People don’t want more stuff, they want more experiences. Access to more content, more music, more videos, more fun rides but without having to think about where to store all of this.
In Subscribed, Tien Tzuo, the founder of Zuora, software for subscription-based businesses, explains how the world is shifting from products to services and why you should adjust your business model to a subscription-based one.
The Core Idea
We want the ride, not the car. The milk, not the cow. The music, not the physical record collecting dust somewhere in our apartment. That’s the reason number one subscription companies are growing nine times faster than all the others on the Fortune 500 list. Reason number two? Because, unlike product companies, subscription companies know their customers. They offer ongoing value which leads to recurring revenue.
Highlights:
- The traditional business model is obsolete. You need to focus on creating a subscription-based business.
- The world is moving from products to services and people no longer want to own stuff, they want the outcomes the products offer.
- To reduce your churn rate you need to deliver ongoing value.
Lesson #3: Deliver Ongoing Value
You’re going to be out of business in less than 15 years if you’re not doing subscription services. How to do it? Start with the customer in mind.
Gather as much information as possible about your future customers. Spend your time where they spend it – forums, social media groups, blogs, Reddit. Use the collected observations to create a service that offers ongoing value, something that will satisfy your customer’s needs.
Something that will save them time. Ease their everyday life. Something that will make them scream for more.
Of course, the best way to deliver your product is digitally. People are already used to paying for online services – as long as they offer value.
The Benefits
You don’t have to invest a lot of money up front to have all the equipment you need; you don’t have to figure out where to store all the heavy machinery; you don’t have to repair, you just plug and play. Once you’re done, you return the goods.
If you can package and deliver the value a certain product offers (e.g. the knowledge of the book, not the actual book), or a group of products, at a lower rate, you’ll create a competitive product which people will want.
Old Vs New
Back in the old days, companies could grow by only doing these three things:
- Sell more units
- Increase their prices
- Decrease the cost required to make those units.
Nowadays it’s a bit different. To grow, you need to enter into a relationship. To be transparent. To care. To be prepared for a solid partnership. But all of that is worth it. When your business is based on recurring revenue, you no longer have to worry about the next quarter. You can measure your income down to the cent.
Lesson #1: Traditional Business Models Are Obsolete. We’re In The Era Of Subscription Economy
People nowadays prefer outcomes over ownership. They want the ride, not the car. They don’t want to deal with the maintenance of the car. Besides, subscription-based businesses enjoy fresh income and they don’t have to advertise like crazy to earn a buck.
Lesson #7: Lower the Churn Rate by Investing Back in Your Business
Churn basically means the percentage of people who stop paying you during a given time period. If the churn rate is high, your offering is probably not good enough.
Reasons for high churn:
- Weak customer service
- A poorly upgraded product
- A better offer from the competition
- Payment challenges
- People no longer interested in what you do or they simply found a better alternative
- Weak relationship between the brand and the end customer
Churn rates between 20 and 30 percent are considered normal. But you should do whatever it takes to lower this.
Lesson #2: The World is Moving From Products to Services
Subscription companies like Netflix and Spotify are exploding because billions of digital consumers are increasingly favoring access over ownership. You all know that already. I mean, owning CDs or downloading songs is so old school that even your grandpa is not doing it. Instead of buying cars, people are starting to prefer Uber and Lyft services.
Most companies are still built to sell products. They focus on selling only once, making only one transaction. In contrast, subscription-based companies build a solid relationship with their potential clients and eventually offer a service, or even a physical product, that will lead to a long-lasting relationship.
Lesson #4: Deliver the Value That Sits Behind the Product.
Think about companies like Spotify or Netflix for a moment. Do they produce content? No. Well, now Netflix is investing heavily on their own series but the core of their product is access to all TV shows, most of them not produced by them. It’s similar to Uber, Airbnb, Facebook. Uber, the world’s largest taxi company, owns no vehicles.
How to Avoid Churn
Invest back in your business.
- Invest in high-quality services, packaging
- Add new features that can reinforce your main product
- Offer top-notch customer service
- Build a relationship with your customers. You can do this by regularly sending them personalized emails
- Stay competitive but don’t lose your own voice
7 Key Lessons
- Lesson #1: Traditional Business Models Are Obsolete. We’re In The Era Of Subscription Economy
- Lesson #2: The World is Moving From Products to Services
- Lesson #3: Deliver Ongoing Value
- Lesson #4: Deliver the Value That Sits Behind the Product.
- Lesson #5: Ownership is Dead. Convenient Access is the Right Future Approach
- Lesson #6: Subscriptions Leads to Growth
- Lesson #7: Lower the Churn Rate by Investing Back in Your Business
Lesson #5: Ownership is Dead. Convenient Access is the Right Future Approach
Media and software subscription services are obvious mentions for a subscription-based company. We’ve all heard them and it’s kind of hard to compete against them currently. What about the other industries?
There are still a lot of old business models that desperately need an upgrade.
- Healthcare: The current way is a practical joke!
- Government: Paying taxes, registering for business is a pain.
- Education: Not updated since eternity.
- Insurance: Many reforms needed in life and car insurance.
- Utilities: Rethink power/electricity bills.
- Real estate: Rent, not buy.
Lesson #6: Subscriptions Leads to Growth
Companies that are only interested in sealing one deal will soon be obsolete. They got their sale and they don’t care who you are. But that’s their biggest mistake.
Selling is about growth – you’re selling a service in order to help your company grow, and your customer is buying service in order to help themselves grow. So why not grow together?
