I wrote this blog post for my friends at the Subscription Trade Assocaition, where it still is posted.
As a child, I ran to the mailbox at the end of the drive once a day, hoping for a new issue of Readers’ Digest or Popular Mechanics. Although my dad subscribed to these for content, I would anticipate and devour each new edition with joy. At least twice per month, I did not have to work to find something new to read. And the sheer surprise of what would be in each issue intoxicated my younger self.
Now, in middle age, I rush to the mailbox to retrieve the box that contains my shampoo. Or clothes. Or printer ink.
Convenience is addictive, and so is joy.
So how do you build a company around consistently providing joy and convenience every month? Or whenever?
As you think about starting a recurring-revenue business, or transitioning to a recurring-revenue business model, here are the top 3 things you should know before you start.
- It’s not about how many clients you have, it is about how many clients you’ve lost.Replacing a client is costly. Subscription-based businesses invest in and heavily monitor client retention rates. The economics of maintaining long-term clients are well publicized, so find a benchmark for your industry and do not settle for less than the average.
- Don’t be a snowflake—so use the same metrics everyone else uses to measure your subscription business.Subscription-based businesses were not invented when the cloud replaced your hard drive. For at least 20 years, managers and investors of recurring-revenue businesses have settled on a standard core of metrics to measure the health of these businesses. These include such measures as life time value, client acquisition cost, churn rate, etc. It sounds basic because it is. Don’t complicate the math. Do what others have done before you. Here is not the place to be special.
- Well-run processes are a competitive advantage to a subscription-based business.As an on-demand CFO, I have seen small errors across as few as 1,000 monthly credit card charges bring companies to their knees with the increase volume in support calls, cancellations, and accounting corrections. Simple mistakes are amplified when the transaction volume increases and the same clients are “touched” all the time. So be better than your competition at some of your basic processes and make operational excellence a core competency.
Want to know more about how to maximize your subscription-based business? Join me at SUBCOM 2017 in San Francisco on November 14 & 15, where I will be leading a session on removing the top 5 impediments to growth.
SUBCOM 2017 focuses on common challenges with subscription across all industries and verticals, including SaaS, media, OTT, CPG, retail, consumer & business services, and more.