We used to think of subscriptions as mostly for newspapers and magazines, but today you can subscribe to get makeup from Birchbox, mental health counseling from Talkspace, entrepreneurial wisdom from Mixergy, or even a coffee subscription from Burger King. Subscription-based companies have become increasingly competitive as more companies are introducing subscription-based models into their traditional businesses or launching new subscription-only services.
From software to healthcare, e-commerce to education, insurance to entertainment, almost every industry is embracing subscriptions. The Subscription Economy Index shows that subscription-based businesses are growing five times faster than the S&P 500 and five times faster than U.S. retail sales.
Driving this growth are a number of factors including:
- Ongoing consumer shift from ownership to access—we’re just not that into owning stuff anymore
- Dynamic development of cloud computing and networked devices
- Continued expansion of mobile technology
New rules apply
Viewing a subscription business through the lens of a traditional business doesn’t work. The recurring revenue model of a subscription business affects everything from packaging and pricing to billings, operations, and more. And when it comes to marketing, bringing the same old, same old to the subscription game will cause you problems.
A paying subscriber (or member) is different from a regular customer and has a unique relationship with your business. Here are seven key reasons why marketing to subscribers requires a different approach:
1. This is an ongoing relationship, not a one-time thing
Some people think of subscriptions as simply a series of repeat purchases. However, in a subscription business, the initial sign-up kicks off an ongoing relationship, which then needs to grow in both depth and quality for the business to thrive. Successful subscription companies continuously nurture and engage their customers to keep them committed to the relationship. This is their only path to profitability.
In her book Subscription Marketing, author Anne Janzer points out that subscribers need a different kind of convincing. Since they are signing up for an ongoing relationship, they need to trust a company beyond the level required by a regular customer.
A one-time customer just needs to believe in your product, but a subscriber needs to believe in your entire business—your values, your purpose, and your long-term viability. Gaining subscriber trust and eventual loyalty is how you convince them to renew, to refer, and to upsell to higher-priced services.
Marketing’s role is to nurture value and sustain that trust; this also requires cooperation among other areas of the business, including customer support and sales. According to Janzer, “Marketing creates the promise. The whole business fulfills it.”
2. Customer first is not just a slogan
Many companies tout “customer first” slogans that don’t amount to much. But for a subscription business, customer first should be a solemn oath. If you don’t develop a long-term relationship with your subscribers, then it’s sayonara, baby.
Subscription marketing goes beyond promoting your product’s fancy features or even how your service will improve your customers’ lives. As membership marketing expert Robert Skrob points out in his book Retention Point, it’s harder to recruit members or subscribers than to win customers because nobody actually wants a subscription. We would rather get the solution to our problems or the full benefit of whatever service we are buying immediately, not spread out over 12 easy payments of $29.99.
So, a subscription business must continuously prove its value and remain laser-focused on making subscribers happy. If you take your eye off the prize (customer happiness), subscribers will exit stage right and you’ll be left battling churn rates that will make a mockery of any growth in new sign-ups.
3. Forever vs. one-time transactions
Traditional businesses revolve around one-time deals, but subscription businesses are about the “forever transaction” of recurring revenue. Immediate revenues are usually low or non-existent; for example, SaaS free trials. In fact, subscription companies take an average 3.1 years to break even. Your subscription business profits as the new subscriber relationship grows, not from the primary purchase. What matters most is the lifetime value of that customer.
4. Forget the funnel
The subscription business model flips the script on the classic marketing funnel which emphasizes lead generation and conversion. Subscription customers aren’t following a linear path from acquisition to sale. They are in a continuous journey of nurturing, upselling, referrals, and renewals.
A sale in a traditional business literally “closes” the deal, but for a subscription company that initial transaction is just the starting point. For the subscription marketer, the real hustle starts after the sale. This is when you work to get that new subscriber fully on board. You need to feed subscribers with the content and messaging that empowers them to be successful with your product; you need to encourage them to stay with your service, and then to increase the amount of business they do with your company.
5. Think retention, not acquisition
Traditional business owners are obsessed with getting more customers through the door; acquisition is the name of the game. Sell as much as possible, for as high a price as possible, to as many people as possible.
For a recurring revenue business, gaining new customers is important, but it is also critical to hold onto the customers you already have. “Activity and retention is what makes your business successful, not sign-ups,” according to Des Traynor of Intercom. “Focus on how you get people to stick around and use more of your product.”
Retention is the key. If you can hold onto subscribers, your company will have:
- Growing revenues from subscription fees
- Higher profits stemming from greater upsell opportunities
- More referrals as happy subscribers promote you to their network
- Greater customer lifetime value which will allow you to invest more in acquisition
6. Battle against churn
Churn (the act of dropping out of the subscription) is a sharp thorn in the side of every recurring revenue business. Every company wants to hold on to its customers, but the stakes are much higher for subscription businesses.
Smart subscription marketers need to be relentless in the battle against churn. They have work to retain customers as if their business depends on it—because it does. Being complacent about churn could create a scenario where the number of customers dropping out in a particular period is equal to the number of new customers coming in.
Curbing churn won’t just happen on its own, no matter how many people appear to like your product. So, don’t confuse enthusiastic free trial sign-ups as a predictor of retention rates. Retention (which is the opposite of churn) rests on your ability to keep subscribers happy and actively using your product.
7. Onboarding is mission critical
The first step to retention is to successfully onboard new subscribers. Help them achieve success quickly and get them into the habit of using your product. Your goal during onboarding is to nurture these new customer relationships and remind subscribers of the value proposition of your service:
- Why does your product exist?
- Why did they subscribe?
- How will their lives be improved by using your product?
Also monitor subscriber usage and behavior closely. When customers are ticked off, they are more likely to cancel their subscription than to lodge a formal complaint.
Marketing to a subscriber (or member) is a very different ball game from marketing to regular customers. Lead generation and conversion is only half the battle.
If you’re growing an online subscription business, you need to:
- Build and nurture long-term relationships with your customers.
- Make retention your key metric.
- Focus on growing your customer lifetime value.