In his book “The automatic customer: creating a subscription business in any industry”, John Warrillow describes in detail how to change a mindset from a traditional model of sales to customers to creating a subscription business model with repeating sales and demonstrates each of the 9 subscription business models he has identified.
The book consists of three parts.
The first part explains who will benefit from implementing a subscription business model and why you need subscription customers. Having a subscription encourages users to buy, as the very fact that the subscription was spent money, gives rise to a desire to recoup the investment.
John Warrillow gives eight reasons why subscribers are better than regular customers:
- Subscribers increase the value of your main asset and increase the value of your company.
- The subscription business model increases customer loyalty.
- Equalized fluctuations in demand.
- Reduced costs of market research.
- Automated collection of receivable accounts. Automatic payment.
- You will bind to yourself the most disloyal clients. Users willingly subscribe to services, receiving comfort in exchange for loyalty, and, as a rule, remain faithful to their supplier for many years.
- Subscribers buy more. Using a subscription business model, you can communicate with your customers regularly and have the chance to offer them additional products and services that are not included in their subscription.
- Stability during the recession. By creating a stable cash flow, you protect your assets from a possible economic downturn.
It is worth noting that the subscription business has its drawbacks. The biggest is since you receive from customers not the whole amount, but in parts during the subscription period. The second disadvantage is related to the motivation of the team.
The second part consists of nine small chapters, each describing a variant of the subscription business model.
- The membership website model. If you are an expert in any field or are passionate about something, no matter how strange or unusual it may be, people are willing to pay for access to your knowledge. You can launch the site with the right to enter it only for registered users.
- The all-you-can-eat library model. This business model is very simple: the provider accumulates a large amount of diverse content, and the subscriber pays for the opportunity to access it.
- The private club model. The private club model offers its members access to something unique and valuable. The essential value in buying access to the club is not so much the services provided to its members but the ability to communicate with those who could afford to join.
- The front-of-the-line model. Selling on the principle of the front-of-the-line model, you are offering customers priority access to certain services. By implementing the front-of-the-line model in your company, you publicly declare that you now serve different categories of customers in different ways.
- The consumables model. The customer can be offered a subscription for the regular delivery of goods that they buy and use.
- The surprise box model. Another model involves regularly sending subscribers a set of products composed in a certain way. An important component of the value proposition in this business model is the selection of products in each set.
- The simplifier model. Working according to the simplifier model, the company promises customers two things: not only to take on the solution of the tasks of the daily to-do list but also to remind the subscriber that it’s time to do them.
- The network model. One of the key characteristics of the network model is that, unlike the private club model, the usefulness of a subscription increases with the number of subscribers. Users themselves are interested in increasing the number of subscribers.
- The peace-of-mind model. Companies operating in this model offer customers a kind of insurance against something they hope will never happen. You are ready to come to the rescue of the client, but, so far, nothing has happened, you do not show yourself in any way.
The third part contains detailed instructions on how to create a subscription business model. It discusses several key parameters to help you determine the sustainability of your company’s emerging subscription business model.
One of the most challenging aspects of building a subscription business is learning how to evaluate results. Starting to work on a subscription, you must learn to look at the reporting in a new way you should not limit yourself to analyzing the profit and loss statement: you need to develop a new set of criteria for assessing success. Important indicators for subscription business: MRR (Monthly Recurring Revenue), LTV (Lifetime Value), CAC (Customer Acquisition Cost), churn rate. The third part ends with an analysis of the options for scaling a subscription business model.
John Warrillow focuses on the fact that knowledge of these models does not mean that you should choose one of them and send all their business in it. You can add a subscription to your business, and you will get a lot of customers. They will interact with your company regularly and you will get another opportunity to make an additional sale.
John Warrillow‘s book “The automatic customer: creating a subscription business in any industry” is a great guide to creating a subscription business model. It presents a large number of useful ideas supported by data and real examples.