Gold key with the word Success at the end - key to unlock recurring revenue success

The Keys to Building a Robust Subscription Business

keylight founder and CEO, Dr. Marco Sarich, shares his blueprint for creating a robust subscription business including six key action items.

Subscriptions continue to rise in popularity, despite rising subscription fatigue and macroeconomic factors affecting the global marketplace. Subscriptions inherently have a certain level of sustainability and robustness that insulates them from disruption and competition. In a way, subscriptions future-proof businesses, making them an attractive revenue model for many organizations.

Subscriptions may be easy to replicate, but it’s much harder to turn them into a robust and successful revenue model. Why? Dr. Marco Sarich, founder and CEO of keylight, explains:

“The product itself is easy to copy. [And it’s easy] to have competition and disruption. But once you establish customer relationships as part of the subscription and have it more individualized, you actually reach this robustness.”

While many companies strive for the robustness seen in organizations like Adobe, Spotify and The Atlantic, only some of them are able to emulate that level of success.

If this view doesn’t inspire hope, don’t worry. Thanks to Dr. Sarich, not all is lost. By implementing the following blueprint, subscription companies can become more robust.

Dr. Marco Sarich, founder and CEO of keylight at Subscription Show 2022. Copyright © 2023 Authority Media Network, LLC. All rights reserved. 
Reproduction without permission is prohibited.
Dr. Marco Sarich, founder and CEO of keylight at Subscription Show 2022
Copyright © 2023 Authority Media Network, LLC. All rights reserved.
Reproduction without permission is prohibited.

The evolution of the subscription business model

The key to creating a successful and robust subscription business is understanding a very important question: How do you define “subscription”?

Subscriptions have changed dramatically over the years thanks, in part, to the pandemic. At first, there was a simple recurring order. Instead of buying a newspaper or a toothbrush when they’re needed, subscribers agree to receive these items on a recurring basis. The length of this contract varies (e.g., month-to-month, semiannually, annually, two years), but the company collects a fee for their products and then provides them. These two aspects are what define a subscription: an offering on a recurring basis and a time component.

For a modern subscription, however, these two components are not enough. When disruptors like Netflix entered the market, the definition of a subscription changed. Now, a subscription had to not only provide products or services on a recurring basis over a period of time, but they also had to provide subscriptions that were service-oriented. Instead of singular events where a product is provided once, businesses were expected to continually provide products or services. At any point in time, an event could happen, and a company needs to be able to respond to it. 

For example, StitchFix started by providing boxes of curated items to their subscribers. They then developed their online store, where subscribers could buy items outside of their box at any time. They have now gone the extra step to eliminate the subscription model. Instead, they have members who can buy recommended outfits or buy one piece at a time.

“These two points are interesting,” says Dr. Sarich. “You may say, ‘I have a term and there’s something recurring. That’s a subscription.’ But these are not the main characteristics. If you look at leasing, for example, many people have been confused because, with leasing, you may say, ‘Why is this not a subscription, too? There is a term and then a payment on a recurring basis.’ But it’s not a subscription. Why not?”

A lease, for example, is not a subscription because what the customer pays is directly related to the product. The definition of the subscription model as it’s known today is no longer about products and services. Instead, it’s focused on customer relationships.

“It’s much more about building a customer relationship, creating value, and then creating a pricing model that captures this and monetizes it,” says Dr. Sarich.

Subscription businesses need to consider how to create products and services that make their relationship with subscribers more valuable and interesting to them. Once that’s established, businesses can determine how to monetize those offerings. 

Copyright © 2023 Authority Media Network, LLC. All rights reserved. Reproduction without permission is prohibited.

Why be user-centric?

“Everything starts with the user and revolves around the user,” Dr. Sarich says.

Becoming user-centric requires business owners to reorient their perspective on how subscription business processes work.

“When you think about it, users are not only customers,” says Dr. Sarich. “Many other people are involved in the relationship and how the relationship progresses.”

Resellers, distributors and distribution chains are just a few of the external parties involved in these relationships. Factor in internal teams — sales, customer success, marketing and accounting — and there are many parts that affect a business’s relationship with its customers.

This is why it benefits subscription companies to be user-centric. Users are the through-line in all the components of a recurring revenue company.

“One word that’s important here is ‘journey.’ That’s the dynamic component. User-centricity really means putting the user journey first — thinking in journeys. Not thinking about revenues or recurring pricing models, but how the process starts. It starts with the users. Everything else results basically from it,” says Dr. Sarich.

