most helpful to the business at that time. In this case it’s prudent to conduct some market research to determine whether or not your community members will accept your pricing and subscription structure.
• Whether to collaborate with other producers or retailers. This kind of collaboration can take a variety of forms, from working with other producers to design a whole program to simply purchasing goods from another producer to include in your own subscription. On the one hand, supplementing your own offerings with produce or products from other sources might increase interest from members who seek variety. On the other hand, this might make your community-supported program less attractive to customers who want to have a close relationship with the business that provides their food. Know your audience, and weigh the logistical challenges of coordinating with other businesses to handle aggregating your products, collecting payments, and distributing shares.
• What to include in a standard “share.” If you are a farmer, will you include only vegetables or fruit from your farm as well? You may also decide to offer different types of shares, such as half shares for smaller families or shares that include value-added products. You could also sell things like eggs, fruit, or value-added products as add-ons rather than including them in a different type of share. Community-supported fisheries might offer one share type that includes whole fish only, another type that includes boneless filets, or a combination of both. Food processors or retail stores might offer a share that includes a standard “basket” of items each week, plus a surprise selection at the entrepreneur’s choice.
• Whether to offer your members any other choices regarding what they will — or won’t — receive in their share. Will you allow substitutions? As an example, I belonged to a meat CSA that offered members the option to exclude pork or goat from our weekly boxes of frozen steaks, roasts, and ground meat. We all received the same number of pounds of each type of cut, but we didn’t have any choice about which cuts or which species we would receive beyond those exclusions. You may be able to attract more members if you offer a higher number of options, but don’t underestimate what it will take to manage everyone’s different choices.
• How often to deliver shares. Depending on your business, you might encourage people to subscribe to a certain quantity of product every month. If your products are rapidly consumed staples (such as bread or milk), you could even offer weekly subscriptions. I have friends in San Francisco who subscribe to weekly deliveries of seltzer water; if you can find a market for your products at a retail location, you might be able to find people willing to prepay for a subscription.
• How much to charge for shares. This is a crucial calculation, particularly if you anticipate the majority of your revenues to come from the subscription program. Make sure you have a good sense of your overall costs of production so that you can charge enough not only to break even but also to pay yourself a reasonable wage, provide benefits, put some money aside to invest in any future business projects, and/or cover any other expenses that your values dictate are important to you.
• What discount — if any — to offer customers for paying the entire year, quarter, or month in advance. Entrepreneurs offering subscription programs usually offer larger discounts to customers making longer commitments in advance as a way to encourage this practice, which is the most advantageous in terms of your own cash flow. It’s still important to make sure that even the most discounted share covers the full cost of producing it, unless you build a premium into the usual share price to subsidize a number of shares that do not break even on their own. Some CSA producers do this in order to be able to offer steeply discounted shares to people who might not otherwise be able to afford the regular share price.
• Pickup or delivery location(s) and schedule. Will members need to drive to your farm, dock, or store to collect their shares? Or will you deliver the shares directly to members’ homes or to one or more locations closer to where they live? Sometimes members offer to host pickup locations, which works well if they have a secure and shaded area near their home that has enough space for the share boxes plus coolers if you need them. If you offer more than one delivery or pickup option, will there be an additional cost associated with any of them? In terms of timing, you might coordinate drop-off schedules with other regular delivery or farmers’ market runs already on your calendar, or you might prefer to stagger the deliveries to ensure that you have sufficient supply. Specify the pickup or delivery hours in the agreement. Don’t forget to ask members to return any boxes, cartons, or other packaging to the place of pickup if you want to reuse them. As an alternative to offering weekly half shares, which involve the hassle of packing and keeping track of boxes with different contents, you might offer your customers the option of receiving a share every other week.
• What happens if members cannot collect their shares. Many community-supported programs ask that members find someone else to collect their shares if they go out of town or cannot make it in person on a particular pickup day. This is entirely reasonable, particularly if you have offered a discount for paying in advance. If your business is not terribly seasonal and it isn’t problematic to skip a delivery, you might consider putting the members’ subscriptions on hold for the requested number of weeks and extending their subscriptions by the same amount of time.
• How to communicate any news related to your program. Many farmers include hard-copy newsletters in their members’ boxes. Others communicate with members using e-mail or post updates on their website, making it the members’ responsibility to check for news that might affect the pickup schedule, the contents of the share box, or other details related to life on the farm, in the kitchen, or wherever the action of the business takes place.
Gift cards, gift certificates, prepaid or stored-value cards, advanced sale coupons, scrip, community-supported certificates — no matter what you call them, they basically amount to the same thing: you raise money by selling pieces of paper, cards, or some other virtual form of value that customers keep and use later to purchase goods or services. When people talk about community-supported restaurants, bakeries, or other retail outlets, this is usually the financing model they are referring to. These models work for any food-based business that sells products directly to customers, including coffee shops, farm stands, booths at farmers’ markets, and food carts. Existing businesses can use this technique, as can businesses that have yet to launch, provided that the entrepreneurs have a compelling business and the charisma to make sales to people who have never tried the products.
As with subscriptions, you can choose to offer customers a discount to encourage them to purchase a gift card or other stored value. But unlike subscriptions, in which the entrepreneur usually decides what a subscriber will receive, here the customer decides what she will purchase. Still, you have quite a bit of flexibility around how you structure your prepaid, stored-value system, provided you record and track the transactions in a way that allows your customers to redeem their goods or services accordingly.
Before launching a prepaid sales program, you will have to make some decisions about the following:
• The value of the cards or certificates. If you are selling printed gift certificates, you might sell them at pre-specified values (for instance, each one is worth $100), or you might specify the value each time someone purchases one.
