How to become the owner of a profitable subscription business
If you’re a keen business owner — and if you’re reading this, you likely are — many of the strategies below shouldn’t surprise you, at least at a basic level.
But perhaps you’ve never considered any of them through a subscription-first lens? However familiar you are with these strategies already, each of them will help overcome common challenges every subscription business owner knows well.
The following strategies are time-tested and have helped hundreds of Subbly customers put rocket boosters on their growth — and you can use them too.
Ready? Let’s dive in.
Support your customers and build relationships
If you’ve ever had to sit on hold, navigate confusing government forms, or deal with lengthy terms and conditions for promotions, you know the importance of customer relationships.
Poor customer experiences don’t generate loyal customers. Research by Zendesk found that almost 60% of customers say long hold and wait times are the most frustrating parts of the customer experience.
The importance of customer service can’t be understated. You can’t just win more and more customers to grow your business, you also have to keep them. Garter’s research found that 80% of your future revenue will come from only 20% of your existing subscribers. For this reason, delivering delightful experiences consistently for customers is a crucial part of how to scale a subscription business.
So, let’s look at ways you can build strong customer relationships within your subscription business.
First, make sure your website or customer portal is mobile. Marc J. Shuman, the founder of Shuman Legal, learned this lesson through experience.
“When I started my legal subscription business, I made the mistake of thinking that desktop was the way to go. Everyone seemed to be using desktop computers in their law offices, so I figured that’s where they would do their research and sign up for our service. But I was wrong. In reality, most people used their smartphones to access our website and sign up for our service. It wasn’t until we launched a mobile-first website that we saw real growth in our subscription numbers.”
In addition to providing a seamless digital experience, you also need to consider how you can build a community around your product.
Community-led growth has been a hot topic in startup land for a while, significantly accelerated during the pandemic because everyone was online looking for ways to connect with others.
It’s a major opportunity in many ways, especially to reduce churn.
By building a community where you foster connections between your subscribers, like-minded customers will meet each other and develop relationships through your business — and you’ll become even more invaluable as you provide more value. Over time, this reduces churn and increases engagement.
Another note: remember to be present. People love to support people. The more you can open lines of communication with your customers so they see you as a human, not a business, the more they’ll want to continue supporting you.
Looking inward for more ways to grow is important, but we also need to keep up with competitors.
Keep an eye on the competition in your niche
There’s a balance between focusing on your own business and knowing what your competitors are up to. Thomas Griffin from OptinMonster shares in a Forbes expert roundup on competitor analysis that you should “make a list of 5-10 of your biggest competitors and only monitor those ones.”
Don’t spend time looking at every possible competitor. Instead, focus on the leaders. Look at what they’re doing. Check out their website, review sites — you can even set up a Google alert to automatically send you news mentions of competitors. Head to an in-person conference like SubSummit and you might even get to meet them yourself.
At the same time, you also don’t want to brood over your competitors and criticize them. If they’re growing, try to understand what makes them successful. Maybe you can reverse engineer what works for them or find a gap in their strategy.
Here’s what you should look at when doing a competitor analysis:
- Look at their website. What’s the messaging? How do they communicate their value? Find how you can differentiate and stand out.
- Look at their reviews. Go to popular review sites and find the 5-star reviews. What are the most common parts of their business that receive praise? Then look at 1-star reviews. What dissatisfies customers? The sweet spot is looking at 2-3 star reviews. They’re often more honest. This is a treasure trove for ways to stand out from competitors.
- Look at their social media profiles. Do they have large followings? What platforms are they most present on? If they’re gaining a lot of followers on Instagram, for example, you may be able to start gaining some market share there as well.
If your competitors are crushing it, perhaps there are strategies you should start mimicking. You may scoff, saying, “I’m no copycat,” but many businesses find success doing what others had already done, but better.
So, look at your competitors and brainstorm strategies to stand out from them in your marketing, pricing, customer service, and branding.
Build your brand on social networks
As a business owner, you may feel social media just isn’t a priority. Shouldn’t you just focus on revenue-generating channels? Don’t fall into this trap!
Take this study by Sprout Social, for example, which noted that “55% of consumers learn about new brands on social media.”
The gist? You’re leaving a lot on the table if you don’t invest in social media marketing.
So how can you build your brand on social media? Let’s consult the marketing experts at the Digital Marketing Institute. They share 10 tips for building your personal brand on social media, but these are the most pertinent for your growth:
- Have updated social media accounts. Customers will look you up on social media before they purchase. You could lose a customer if you’re just a blank brand profile on an important platform.
- Share content regularly. Posting once a month doesn’t cut it on social media. People need to see and hear from you every day. In doing so, people will grow familiar with you and want to learn more. 21% of consumers are more likely to buy from companies that are active on social media.
