10 tips for running a profitable subscription-based business

Experts in customer acquisition and retention and ecommerce share advice on how to create and sustain a successful recurring-revenue business.

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“Enable clients to auto-renew, or have a frictionless system for renewals,” says Janet Kosloff, cofounder and CEO, InCrowd, a provider of real-time market intelligence. “When you make it easy for the customer, they’re more inclined to stay.”

You can also make renewing automatic (giving the customer the option to opt out).

6. Offer something outside the box. “Successful subscription companies add value outside of the solution itself, often through content or community,” says Anne Janzer, an author and marketing consultant. “Companies like Birchbox, Dollar Shave Club and Blue Apron deliver much more than what’s in the box. Dollar Shave Club sends a newsletter filled with games and humor; Birchbox has online magazines, etc.” There are different ways to add value. You can do it “through content, community and stories,” she says. Just do it “in a way that is consistent with the brand identity.”

7. Don’t skimp on packaging. “Packaging matters,” says John Monarch, CEO, Direct Outbound, a fulfillment company that handles shipping for dozens of subscription box products. “Don't use a USPS flat rate priority box. It looks and feels cheap. If you're a premium business, have premium packaging,” he argues. “There are plenty of ways to make it easy to ship while looking high quality and keeping costs low [that can] make a huge difference in how your customers perceive the box and can increase retention significantly.”

8. Use a fulfillment service. “There are dozens of companies that help subscription box businesses with the dirty work of picking, packing and shipping,” notes Lininger. “Unless you love paper cuts and glue-mouth, do yourself a favor and find a partner for this. It's surprisingly cheap and easy if you do it [right].”

9. Provide excellent customer service. “Make sure your customer support reps bend over backwards to help your subscribers,” says Kat Fulton, founder, MusicTherapyEd.com. “In our email communications, it is our policy to always say ‘Thanks for going VIP!’ to our VIP subscribers. Our niche is filled with passionate people, so we match their passion with our gratitude.” As a result, “while the industry standard for membership retention is three months, our average stay time is 13 months, and we're very proud of it.”

[ Related: 11 Tips for Improving Your Company’s Customer Support ]

10. Use analytics to spot problems and decrease churn. “Track everything with analytics, especially your conversion funnel and attribution for digital spend,” says Bumgardner. “Define your key performance indicators and make sure your team sees these dashboards on a regular basis (e.g., acquisition cost and lifetime value).”

“Average revenue per user (ARPU), average revenue per paying user (ARPPU), average customer lifetime value (ACLV) and monthly recurring revenue (MRR) are just a few of the metrics that you'll want to keep an eye on, depending on which model you pursue,” adds Bryta Schulz, senior vice president Marketing at Vindicia, a provider of enterprise-class subscription billing. “Track these against customer acquisition costs, and make sure you're achieving return on investment.”

Also consider creating “cancellation surveys to understand why customers are churning, and use the findings to alter your product and customer communications to combat churn,” says Bumgardner. Similarly, “consider sending net promoter score (NPS) surveys to proactively gain insight into opportunities for improving your product and pricing.”

Copyright © 2015 IDG Communications, Inc.

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