From Acquisition to Retention: A Comprehensive Guide to Subscription Businesses At Each Stage
Table of Contents
Here’s the truth. There’s no shortage of competition in the digital space.
The battle lies not only in the products or services you offer but in the customer experiences that your brand can deliver.
Business success is no longer just based on the number of new customers, but also on how many customers stay. That’s why customer retention is the foundation of subscription businesses.
We’ve taken valuable insights from industry experts and put them together to create this guide that will help subscription businesses at every stage.
Rising ad costs and increase in acquisition costs: What do these mean for businesses?
Picture this:
You’re the owner of a thriving subscription business. You’ve built a loyal customer base and perfected your product or service. You feel that you are more than ready to take your business to the next level.
But suddenly, you’re hit with a wave of rising ad costs and increasing acquisition costs. It’s becoming harder (and more expensive) to acquire new customers, and your competition is fiercer than ever. What do you do?
This is the reality that many subscription businesses are facing today.
But it’s not just about surviving—it’s about thriving. Let’s look at the facts.
Fact #1: While businesses need new clients to keep their business going and growing, it’s not the only way
Yes, every business needs new customers for more revenue, and subscription businesses are no exception. However, it’s getting more expensive to attract new customers.
Increase in online advertising costs year-on-year (2021)
Google & YouTube
108%
Facebook/Meta
89%
TikTok
92%
Snapchat
6%
“I know no one wants to hear this, but there’s a possibility that we might be going into recession, or at least an economic downturn, “ Blair Williams, Founder & CEO of MemberPress explains.
As a result, data costs have skyrocketed, and all platforms are just exploding in cost. So really, just acquiring new customers is getting trickier and more expensive.”
What does this mean? If getting new customers is more difficult, how can businesses continue growing?
The good news is that acquisition is not the only way for businesses to grow. To truly tap into your potential, you will have to identify opportunities along different stages of the customer journey.
This brings us to the next fact…
Fact #2: Customer retention is becoming increasingly important for online businesses
As acquisition costs continue to rise, more businesses are starting to focus on customer retention. After all, the benefits are clear.
- Increasing customer retention rates by 5% can increase profits by as much as 95% (Bain & Company)
- The success rate of converting an existing customer is 70%. (HubSpot)
- 80% of a company’s profits come from 20% of its customers (Marketing Insider Group)
“We have exited the stage or phase of easy advertising. We’re moving into a phase where loyalty, referrals, and organic influencers are a more sound strategy,” Kevin Lew, Integrations & Technology Partnerships of Recharge, sums it up.
With subscription businesses especially, focus on customer retention is essential for long-term success. Creating a positive customer experience to keep subscribers satisfied will help business owners increase profits, reduce acquisition costs, and build a loyal customer base that will continue to support their growth.
Fact #3: The entire customer journey has a lot of opportunities to increase the customer lifetime value
GQ Fu, Co-founder of LTVplus & Recover Payments, poses a challenge to business owners, “From a customer success-driven approach, here’s something for business owners to think about: are you creating the best customer experience for your customers?”
He gives some examples of other strategies that business owners can employ along different stages of the customer journey.
UPSELLING & CROSS-SELLING
- Upselling: Based on the subscriber’s behavior or preferences, do you think they will benefit from a higher-tier subscription?
- Cross-Selling: Aside from the current subscription they’re on, what other products or services of yours can the customers sign up for so they can maximize the value of their existing subscription?
PERSONALIZE AT SCALE
Study data and insights on the behavior of your subscribers. Conduct surveys and regular check-ins, then optimize accordingly. Refine, optimize, review, repeat.
INVEST IN PARTNERSHIPS
Collaborate with other brands that your subscribers might benefit from.
When businesses are able to create amazing experiences, customers are satisfied and they will continue their support.
Remember: The quality of your customer experience will affect your customer retention rate.
Why is the subscription business industry continuing to boom?
Whether it’s SaaS, membership sites, subscription boxes, or online courses, subscription businesses are all part of a revolution that’s all about recurring revenue and loyal customers.
Kevin shares a few subscription stats from Recharge:
- Over the past two years (2020 – 2022), existing subscription brands grew their overall customer base by an average of 31% across verticals.
- Lifetime Value increased by around 15% between 2020 and 2021 across verticals
- Depending on the vertical, 42% of loyal subscribers stayed with merchants even after a year.
These statistics only prove that subscriptions proved to be a stabilizing force for merchants. As more eCommerce business owners realize the advantages of recurring revenue, the subscription industry continues to boom.
Additionally, Blair attributes the growing popularity of subscription businesses to the creator economy and the shift in ownership mindset.
“Memberships, subscriptions, online courses, and recurring revenue are what the creator economy is all about,” Blair explains. “People are beginning to appreciate the value of ‘owning’ non-tangibles, and the subscription model is at the center of that shift.”
Predictions about the future of the subscription industry
As the demand for convenience and personalization increases, subscription businesses will continue to grow. More online businesses are starting to adopt the subscription model to grow their customer base and revenue.
So where is the industry going? What will the future of subscription businesses look like? Our experts have some thoughts.
Prediction #1: Reliability + personalization = loyal customer base
Customer loyalty plays a big role in the success of a subscription business. After all, loyal customers mean satisfied customers. Satisfied customers mean continuous revenue.
So as acquisition becomes more challenging, merchants who put in focus to carve out a loyal customer base will win.
