Mark Fraker, the Vice President of Marketing at POS distributor BlueStar and the current Chairman of the Retail Solutions Providers Association (RSPA), told me his father shared this pearl of wisdom with him way-back-when: “God gave you two ears and one mouth, and you should use them in that proportion.”
I’m glad I was listening to Mark when he said that because I picked up a valuable tip last fall at BlueStar’s VARTECH Conference in Orlando. I was participating as a panelist for a discussion on recurring revenue when an audience member mentioned the book The Automatic Customer by John Warrillow. The book proved to be full of specific details about subscription model best practices you can apply to your business. Warrillow calls out software companies in particular and provides them with resources that will help ISVs generate more recurring revenue.
Here are 18 of my favorite passages and concepts from the book plus those software-focused resources that I mentioned:
- This book will show you how to apply the subscription business model to your own business no matter what your size or industry.
- The very act of sinking money into a subscription triggers the desire for the consumer to want to “get his money’s worth.”
- Data has become an asset, and nobody has more customer information than a subscription business.
- Whether you like it or not, you are now competing in the new subscription economy, and it’s up to you to decide if you’re playing defense or offense.
- Subscribers are better than customers.
- The challenges of adopting the subscription model: The biggest risk is spreading the cash you receive from a customer over the life of the subscription. The second-biggest challenge is getting your employees on board.
- In a subscription business, understanding your financial performance requires a new set of operating statistics: monthly recurring revenue (MRR), lifetime value of a subscriber (LTV), customer acquisition cost (CAC), churn rate, and more.
- Sales approaches ranked from most expensive to least: Field sales people, telesales, self-serve.
- Most successful subscription businesses also need to invest heavily in systems and branding up front, which is why a lot of them go outside to raise capital.
- “Outside capital is risk capital, and it’s a great opportunity to become misaligned.”
- After studying 50 deals, they found only one case in which the founders got more than their venture backers. In more than half of the venture-backed exits, the founders got nothing.
- Shifting from selling a one-shot product or service to selling a subscription is like the difference between a one-night stand and getting married.
- Convincing your own staff to build a recurring revenue stream can be one of the hardest sales of all.
- Your first step to reducing churn is to understand why people leave and to do what you can to improve your offering.
- One of the biggest reasons people stop subscribing to any service is the perception that they are paying for something they are not using. Therefore, your biggest competitor for your subscription business is your customer’s inertia in not using your service.
- Charging up front actually reduces churn at the one-year point. The customer invests more time to get to know your service, which makes them stickier in the long term.
- Using data about your subscribers to surprise them from time to time can go a long way to keeping the relationship alive and well.
- No matter the size, product, or service, subscribers are better for your business than customers.
- Recommended resources
- AutomaticCustomer.com: Includes a worksheet of the 9 different subscription models
- SellabilityScore.com: Score the eight key drivers of sellability
- ForEntrepreneurs.com: Blog for subscription-based software companies
- ASmartBear.com: Blog with a focus on cloud-based software companies
- Chaotic-Flow.com: The math behind building a successful subscription business
- Cratejoy.com: Software platform for subscription-based e-commerce companies
If you’d like to talk more about how to transition your ISV organization to the recurring revenue business model, please reach out to me. My job as a Reseller & ISV Business Advisor for Vantiv’s (now Worldpay's) PaymentsEdge Advisory Services is to work with our partners to help them clarify their vision, hire the best team, develop staff, establish best practice systems, improve customer service, and more.
Jim Roddy is a Reseller & ISV Business Advisor for Vantiv’s PaymentsEdge Advisory Services. He has been active in the POS channel since 1998, including 11 years as the President of Business Solutions Magazine, six years as a Retail Solutions Providers Association (RSPA) board member, and one term as RSPA Chairman of the Board. Jim is regularly requested to speak at industry conferences and he is author of the book Hire Like You Just Beat Cancer.