Online subscriptions are the most prevalent method of consuming software as service (SAS) in today’s marketplace. The benefits of the subscription business model are advantageous for many reasons, but what it gains from its low-cost barrier to entry and cash flow moderation, is possibly negated by the on-going cost of retention marketing that is needed to sustain growth.
Subscription services are a great way to scale business based on demand. When subscriptions go up, cost of operations also go up in many cases.The bet that everyone hedges is that the revenue will grow at a greater rate than the cost of delivering the service. What we want to advocate in this post is that the application of a traditional marketing approach to this model can be hazardous. A realistic and qualified retention marketing plan for this type of business model that accounts for the different type of risk of this model faces is needed.
50% retention and 50% acquisition
In my opinion, the subscription business model is a very aggressive approach to customer acquisition. Bringing new customers to your system is going to be a lower cost than if you had to overcome large one-time cost by your customer. So the cost savings you achieved in marketing should be not viewed as savings, but rolled into retention marketing to keep your customers on the product as long as possible. You should at least be matching every dollar you spend on acquisition to retention in this model if not more. For traditional services it is not equal, but you’ll see why in our next point.
Every cycle is a new subscription
The mindset you need to adopt is to win the subscriber to your product every subscription cycle. This is the master work of retention marketing. Aggressive retention marketing is done before the customer even thinks of leaving, not when they are on their way out the door. Many subscription services treat subscribers like one-time purchasers. Once they subscribe, they fall into a bucket of “customer” and are pushed to the side to make room for new acquisitions. Don’t fall into this trap, change your view of your subscribers. Move them towards a deeper understanding of your software, your company, and your benefits every chance you get. Every cycle, it’s a new customer.
Make use of your data
Hopefully you have a good bit of data for your subscribers so you can track use of your system to create a churn model. Good data is going to allow to you do three things. First, track and create engagement levels or cohorts for your software. Second, identify trends to establish a churn model to predict attrition before it happens. And lastly, it will allow you to automate messaging based on behavior in the case of attrition. Your data collection should be as sophisticated as your software! Without this data you will not be able to see risks to your business model before its too late.
These are just a few areas of how a realistic view of retention marketing can help your SAS product grow successfully. The business model needs to adopt a real view of how retention need to be a critical part of your marketing, even more than new business in most cases. We have seen cases where subscriptions can create great success as long as the marketing approach changes to match the business model.