Ep 421 How to Create Recurring Revenue with Robbie Kellman Baxter
Dec 22, 2023
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Leading expert on subscription models, Robbie Kellman Baxter, discusses the significance of recurring revenue and subscription models across various industries. They explore successful examples, transition strategies, and the benefits of membership models. The conversation also covers segmenting subscription models, churn rates, retention strategies, and the challenges of creating a forever promise.
Subscription business models can be implemented in various industries by identifying ongoing problems or goals that your business can solve for customers.
Segmenting customers and tailoring subscription offerings to specific segments with unique needs can help build ongoing loyalty and make customers see the subscription as a valuable membership.
To ensure success in a subscription business, it is crucial to proactively address reasons for customer churn, provide transparency in pricing and policies, and regularly evaluate and improve the subscription offering.
Deep dives
The Value of Subscription Business Models
Subscription business models offer recurring revenue and help build deeper relationships with customers. They can be implemented in various industries, not just limited to software companies. The key is to identify the ongoing problem or goal that your business can solve for customers. Examples include creating recurring revenue in healthcare, lawn care, and other industries. By taking a customer-centric approach and maximizing the likelihood of solving ongoing problems, businesses can successfully implement subscription models. It's important to focus on both retention and acquisition to ensure long-term success.
Segmenting Customers and Designing for Membership
Segmenting customers is crucial when implementing subscription models. Start with a small and important segment, such as your best customers, to optimize the offering and build ongoing loyalty. Understanding your customers' goals and problems will help in designing a value proposition that exceeds their expectations. Avoid the mistake of offering a one-size-fits-all subscription. Instead, focus on specific segments with unique needs and tailor the offering accordingly. This approach ensures that customers see your subscription as a valuable membership rather than just another transaction.
Mitigating Churn and Retaining Customers
High churn rates can be detrimental to a subscription business. It's important to identify and address the reasons why customers churn. Common reasons include technical issues, lack of usage, or unmet expectations. Businesses should proactively handle problems and provide a positive customer experience. Moreover, transparency in pricing, terms, and cancellation policies can engender trust and loyalty. Regularly reevaluating and improving the subscription offering is crucial to retain customers and avoid losing them to competitors.
Considerations for B2B and B2C Subscription Models
B2B and B2C subscription models have distinct characteristics. B2B models usually involve contractual obligations and obligations, while B2C models often allow for more flexibility with cancel anytime options. B2B relationships require building loyalty with the company, the buyer, and the end-users. Understanding the different needs and goals of each group is essential to meet their expectations and provide ongoing value. B2B subscription models may involve longer-term commitments and should focus on fostering lasting relationships and optimizing usage.
Avoiding Common Mistakes in Subscription Models
When implementing subscription models, it's important to avoid common mistakes. Slapping a subscription price on existing products without considering the value proposition and member mindset can lead to dissatisfaction. Instead, create pricing and offerings that emphasize ongoing value and a long-term relationship. Don't overemphasize acquisition or retention at the expense of the other. Balance both to ensure sustainable growth. Furthermore, understand the reasons behind customer churn and work to remedy them promptly. Regularly evaluate pricing, usage, and customer feedback to continuously improve and refine the subscription offering.
Balancing Pricing Strategies and Member Satisfaction
Determining pricing strategies for subscription models requires careful consideration. Raise prices consistently over time or when there are compelling justifications such as expanded offerings or improved value. However, be mindful of the potential negative impact of price increases on customer satisfaction and churn rates. Avoid surprises and maintain transparent communication with customers to facilitate trust and loyalty. Finding the right balance between pricing and member satisfaction is vital for long-term success in subscription business models.
If you've ever wanted to create recurring revenue inside your business you'll want to listen to today's episode of Built to Sell Radio. The show is the third in our three-part expert series and features a conversation between John Warrillow, the author of The Automatic Customer: Creating a Subscription Business in any Industry, and Robbie Kellman Baxter, the author of The Membership Economy and The Forever Transaction -- two of the world's leading experts on subscription models in one episode.
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