The best advice and inspiration to launch and grow your video business.

15 Tips for Running a Profitable Subscription Based Business

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So you’re thinking of getting into a subscription based business? Good for you! The subscription based business world can be very lucrative for those who are willing to put the effort into building a business worthy of subscribing to. For those who are ready to invest the hours to research and design products or content that can be sold on a subscription basis.

In fact, there are many subscription based business out there that are making millions upon millions of dollars per year. Netflix is one example; Netflix’s revenue as of 2014 was over 5.5 billion dollars. Incredible, right? If only there were a way to get even just a small portion of those earnings, I know I’d be happy.

Subscription based models are not new, and there are new subscription based businesses popping up every year. However, though it can be easy to attract new customers to a subscription business with good advertising, keeping their business for the long-term can be much more difficult. And, recurring revenue is crucial to a business model that thrives on recurring revenue, obviously.

In case you aren’t aware of the concept of recurring revenue, think of it a little like compound interest. Instead of a single sale as the result of your marketing dollars, you get sales from the same person every month for as long as they stay with your business. Every month, more and more people join your subscription service, and the revenue grows almost exponentially. The key to success in this business is to keep these people paying their bill every month.

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I bet you’re wondering what actions that you can take to decrease customer churn (leaving your business) and to promote a consistent stream of revenue. We were, too. So we did some research of our own (we kind of have to) and we have compiled some of what we learned into ‘tips’ to inform you, to help you, so that you can run a profitable subscription based business.

So without further ado, I present to you these following 15 tips that are sure to help point you in the right direction for starting, or converting to, a successful business of recurring revenue.

1. Have something to sell.

This may seem like common sense, but it is important to realize that starting a business out of thin air is difficult alone, especially if you do not have anything unique to sell to begin with. We all want to make money, but diving into a subscription based business without first having a business can be, well, bankrupting.

2. Is a subscription based model right for your business?

Does your business sell ice cream sandwiches at the beach? If so, a subscription based model may not be right for your business (though I would consider loyalty rewards). Before making the switch to a subscription based model, it is important to ask yourself a few questions:

• Are there similar businesses that I will compete with?
• How large is the market that I may be selling to?
• What is your business’s value proposition (why will customers enjoy it)?

3. Use surveys or even a crowd funding site to test interest in your business.

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Crowd funding sites aren’t just for sourcing start-up capital (though that is a great benefit to this particular use), they can also be used to gauge interest into your particular business. If you find it hard to gather support using a well-marketed crowd-funding campaign, you may find it hard to gather support for your business.

The same goes with surveys – they aren’t just for gathering information on customer satisfaction, you can hire a company to take a survey that will gather info on whether there is sufficient interest in what you are selling. Hey, you may be excited to start selling a subscription to videos on how to make organic sock puppets using used socks from local dumpsters, but the rest of the world may not be as excited.

4. Consider, if you can, a video on demand subscription based business.

More businesses can be converted to a video subscription service than you think. For example, maybe you are a personal trainer (that is recurring revenue already, except you have to work to earn the recurring revenue). You see these videos for sale on TV all the time, and you know you can do way better at keeping your customers fit than that single sale DVD, you just need to keep them engaged long-term.

Well, you could start a video on demand service that offers them your personalized lessons, allowing them to keep learning new techniques every month, while you reap the rewards of recurring revenue (without having to visit all of these people in person). It’s brilliant.

5. Determine a reasonable price point.

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Do some research, figure out what your competitors are charging, question yourself about what your content is worth, and come up with a reasonable recurring fee. Keep in mind that just because a fee is low doesn’t mean more people will subscribe, if a fee is too low it may portray a sense that your products or services are not very valuable, ultimately devaluing your brand.

Furthermore, the perfect fee will equal maximum revenue, not necessarily maximum subscriber base. The goal of your business is to make as much money as possible, right? So keep this in mind when choosing your price point, though you may lose some customers with a particular price, the added revenue from the customers you will gain may equal more than the potential loss.

6. Offer free trials.

Give your potential customers a chance to try your product, risk free, before committing to your business. Take this opportunity to show them all the best of what you have to offer. Make sure to gather an email address, and maybe the credit card number up-front, so that you can easily resell to them later or offer easy conversion from a free trial to paid service.