- Make your content engaging. Don’t just post links to your product pages and talk about yourself. Leverage your expertise to talk about things that are widely applicable to your audience. If what you say resonates, customers will engage with your content more.
- Join communities. Go to where your customers are. It’s great to post on your brand pages, but many online communities exist. There has to be at least one in your niche on Reddit, Quora, StackExchange, or other community forums. Go there — but don’t spam links. Talk to people, ask and answer questions. When you become a “regular,” as they say, people will be more receptive to you when you share something about your business.
(Source: Ross Simmonds Twitter thread on content distribution)
Don’t neglect social media. It’s a gold mine if you know how to harness it.
As you build your social cred with current and potential customers, you should also start thinking about how you can leverage them to build referrals.
Consider a referral system
Antreas Koutis, from Financer, is a perfect case study on how scaling a subscription online business is much easier with an effective referral program. When asking them how they grew their subscription business, they shared,
“We scaled our business by using a referral system that gave our customers an incentive to share our service with their friends and family. For every new customer that signed up using their referral code, we gave them a month of service for free. This not only helped us to attract new subscribers, but it also helped to keep our existing customers engaged. As a result, we grew our business sustainably and developed a loyal customer base.”
The great thing about a referral system is that it runs on autopilot once you set it up. When building your referral system, consider what incentives will drive the most action.
- Freebies. Whether it’s a free month or merchandise, freebies are a great way to incentivize action.
- Hard cash. Many companies offer cash incentives to entice people to fill out surveys or refer others. If you have the resources, it can work for you too.
- Social shoutout. Some companies will incentivize social media shares by resharing them from a company profile. If you have a large following, this can be a great way to encourage engagement on your social profiles and promote user-generated content.
Referral systems are a great way to reward word of mouth. And word of mouth is the most powerful marketing strategy. If you stall on building out a referral program, you may be leaving a lot on the table.
Whether you leverage a referral strategy or the other strategies we’ve covered so far you need to know what works. To do that, you’ll need systems to monitor your key performance metrics.
Know and monitor key performance metrics
The way you track your subscription business’ performance is a lot different than a traditional business. For a subscription business, there are seven key performance indicators you should be tracking on a monthly basis at least.
Let’s look at each of them briefly.
- Monthly Recurring Revenue (MRR) – the average monthly revenue you earn for each subscriber, multiplied by the total number of subscribers. Tracking helps with your cash flow management.
- Annual Recurring Revenue (ARR) – multiply your MRR across 12 months. Doing so helps with annual reporting. Note that ARR and MRR don’t include promotions or free trials as they would inflate the results. These two metrics only forecast recurring revenue, not one-time purchases.
- Average Revenue Per User (ARPU) – your MRR divided by the total number of customers you have. This metric is useful if you have different tiers of customers like starter or premium subscribers to a subscription newsletter.
- Customer Acquisition Cost (CAC) – the amount you spend to bring in the customers you have.
- Churn Rate – the number of customers that unsubscribe divided by the number of subscribers you had.
- Customer Lifetime Value (CLV) or Lifetime Value (LTV) – the average amount a customer spends throughout their relationship with your business.
- Payback Period (PBP) – the amount of time it takes you to pay off your CAC. It’s your breakeven point.
These are the most important metrics to look at. Your website traffic, social media followers—even the number of customers aren’t as important as these metrics. Really, the number of customers isn’t important? Yes.
Consider this example: you could be acquiring massive amounts of subscribers but still not run a successful business if your costs are astronomical.
Blue Apron is a famous example. They were spending a lot to acquire customers, and those customers were churning before Blue Apron could make that money back. This is largely why they fell from such astronomical valuations over time. They weren’t sustainable.
The main takeaway is to not get caught up in vanity metrics. Focus on projects that move the needle on the metrics that matter. If you do that successfully, you’ll have a successful subscription business.
Update your pricing strategy wisely
All this talk about sustainable subscription businesses isn’t complete without a section on pricing.
Finding the right pricing mix for your subscription business is a balance. You want to cover your costs and sustain a healthy profit, all while also dealing fairly with your customers. Before you set your pricing, there are a few things to do:
- Find out what your competitors charge
- Estimate what your target market is willing to pay for your subscription
- Decide on your pricing strategy
For the first two points, you need to go back to the section on keeping an eye on your competition. How are they growing their subscription businesses? What is their price point?
Perhaps you can deliver more value, meaning you can charge a premium on your competitors. Or maybe you can undercut them because your costs are lower.
As you look at competitors, consider your customers. How much would they be willing to pay for your service? Some honest appraisal is necessary here.
If you can get out there and talk to some customers that’s even better. Ask them what they’d pay to subscribe. These insights may be revealing.
