With the explosion of subscription-based businesses, customers and consumers alike are becoming increasingly sophisticated buyers. Expectations are high, and competition is fierce to win their engagement and loyalty.
To delve deeper into growing customer relationships and their worth, Robbie Kellman Baxter, the leading expert on subscription and membership business models and author of The Membership Economy and the brand new book The Forever Transaction joined us for a webinar.
Robbie shares how subscription pricing is just the beginning of building “forever transactions” with every subscriber and what you can do as customer success professionals to maximize lifetime value.
If you missed the webinar, you can watch it on demand.
Speaker: Robbie Kellman Baxter, best-selling author and founder of Peninsula Strategies
Q: Should you turn customers away during the sales process if you know they aren’t a good product fit?
A: Yes, 100%. Absolutely. It is better to turn them away for many reasons; one being credibility. There is nothing as confidence-inducing as a salesperson saying, “Oh, we don’t do that very well,” “We’re probably not the right solution for you,” or even “You should go to XYZ competitor because this is what they do really well.” Again, all of this is about playing the long game. Building trust and credibility is a fantastic way to win customers back when they do fit your model.
A second reason is that if you bring someone into your business and try to serve them, even though they’re not an optimal customer, it’s going to distract everyone. Early in my career as a product manager, I worked with banks. Our product was optimized for banks; let’s say, 10 to 1,000 in terms of branch size. We weren’t really optimized for the biggest banks, and we weren’t really optimized for the smallest banks. But one of the biggest banks in the world wanted to do a beta test with us. We were so starstruck that we accepted it, because, I mean, it’s the biggest bank in the world. How lucky are we that they’re interested in what we’re doing?
They pushed us so hard to create all these features. Not only were the features not relevant to our ideal bank size, but it was too complicated. They couldn’t even set it up. We really got distracted. You might think that it’s just a little bit of extra incremental money, but it will become a distraction in the business. You’ll be hearing from them. They’ll ask for features that don’t make sense for the rest of the organization. So, it’s better if you think of your business like a tree. It’s better to prune those branches early rather than wait until they grow too long and big, and then it’s a much more painful process.
Q: How do you motivate and excite failure-to-launch clients to increase their usage?
A: If you sign a big client and notice that their employees are not using the product, the question that I always ask is: “What happened?” They were invited to the party. Did they just not even go to the party? Did they walk in, look around, and say, “This doesn’t look like a party I want to be a part of” and leave? Or did they actually come in and hang out at the party for a little while, and then say, “That was not the party for me.” That’s the metaphor to use. In this failure-to-launch client, you need to know that they’ve gotten up to speed, used your product, and not found it valuable. In which case, you might have a product-market fit problem if they truly understand your product, gave it a good try, and don’t like it.
Or is it that they came in and intended to give your product a try, but they were overwhelmed? They left regardless of it’s a good fit for them. That’s usually an onboarding problem. They kind of look around and don’t understand. They say, “That was a terrible party,” and you’re like, “You spent the whole party in the vestibule. You never even made it into the room where the party happened.” That’s an onboarding issue.
If it’s a true failure-to-launch scenario, where they never even opened the door, that’s a marketing problem. You can do different things to solve those. If it’s a marketing problem, what you often need is a post-sale onboarding campaign. You create the templates and work with your partner to onboard the members.
Lastly, you may want to consider how the product is being sold. This happens a lot. In the last question, we talked about selling to a prospect who is not an ideal customer and what sometimes happens. At the end of the quarter, sales teams have to close business. And so, they close the deal without really worrying about whether the customer fully understands or is going to fully engage. The salesperson leaves and the customer has never really been that motivated to figure out how to make it work. Or they purchase for a reason that doesn’t align with your goals. They think “We checked the box and have a solution now, but let’s go back to using our Excel spreadsheets.” So, make sure the sales team is also qualifying customers, not just for acquisition (money, need, authority, desire) but also for engagement. Is that buyer going to invest with you in building engagement across their organization?
