(776 words – 6 min)
Growing a traditional or transactional business may not have been easy, but it was easy to understand. Create great products. Use marketing to get the word out. Hire salespeople to close deals. The better you do each of these three activities, the more revenue you will make. Let’s call these actions part of the ‘win,’ for winning new customers.
Subscription businesses must also win customers, and the process is essentially identical. But this is only the first of three revenue buckets a subscription company must manage, especially if they want to grow. The three revenue buckets are win, keep, grow. Subscription companies must win customers, keep customers and grow customers.
Once you win a new customer, you need to keep them subscribed. It often takes months for a customer’s payments to cover the cost to acquire that customer. This means if a customer churns quickly, you lose money on that buyer. Subscription companies quickly learn the crucial need to minimize churn. Many companies create new departments called customer success for this purpose. Creating valuable products and helping customers use them successfully is key to keeping customers.
Growing Your Customer Base
If you keep your customers and continue to win more, your company will grow. But if you want to accelerate, you need to focus on the third revenue bucket as well: grow. You need to focus on growing the amount of revenue you earn from individual customers. How can you get a customer to pay you more this year than they did last year? It turns out there are four ways to grow a customer: price, usage, upsell and cross-sell.
You can increase your subscription price. Once a customer buys and uses your subscription, they hopefully fall in love with it. They build their processes around it. Your product becomes very sticky. If you raise the price, your customer won’t be happy, but they will pay it. For example, I use Quickbooks online for my business. Every year, they raise my rate. But to switch to another vendor would cost way more in time and effort than I would save.
A key to pricing anything is to make sure you are charging for value. In subscriptions, if you choose the right pricing metric (what you charge for), then as the customer uses more of your product, they get more value and they willingly pay you more. For example, Salesforce charges by the user. Imagine being a customer of Salesforce. As your company grows, you hire more sales and sales support people, you need more licenses, so you pay Salesforce more. This happens because they chose a pricing metric — the number of users — that grows as you are more successful.
Many successful subscription companies offer good, better and best product portfolios. The key is to have an inexpensive offering — the good one — to win a customer. As the customer uses the product and learns how valuable it is, the customer wants to be able to do more. Hence, they upgrade to a higher level, meaning better or best. As you look at subscription pricing pages, you will often see them clearly lay out the upgrade path.
As you become more successful, you will likely create more products that are related to the products that made you successful. They don’t really fit in an upgrade path, but since you’ve built a trusting relationship with your customers, they would happily consider purchasing additional products from you. Hubspot is a clear example of this. They offer both CRM and marketing automation. You can purchase one or the other. But, once you’ve purchased one and built confidence in Hubspot, it’s easier to choose to adopt the other.
You have likely heard or used the phrase “land and expand.” Many companies say this. They invest heavily in ‘land’ but rarely give ‘expand’ the attention it needs. Stop and think for a moment. What strategies and tactics are your company currently using to win customers? How about keeping customers? Now, how about growing customers?
Growing customers doesn’t happen by accident.