This time-tested pricing model could lift your revenue and customer base.
Subscription business models have been around for 460 years, dating back to 1556 when the government of Venice first published the monthly Notizie Scritte. This monthly publication cost one gazetta (a small coin) and customers have been attracted to the “pay as you use it” model ever since.
Today, subscriptions and memberships surround us. Here are a few examples you may interact with daily:
» Memberships: gyms and clubs
» Subscriptions: magazines
» Auto-renewal subscriptions: software companies
» Installment hard contracts: mobile phones
» Sunk money subscriptions: Bloomberg Terminals and Amazon Prime
» Sunk money consumables: razor blades, Keurig refills
What if you could be on the other side of the transaction? Mailbox money, or recurring revenue, in the form of subscription payments makes owning and managing a business so much more enjoyable.
Here are eight reasons your business should offer a subscription or member-ship component:
Eliminate Marketing Investment Waste // Many marketing campaigns can be costly and drive little value. Instead of wasting time and money on tactics that don’t work, focus on quantifiable marketing and member-subscriber engagement. Take what you know about your best customers and embrace that knowledge when developing new offerings. Your market research will be easier, and marketing transforms into a math equation for clinical decision-making, not dart-throwing.
Safeguard Against Flight Risks // It costs two to 10 times more to acquire a new customer than it does to retain an existing one. Lock your customers in by delivering an insane value exchange that will keep them happy and part of your membership base. Ultimately, you want them to be your biggest source of referrals. Happy customers = organic growth.
Even Out Demand // Would you like to own a company with lumpy demand for your products and services—or would you rather have a nice, smooth demand curve? Playing mailbox roulette to see if checks have arrived is enough to send the most seasoned entrepreneur into a panic attack when cash flow tightens. Managing cash flow is easier with a less volatile, smooth demand curve.
Expand Core Offering in Adjacent Product and Service Areas // Engaged customers naturally become more involved in your business, which typically means an interest in other products and services that tie to their core membership. Use this to your advantage by upselling and cross-selling to your existing members.
Automate Recurring Sales // Your members are busy and don’t have time to keep track of every account that needs to be renewed. Don’t let them forget about you. Make it easy by automating your sales and renewal process. Your sales forecasting and tracking will be simplified as a result. Just don’t make it hard for them to cancel, please.
Increase Lifetime Value (LTV) // One of the toughest business achievements is taking a customer from $0 to $25. But what if every year, you doubled that? That’s a huge achievement and one that will take your business to the next level.
Set Your Company Up for Long-Term Success in Any Economic Environment // Customers who see value in their subscription are inclined to remain loyal no matter the economic environment. The trickle-down result is business protection for you in any market. The lower installment payments your customers make to your company help keep you on their household budget or company P&L.
Increase Your Company’s Value // You company’s value will be greatly increased by having repeat sales from loyal customers. Your recurring revenue line(s) allow investors or an acquirer to reduce risk in the transaction. Reduced risk warrants a higher valuation or sale price.
Next Steps // Take a quick look at your bank or credit card statement. Notice all of the following recurring payments you make every month: utilities, housing, transportation, tuition, entertainment, technology, communication, health and fitness … the list is endless.
Is your company showing up regularly on customer bank statements? If not, write down two to three ideas right now that you can implement in the next four weeks.
Kevin Oldham is the founder of Diffactory, a marketing and growth consultancy focused on e-commerce, licensing and subscriptions.
(816) 287 -2010 // firstname.lastname@example.org // www.diffactory.com