Subscriptions should create predictable revenues. To make it work, you need to find – and keep – customers who get value from the service. You need customers to stick around and pay you more. But customers expect a value exchange. See Forever Transaction.
Small changes make a big difference in performance across a subscription business. But, many companies flick flack between approaches. They feel around in the dark. It can be hard to get a handle on B2B subscriptions, because you can wait up to a year to find out if the contracts renew. Often, most of the renewals happen at the same time of year. This bunches up the results. There aren’t enough accounts to give robust data. All this makes getting hold of good data really tricky, but incredibly important. The size of the prize is big.
ProfitWell recently presented ways to increase customer lifetime value. Good subscription businesses will constantly chip away at strategic retention. They will do this at the same time as solving tactical issues. Knowing the right areas to tackle can improve performance by 10-60%. The range depends on the type of subscription you have, how many levers you pull, and how aggressively the levers are pulled across three categories.
- Tackling cancellations from subscribers (‘active cancellations’)
- Getting more money from existing customers (‘expansion revenues’)
- Resolving problems when customers don’t pay (‘delinquencies’)
See the image below
The cut through
We’ve picked 5 insights for businesses with high value b2b subscriptions and memberships. We think this can be used to inform your strategic planning. For example, benchmarking what good looks like. Getting a practical step to take now. Also, one blind alley to avoid going down.
- More than 20% of new revenue should be coming from existing customers. Most companies are investing the majority of budget on acquisition. The returns in acquisition are getting harder. High growth companies are focusing on their existing customers, “moving from a funnel approach to a ‘subscription flywheel’ of acquisition, monetisation and retention”.
- Companies with multiple products are growing 30-50% more than those with a single product (“Don’t do this too early in your subscription journey, but do plan for your multi-product strategy”)
- Getting to know your customer segment better than anyone else is critical, then filtering, creating and maintaining a great product for the right people in the customer segment.
- Customer lifetime value is 18-54% higher for companies with at least 1 subscription add-on. Subscription add-ons bring in revenue from existing customers. To work out if you have an add-on to offer, look at an existing part of your service where only a small number of customers use it. For example, priority support is a good add-on for b2b subscriptions.
- NPS is not a strong predictor of retention. “If you’re following NPS, know that it’s not sensitive enough to tackle retention.”
Substribe helps b2b subscription companies to grow their recurring revenue profits. We specialise in customer discovery, product innovation and go to market.