What does it take to build a loyal customer base? Kevin lists down a few things:
- Reliability. Consistent and dependable products, services, and tech are important to keep your subscribers satisfied. Do explore integrations that will help improve processes and the overall user experience.
- Personalization. Implement workflows that can help further tailor their experience according to their behaviors and preferences. Examples include birthday greetings, custom upsells and recommendations, and even tailored content.
- Flexibility. There are many platforms, apps, integrations, and solutions you can test to improve the overall customer experience. However, do embrace a tech stack that will still allow for flexibility.
Prediction #2: More brands will incorporate a subscription element into their business model
Blair predicts that the subscription industry will just keep growing and growing. Why? Let’s look at some of the benefits of a subscription business:
- The recurring revenue model helps create a more predictable revenue stream which helps stabilize cash flow
- It gives plenty of opportunities for building stronger relationships with customers
- Access to customer data and insights based on subscribers’ behaviors, preferences, and habits
In today’s digital world where relationships with customers are fast becoming a critical measure of business success, we will definitely expect to see more brands incorporate a subscription element into their business model.
Prediction #3: Cryptocurrency and NFTs will change the face of eCommerce and subscription businesses
Cryptocurrency, non-fungible tokens (NFTs), and the call for decentralization are poised to transform the subscription industry.
- Some businesses are already starting to accept cryptocurrency as an alternative and more flexible payment options
- NFTs can be used to offer exclusive content or experiences to subscribers
As the crypto space continues to evolve (who knows where it will be in the next few years?), it would definitely be interesting to see how subscription businesses integrate them into their business models.
While there will definitely be challenges and risks as they navigate through something new, the potential benefits could far outweigh the risks. Early adopters may have a competitive advantage.
3 concrete actionables that subscription businesses can start implementing right away
Actionable #1: Focus on reducing churn and improving retention
Customer churn—whether voluntary or involuntary, is an issue that subscription businesses continue to deal with.
Voluntary churn is when a customer chooses to cancel their subscription. Usually, this happens when they no longer find value in your product or service. Thankfully, there are some strategies that can help keep your subscribers satisfied so they will have no reason to cancel.
Tips to reduce voluntary churn:
- Provide excellent customer service to help address subscribers’ issues or concerns
- Offer flexible subscription options
- Incentivize subscribers who have been with you for quite some time
- Offer personalized content and recommendations based on subscribers’ interests and behavior
- Monitor subscriber behavior and implement a win-back campaign before they become inactive or decide to cancel their subscription
- Use customer feedback to identify and address pain points and improve the overall customer experience
Involuntary churn, on the other hand, is when subscribers end up with canceled accounts due to failed payments. When the recurring payment fails to go through, subscribers are automatically unsubscribed. This can happen due to a number of reasons:
- Expired credit cards
- Maxed out credit card
- Outdated billing information
- Technical issues or bugs
- Suspected fraudulent activity
Something to note about involuntary churn: it is tagged as the silent killer for subscription businesses. If you don’t keep an eye on this, your customer churn rate will increase and your revenue will suffer.
Once a subscriber has churned involuntarily though, what can you do? Remember that they didn’t mean for this to happen—which means there is a better chance of recovering that lost revenue.
GQ gives a few tips on how subscription businesses can recover revenue from failed payments.
- Implement dunning technology (if you don’t have one yet already in place)
- Have a dedicated person dedicated to reaching out to customers with failed payments. You can start with a couple of hours a day and adjust depending on volume.
- Create a cadence with a mix of emails, calls, or even SMS. This cadence has to be personalized as much as possible
Actionable #2: Build a rich customer experience and a two-way relationship
Ultimately, the success of a subscription business is very much dependent on the relationship with customers. According to Kevin Lew, here are some things that subscription business owners must remember:
- Understand your customer base. This helps to predict the overall performance of your business. Plus, truly understanding your customers will set the stage for longer-lasting and stronger relationships.
- Focus on creating tailored communication through multiple channels. You don’t have to use all the channels—you just need to be where your subscribers are. Leverage those channels by tailoring your messaging.
- Remember that the customer experience doesn’t end with churn. Just because subscribers have churned, it’s already the end of the story. That’s why it’s important to keep an eye on involuntary churn rate—because you can actually recover revenue that is rightfully yours.
Actionable #3: Use a non-hosted platform to maximize growth
The technology you use to manage your subscription business also matters. Blair advises business owners to use a non-hosted platform to truly maximize the growth potential of the business.
While it’s true that hosted platforms are convenient, they have some limitations that will hinder you from customizing your subscription business.
Essentially, a non-hosted platform will help you:
- Optimize the customer experience
- Personalize your offerings
- Experiment with different pricing tiers and strategies
- Scale the number of subscribers without downtime or technical issues
Key takeaway:
Building a successful subscription business requires careful planning, strategizing, and execution. Plus, the work doesn’t stop with getting subscribers. It’s important to focus on creating a great customer experience at every stage of the customer journey.
As the subscription industry continues to grow and evolve, it’s crucial to stay ahead of the competition. By following these actionables, subscription businesses can foster a loyal customer base and sustainable recurring revenue.
Contributors
- GQ Fu, Co-founder, LTVplus & Recover Payments
- Blair Williams, Founder & CEO, MemberPress
- Kevin Lew, Integrations & Technology Partnerships, Recharge
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