Q: How should an organization think differently about customer acquisition when optimizing for customer lifetime value?
A: If I go to a car dealership, buy a Lamborghini, and write a check, I pay for the Lamborghini, I give them money, they give me the car, and I roll it off the showroom floor. I keep it in first gear and I say, “That salesperson told me this was a really fast, fun car. This isn’t fun at all. It’s really loud. It’s barely moving. This is a terrible car.” That’s my problem, right? I bought it, and if I don’t get any value from it, that’s my problem. If I’m subscribing to that same car, suddenly it becomes really important to the car dealer – to the subscription company – that I actually get the value I paid for. First, they have to qualify me and make sure I understand what I’m buying. That there are no car seats in the back. I can’t lug my bikes along with me. There’s a lot of downside. They want to make sure I understand that, because if I don’t, I’m just going to cancel after the first month. They also want to invest in making sure I know how to use it to get the most value out of it. That’s just an illustration to show that when you’re doing customer acquisition for lifetime value, you want to be more careful about who you acquire, and you want to make sure they’re optimized for long-term success.
Q: What’s your viewpoint on switching from yearly to monthly subscriptions?
A: I have several clients with really crazy pricing options. It’s a total algorithm. Tell us how many employees you have. Tell us where you live. Tell us which of these 452 features you think you’re going to need. Then, they come up with this perfect number and they have specials. End-of-quarter specials. End-of-year specials. Sun-is-shining specials. If you buy now, we’ll bundle that and throw in something else.
Then you look at Netflix, and I know Netflix is a consumer-oriented business, but what’s interesting to note is that they’re one of the most sophisticated subscription businesses in the world. With very deep pockets, and they have quite simple pricing. And not only that, but you can cancel anytime. They only offer it monthly. They’ve just introduced a feature where they promise that if you’re subscribed for a year or more without using the product, they’ll automatically cancel you.
So, thinking about annual versus monthly, if you’re confident that your customer is going to stay, you can go to monthly. You can use annual pricing as a way of discounting for loyalty. The cost of eight months is your annual fee. If you’re willing to commit upfront to a full year, you effectively get four months for free. The risk with that is those big numbers come up annually. It’s a moment where the customer takes off their blinders and reconsiders their purchase.
If it’s monthly, retention is going to be much higher month to month because there’s no jarring, big number that makes them reconsider their decision. Also, it’s a much easier sale because the customer knows they can cancel at any time. There’s less risk. The issue that I see, especially on the B2B side with this, is that you often have onboarding costs that are very real. You have variable costs associated with getting a new customer up and running. You can’t afford to let someone in for a month, invest in onboarding them, and then have them leave.
They often say that you pay for the first year and then it’s monthly after that as long as you’re current. Or maybe they say that it’s monthly, but there is an onboarding fee for the first time you join.
Many businesses are also introducing the pause feature, where if you’re not using the product for some period of time, and for some legitimate reason, you can pause your membership and keep everything in place. A lot of businesses threaten that if you cancel, you’ll lose all your data, you’ll lose all your customization, and you’ll lose all your setup. But businesses that offer pauses say, “Look, we know that there are times when you might need to pause. You can’t get your money back, but you can pause it.”
Those are some of the things that I’m seeing that are more popular, especially right now with COVID. A lot of businesses are making it very easy for their members to pause or downgrade without completely canceling.
Q: If you create a self-service product to lower costs, how can you ensure you still stay focused on the customer and their journey?
A: I want to share a story. I worked with a carwash company and they introduced a subscription.
They thought that the subscription was for people who washed their cars a lot. The majority of their best customers are people who wash their cars two or three times per month. But they also found this other group of people who didn’t want to talk to anyone at the carwash. Because the subscription came with a card, you just slid your card in, and you cruised through the fast lane without having to talk to anyone in your journey through the carwash. People were willing to pay for that even though they only went to the carwash once a month. They were willing to pay a premium to not talk to anyone.