Often, Dr. Sarich has seen companies try to reverse-engineer this process. Instead of focusing on the customer journey and all of the events that happen along the way, business owners will create models centered around pricing or offerings. As companies develop their businesses this way, it becomes more and more difficult to build out the processes needed, and to automate them, in a way that will ultimately bring value and interest to the customer. This leaves customers confused and stunts the scalability of the business.

However, if business owners approach building a subscription business by following the customer journey, they find it’s much easier to build and automate all of the processes that will support the success of that journey.

“From this journey, it’s now very easy to see what needs to be done,” explains Dr. Sarich.

Each event lays out the blueprint for success. More importantly, designing a business around the customer helps business owners answer two very important questions: Do you really understand your customers? Can you predict what happens next?

In the process of automating aspects of the business, a lot of data is generated and collected. Though this data can illuminate trends, organize customers into clusters, and support decision-making, it’s difficult to be precise if not approached from the customer journey perspective.

“This is why it’s so important to understand the customers and adapt your model so that you can actually control what will happen next,” says Dr. Sarich.

A futuristic graphic of gears with the words Customer Journey written on the largest gear, on a dark blue background.
Source: Bigstock Photo

Event-based decision-making

Though the customer journey may seem straightforward, in reality, it’s more like a maze. There are many turns a customer takes along the way and not all of them will lead to a successful payment or long-term subscriber. If the customer starts on the top left side of the maze, beginning with the first “event” as defined by the business, then there are usually two outcomes: happy subscriber (top right) or churned subscriber (bottom right).

“How do we analyze this customer journey? One thing that you can do is to find a spot in this maze that almost everyone that is successful needs to go through. So almost all the people that went from the top left to the top right went to this point,” says Dr. Sarich.

From there, business owners should iterate the process. Where is the most important event between the start of the customer journey and the success pivot point? Essentially, halving the distance between the start of the journey and the next important event will help businesses determine what they specifically need to do to keep the customers they’ve acquired.

“If you do this, you actually get complete paths that show you the way, the most efficient way, from the top left to the top right and also from the top left to the bottom right,” says Dr. Sarich.

Iterating the customer journey in this way can shed a lot of light on the entire process. It outlines the goals that subscription businesses should strive for and elucidates warning signs of churn.

“It’s interesting because already it gives you much more information on the dynamics and what is happening because you’re looking at journeys,” Dr. Sarich says. “And what you can also do is control this. You can say, ‘Let’s change the game. If I see that we’re headed towards this four-month, no-upgrade mark, let’s try to bring the customer back. Let’s try to drive them back by, for example, giving a discount, changing the pricing model, or contacting the customer. There are many things you can do to bring them back to this path.”

Dr. Marco Sarich, founder and CEO of keylight at Subscription Show 2022
Copyright © 2023 Authority Media Network, LLC. All rights reserved. 
Reproduction without permission is prohibited.
Dr. Marco Sarich, founder and CEO of keylight at Subscription Show 2022
Copyright © 2023 Authority Media Network, LLC. All rights reserved.
Reproduction without permission is prohibited.

Actionable steps

If all of this sounds complicated, it doesn’t have to be. Dr. Sarich offers six key action items for business owners seeking to implement user-centricity.

1. Internal alignment

“There are many, many departments [in a business] and it’s important that they align on [the user-centric] mindset and state.”

2. Set clear goals

“This one is important. We see this very, very often that the goals are not completely clear across the departments. You can use the [subscription] trinity for this: what are the goals related to user experience, automation and predictive analytics? Don’t skip the user experience part; don’t just go for the analytics part or the automation. Really make sure you cover all of this.”

3. Customer journeys

“Think about customer journeys first.”

4. Think end-to-end

“Start from the beginning of the customer journey, don’t reverse engineer. That’s very important.”

5. Experiment

“This is something particularly important for subscription businesses. It’s not easy to get this right in the first place. It’s important to have flexibility so you can experiment fast. If you try something out that doesn’t work, adapt it so you can easily offer something else. And it’s not only about experimenting on the pricing level — this is what many people do — it’s really also for journeys. Let the customer give themselves self-service, they can log in themselves and upgrade if they want to. Or add a particular add-on for a particular market.”

6. Be iterative

“Once you get feedback from these experiments, start at the beginning, start a new project, but keep it small. Really try to move quickly in this direction.”

Final Thoughts

What makes a subscription business robust? According to Dr. Sarich, it means 1) having the correct definition of “subscription,” 2) centering the business around users, and 3) making decisions based on the events in a customer journey. Dr. Sarich also urges business owners to not simply “improve” the user experience, but rather build the business around the customer journey. Ultimately, if a subscription company can build its business in this way, it can cultivate robustness that will help them scale successfully.

Copyright © 2023 Authority Media Network, LLC. All rights reserved. Reproduction without permission is prohibited.

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