For the third point, deciding on your pricing, there are two strategies for subscription business models. The first is simple, while the second is more complex, but can be lucrative. Let’s look at each:
- Fixed pricing model – you just charge a flat fee for a subscription. You may go this route if you’re just getting started and don’t have a ton of different offerings.
- Tiered pricing model – offering different prices for different subscription model memberships. This is a great way to diversify your customer base if you have different tiers of products or features.
The way you decide on your pricing depends on a few factors. For example, we’ve published a complete guide to subscription box pricing. In it, we outline all the factors at play that make up your price for a subscription box membership.
The factors can be distilled down to your costs, what the markets are willing to pay, and what other subscription companies are doing in your space. Consider these three things, and you’ll land on a price point that makes a successful subscription business model.
One more note on pricing; it’s not set in stone. If you’re ja young business, experiment with your pricing. See what your target audience is willing to pay. If it’s not working, change it up a bit. The more you experiment, the faster you’ll find what works.
As you get more customers in the door, there are opportunities to take them to the next level. To do that, you need to upsell and cross-sell.
Improve upselling and cross-selling opportunities
Upselling and cross-selling are an ingenious way to deliver more value to customers when they’re most ready to buy. Before we jump into how you can upsell and cross-sell in your subscription business model, let’s define the two:
- Upselling is when you encourage a customer to sweeten their deal by purchasing a higher-value subscription or adding a one-time product.
- Cross-selling is encouraging customers to add something else to their order that’s not directly related to what they’re currently buying. A clear example is Amazon recommending additional books when you add one to your cart, saying, “readers also bought these.”
Now let’s look at how you can apply upselling and cross-selling in your business. There are three places you can insert an upsell or cross-sell in your sales funnel.
- Offer some sort of promotion before they purchase to encourage them to check out sooner.
- As they’re checking out, promote something additional to add to their order.
- After they’ve purchased, follow up with them. You can send them offers or recommend new products.
Experiment with different offerings to find what drives the most impact for your business.
You should also be thoughtful in how you go about it. You don’t want to harass customers with promotions and risk tarnishing your brand.
Evan McCarthy from Sporting Smiles shares how he keeps in touch with customers without bombarding them:
“What has worked well for us is to offer the customer an option of how many emails they would like to receive from us. This increases positive responses to our emails and eliminates customers cancelling subscriptions. We generally send out emails bi-monthly with a good chunk of information rather than annoying low info daily emails.”
This leads nicely into our next and final strategy for growing subscription businesses: email marketing.
Develop an email marketing strategy
Email is one of the best ways to connect with your customers. Why? Because it’s direct access to them. You don’t have to rely on the mercy of a social media platform’s algorithm changes.
An effective email marketing strategy will help you win new customers, recapture failed payments, and maintain an ongoing connection with your subscribers. Not to mention that email is much more cost-effective than other forms of marketing and has the greatest ROI.
So let’s look at how you can use email to grow your business.
- To attract new customers. You should be adding calls to action to sign up for your email list on your website. Many visiting your site may not be ready for purchase, but are open to subscribing to your emails. You can nurture that relationship and drive them down the funnel.
- Re-engage customers. Through email marketing campaigns, you can subtly nudge yourself to the front of your customers’ minds so they don’t forget about you. And in a subscription business model, active engagement is crucial to customer retention.
- Gain valuable feedback. You shouldn’t just use email to push offers. You have a direct line to your customers; this is a great opportunity to gain feedback from them on how you can improve your service. Experiment with surveys and feedback forms.
- Experiment with messaging and offers. You can segment your lists, test out different messaging, and quickly find what works. If you’re trying to determine a lucrative upsell or cross-sell strategy, email marketing can offer quick feedback.
Email marketing is a massive channel to grow your subscription business. To further unpack email marketing opportunities, check out our complete guide on email marketing for a subscription business.
Growing a business in the subscription economy takes time. There is a lot of competing advice. To filter out the noise, it helps to focus on a few fundamental strategies. This guide outlined those strategies.
Look at your niche and your competition. Observe what they’re doing and find gaps that can give you a competitive advantage. Experiment with a pricing strategy that can give you a foothold and begin gaining market share.
At the same time, start building your brand. Be active on social media, and build relationships with your prospects. As you gain your first customers, make sure their experience is outstanding. In doing so, you can upsell and cross-sell them and deliver even more value. When you have happy customers, incentivize referrals. Word of mouth is the best advertising.
Finally, don’t focus on vanity metrics. Measure what matters and ignore the rest.
To take your subscription business to the next level, leverage the tools that make it easy. Subbly’s subscription-first platform helps thousands of businesses grow their revenue while managing everything seamlessly. Get started in minutes today.