So, keep in mind that customer centricity and face time are not the same thing. If you automate to save money, you need to make sure that you’re not reducing the quality of the customer experience in a meaningful way. But there are many ways that increasing automation and self-service actually increase customer centricity. Because usually the customer is seeking to achieve a goal or solve a problem. They’re not seeking to have a conversation with a nice person who will talk to them about it. They’re seeking to solve the problem. Those goals can be aligned, but instead of asking how you can automate to not destroy the customer experience, ask how you can automate to improve the customer experience.
Q: What are the most important metrics to gauge success with scaling a subscription business model?
A: To see how successful you’ve been at scaling, understanding your business model is probably the single best metric as well as having a predictable model. Subscription businesses are all about predictability and consistency. Being able to say, “If we acquire a new customer, and we onboard them like X, they will stay for Y periods, and expand the relationship like Z.”
When you get to the point of scaling your business, and you have the technology infrastructure, data analytics, and cohort tracking in place, you should know the answer to those things.
For example, “We have a 93% retention rate in the first month. We understand what drives churn. These are the acceptable types of churn. These are the unacceptable types of churn. Here’s how we’re mitigating those churn risks.”
Understanding your business is probably the single most important thing you can do. To see if you’re scaling to measure success over time, you want to balance acquisition metrics with retention metrics. You want to keep attracting people. You don’t want to forget about that.
But most organizations underestimate churn management, because that is the most powerful lever you have for driving revenue and profitability. You want to track churn – that’s probably the single most important thing – while making sure that your acquisition funnel stays healthy.
In addition to our webinar Q&A recap above, we were lucky enough to have Robbie take the time to address the outstanding audience questions that came in that we didn’t have time to address during the live webcast. Please see below for more expert advice.
Q: Do you see any value in having a scorecard for “what to expect” with onboarding and “how did we do” at the end of onboarding?
A: Having a checklist for onboarding can set expectations and increase engagement throughout the process. Following up with a genuine request for feedback is a great way to build alignment and trust. Both of these are good tactics!
Q: You didn’t mention anything about a Customer Journey in your talk. This is central to creating a Customer Experience and map out how to engage with a CS Team. When in your process do you recommend this, and how frequently do you adapt it?
A: I encourage my clients to map out two journeys before they develop any product offerings—The first maps the challenges a customer might encounter on their journey to achieving their big goal or solving their big problem. This helps the organization understand how their product might fit on that journey and what kind of role they play. It also helps the organization map product features that will better align with the customer journey. The other journey is the one most organization do, which is the journey through the organization’s product and services—what are the touch points etc.
Q: Any suggestions on how to build relationships with clients (who are genuinely successful) who just aren’t interested in engaging with the Success team?
A: It’s important to remember what your goal is—customer success. If the customer is genuinely successful and doesn’t need to engage with the CS team, that’s OK. But it’s key to keep tracking that customer’s engagement to see if you recognize any changes or challenges that can be resolved. Also, many successful customers might be interested in being “role models” serving as mentors or examples, not necessarily of “your product” but rather of their own mastery of their roles. The reason your customers use your products is so they can be seen as effective in their roles—recognizing them for what they value in themselves can be a useful way to engage.
To learn more about how to build a subscription model so compelling that your customers never want to leave, watch the webinar on-demand.
Customer Success Around the Web
- How to Move to a Pay-For Customer Success Model– To charge for Customer Success or not to charge, that is the question.
- How to Meet the Customer Success Mandate– Integrating CS throughout the organization is important for revenue preservation and generation.
- Executing a Successful ‘Executive Sponsor’ Program– Learn how to roll out an ‘Executive Sponsor’ program that drive tangible value.
Fighting Churn is a newsletter of inspiration, ideas and news on customer success, churn, renewal and other stuff and is curated by ChurnZero.