• The physical form that the stored value will take. If you print actual certificates, just make sure to incorporate some kind of mark or code to ensure that dishonest people cannot duplicate them easily. If you choose to issue credit-card-like cards with value that you load electronically, expect to pay something in exchange for this convenience; check with your existing merchant bank, as some do offer this service. Make sure that whatever form you choose is compatible with both the terms of your stored-value program and your point-of-sale system.
• Whether or not to offer a promotional discount. For instance, you may offer a 10 percent bonus for customers who prepay a certain value (e.g., they could pay $1,000 now for $1,100 in value to be redeemed later), or you might offer a certain discount off cards in excess of a certain value.
• Setting a redemption schedule. Though gift certificates are a great way to invite customers into your business, what would happen if everyone that bought gift certificates used them the very first week your new restaurant was open for business? Brand-new businesses in particular may want to encourage paying customers rather than gift card redemptions at a time when they really need cash coming in the door. Even established businesses may prefer to offer gift cards with staggered redemption periods to prevent a cash flow crunch right after the marketing period. When Claire’s Restaurant in Hardwick, Vermont, designed their community-supported restaurant program, they sold $1,000 worth of $25 meal coupons prior to opening the restaurant. Customers could use one per month (ten months per year, at the customer’s choice) over four years, preventing a rush of redemptions when the restaurant first opened. It also gives customers an incentive to keep coming back, month after month, year after year, to redeem their coupons. You might also consider structuring the coupons so that they can be used for only a percentage of the total bill, ensuring that at least some cash reaches the register with each visit. Or you could choose not to worry about this factor. “I’d rather my clients be prepared for the problem of too many gift card redemptions all at once than have to pay accumulated interest on a loan from a bank,” says Caleb Zigas of La Cocina. There are both federal and state laws governing the issuance of gift cards, particularly regarding expiration, so check for appropriate laws to ensure that your redemption schedule is legal.
• How to keep track of a customer’s balance. In the most accessible (but somewhat cumbersome) system, you can simply write down your customers’ balances on a sheet of paper that you keep at the cash register and train all cash handlers to manually subtract any new purchases. Electronic card systems, on the other hand, keep track of balances for you. Also consider questions such as whether you will offer cash change for purchases of less than the value of the cards and whether to offer replacements for lost or stolen cards.
• What to do if people do not redeem their stored value. Savvy retailers realize that people tend to lose their cards, forget about them, or just don’t get around to using them, resulting in a very high percentage of unredeemed gift cards and other forms of stored value. This means that you’ve essentially made a sale on goods you ultimately do not end up having to deliver. Although you might be tempted to count this in your financial favor (and many retailers do), be aware of the escheat and unclaimed property laws in your state, which may require that you return the value of unused gift certificates or stored value cards to the state after a certain period of time has gone by. Whether or not you choose to abide by these laws is up to you, of course, but it certainly does not foster goodwill in your community to design a system that you expect will short change your customers.
Not long ago the Northern California chapter of Slow Money realized that many small, sustainable, food-related businesses preferred to repay lenders in kind, with their products and services, rather than cash. It appeared to be a great way for these businesses to raise funds for improvements to their operations. “People get to know and love products from certain farmers, producers, and eateries,” says Arno Hesse, one of the leaders of Slow Money Northern California. “We wondered, why wouldn’t these customers pay for these purchases in advance? That would really help farmers and other food producers.” Arno and his fellow Slow Money Northern California members realized that there was no streamlined way for the businesses to promote this opportunity to existing or potential customers, handle the actual sales process, or keep track of each customer’s balance. “If you run a restaurant and sell print gift certificates, how can you predict how much a customer is going to spend?” Arno asks. “Giving cash back if they don’t spend the full amount defeats the purpose of prepaying.” For their part, the customers had no convenient way to keep track of their own prepaid balances either.
Enter Credibles, an online service that resolves these challenges and more. Arno had already created a system to track individual account balances for Bernal Bucks, an alternative currency for his neighborhood in San Francisco. With encouragement from Chris Lindstrom, a board member of Slow Money, they adapted the system for use with prepayments to sustainable food entrepreneurs. In 2011 Credibles.org launched as a platform that allows entrepreneurs to promote their business, collect prepayments, track redemptions, and view customers’ outstanding balances online. Customers can browse businesses that offer prepayment, use their bank accounts or credit cards to prepay businesses, and view their own credit balances. “We call these ‘edible credits’ Credibles,” Arno explains. “The platform is open to businesses that are ready or close to deliver. It’s not for start-ups or businesses that are still in the concept stage,” he says of Credibles’ sweet spot. “But if you’re in production mode and have produced before, and you need working capital or financing to expand your business,” he says, “that’s the type of business that we can help presell.” Arno has observed that food businesses feel empowered and proud to use their own products as a source of funding rather than asking for donations or just offering a proverbial T-shirt as a crowdfunding reward.
“Most of the businesses do offer an additional bonus for customers who prepay, either in the form of extra Credibles or through intangibles like invitations to special events,” Arno explains. “Customers can later redeem such bonus Credibles at other businesses on our platform.” Credibles can also be transferred to other people, meaning that customers can give them away as gifts to others. These features support the interconnectedness of local food systems, including the businesses and the eaters that compose them, and makes Credibles unique in the universe of online crowdfunding platforms.
To redeem Credibles with your business, you can use a computer or a web-enabled mobile device, such as a smart phone or tablet. Instead of running a credit card transaction, you (or the person handling your cash register) will go to the customer’s account in the Credibles system and deduct the dollar amount of the Credibles that this particular customer spends for that transaction. “With Credibles you can make a transaction immediately, in real time, so both parties can see the current balance on an account,” Arno says. “Since the customer has a vital interest that the business stays around to make good on her store credit, chances are she’ll beat the drum in her network. This is good for the business and good for the community.”
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