7. Keep on top of your customers.

Make use of that email address from the last tip, keep in contact with them, and also, listen to what they have to say. Keeping your customers engaged and giving them what they want are some of the best ways to keep them paying your subscription invoice.

8. Make renewing automatic.

Make it easy for your customers to pay their invoice, make renewing automatic by automatically charging their credit card until they opt-out. You can even get the credit card info before starting a free-trial so that they can seamlessly switch from free to paid service… unless they opt-out before the end of the free-trial.

9. Offer discounts for long-term subscriptions.

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Some customers will know that they will want to use your subscription for a long time, and they are frugal enough to save a penny whenever they can. For this reason, it is crucial to offer this option. This will keep this particular type of customer happy, and offer you some additional upfront funding early on in your businesses life.

10. Provide something different.

There’s more to offer your customers than just the subscription based content. You could offer newsletters, games, or anything that you can offer while maintaining your brand identity. If you offer a video subscription offering guitar lessons, for example, you could offer presentations in other formats alongside the videos, and maybe send out monthly newsletters relating to guitars.

11. Wrap it up in nice packaging.

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Whether you are shipping a product, or delivering an online video, make sure you present it in such a way that makes your business look professional. Don’t cheap out on shipping packaging, make sure it is the quality that your customers deserve, and be sure to make the delivery of the video give them the feeling that they are in a movie theatre or classroom.

12. Use an OVP (online video platform) or a fulfillment service.

There is an abundance of companies out there that can host your VOD (video on demand) service or handle the warehousing, packaging, and shipping of your products. Save yourself the trouble of building your own website or warehouse and let people who specialize in doing this handle these steps of the process. This will give you the time you need to focus on what it is that you do, providing content or products, without having to learn how to develop websites or handling warehousing (which can be a very tricky, if not devastating part of business).

13. Give your customers the respect they deserve.

The customer is always right, sometimes. Make sure to give your customers everything you can to keep their business, within reason. Keeping your customers happy will keep them paying that invoice every month, and that’s the whole point of this business model, right?

While you don’t have to give attention to ridiculous demands, it is important to have your whole team on the same page when it comes to exactly how far you will go to keep your customers happy, and that should be pretty darn far. Customer retention is the second most important part of marketing with a subscription based service, second only to gaining the customers to begin with.

14. Track everything, use analytics.

analyticsIt is important to track every step of your customers’ path through the funnel that is your sales cycle, and retention cycle, to ultimately decrease churn (losing customers over time). Use Google Analytics and set up conversion funnels to see how your customers do, exploring your website on their way to a sale, and where you may lose some. Also, track events that may be leading up to potential unsubscribe clicks.

Other key metrics to consider are:

• MRR (Monthly recurring revenue)
• ARPU (Average revenue per user)
• ARPPU (Average revenue per paying user)
• ACLV (Average customer lifetime value)

Use the data to understand how much each customer is worth to you, decide on how much you want to spend in advertising to gain each customer, and how much you want to spend to retain each customer. Somewhere in that info there is a perfect balance of expenditures vs. revenue. You can coordinate this with tip #5 to further identify the best price point.

15 Release content over time, always giving your customers something fresh.

If you offer a subscription based video business on how to do Yoga, you do not need to offer your new customers all the lessons, from novice to advanced, at once. Make sure there is a good assortment of videos available, but slowly add new videos as the customer progresses through the stages of the current lessons.

You wouldn’t see Netflix offering every movie all at once (check it out, they don’t). Some people (you know who you are!) would watch everything they want at once then soon they would have nothing left to watch. After that, what would be the motivation to keep them paying for the subscription? Nothing! So be sure to always have something fresh to offer on a regular basis.

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This may seem like a lot of information to take in, and it is, but I assure you that these tips can be critical to the success of your business. And though this does not represent everything you must do to succeed (it merely touches the surface), it is definitely a good start to getting things organized.

Remember, with video subscription based services, the world is at your fingertips; once you create a piece of content, you never have to create it again. This would appear to be one of the most viable forms of developing a business with recurring revenue, and there are definitely other VODs out there that back up this theory. If at all possible, consider video as your subscription model, you will be glad that you did.

And, anyway, no matter what you choose, remember to do your research, criticize your own ideas and test their value before proceeding. If you can do that, you’re off to a great start.

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