Just about every industry has hopped on the subscription model bandwagon. For those who do it well, it can serve as a powerful method to grow your organization and retain loyal members.
The nonprofit world has much to learn from the success of large subscription companies like Netflix and HelloFresh.
First, you need to understand the basics of the subscription business models. In this post, we’re covering the subscription model basics and sharing top tips to take it on in your organization, along with some tips from Robbie Kellman Baxter, the world’s leading expert in subscription pricing and membership models.
Ready to transform your business model? Let’s get started!
The Subscription Business Model Basics
What Is a Subscription Model?
With a subscription model, a business charges a recurring fee for an ongoing service or a product. Essentially, you’re providing a forever promise to members and customers.
If your organization has a long-term offering that provides long-term value, then subscription pricing may be the route for your organization.
When done right, subscription models allow for strong customer relationships and high revenue. If customers continually find your offering meaningful, they will commit to paying for it time and time again.
How Do I Get Started?
According to Robbie, you start with your members — not your product. In a recent Subscription Strategies webinar with Wild Apricot, she warns, “Don’t fall in love with your product.”
Instead of getting invested in a product or service idea, take the time to understand who you’re serving. What are your potential members’ pain points, and how will your organization solve their problem? From there, you can establish what your big promise is.
Want to check out the whole webinar? Watch it here.
What Types of Subscription Models Are There?
There are two basic camps of subscription models, ones that provide access to content and ones that offer an ongoing product or service. Here are a few examples.
If your organization’s goal is to educate, inform, and engage with a group of people, then an access subscription is the way to go.
These are typically membership-based, where members become part of a community and receive ongoing resources and opportunities tailored to their niche or industry.
Washington State Society for Clinical Social Work is a membership-based organization that promotes and advances the social work profession. The WSSCSW offers its members continuing educational opportunities, legislative advocacy, network and professional growth opportunities, and special programs for new professionals.
If your organization provides a physical product, then you can consider a product subscription. The power-houses of product subscriptions include streaming services like Spotify, subscription boxes like a Wine Club, and software like MailChimp. Most product subscriptions are value-based, meaning users can choose from a tier of priced packages.
Can nonprofits use product subscriptions? They absolutely can. Check out Nourish Box.
Modeled after popular meal kit services, Nourish Box is a New York City-based nonprofit that delivers nutritious meal kits to food-insecure communities. Supporters can donate $50 a month to cover the cost of providing a family with ongoing meal kits.
What Are the Different Phases of a Subscription Model?
According to Robbie, there are three crucial phases of a subscription model: launch, scale, and lead.
The launch phase is all about strategy. This is the time to define your forever promise, determine your best member, and create a product-market fit.
Once you have done your research and are confident that you can attract, engage, and retain members — it’s time to launch.
The scale phase is all about operations. This is the time to get automated and systematic. When you take the time to develop efficient processes, you’ll be able to scale.
You made it! In the lead phase, you look like a membership organization. You have members, you have a community, and your pricing is focused on the right metrics. Your challenge in the lead phase is to stay fresh and relevant.
Baxter says about this stage, “You are always improving it just a little bit. You want to be fresh, but you don’t want to change it so much that members are asking themselves, ‘wait a minute, this is not what I signed up for.’”
How Do You Determine Pricing for a Subscription Model?
First things first, the prices you command have nothing to do with your organization’s size, but rather the value you bring to members and customers. So, before you determine subscription pricing, dig deep into the depth of value you will be providing.
With that said, subscription models typically offer a tier of pricing. One price will not fit all. With price tiers, potential customers can choose a package based on their individual needs and willingness to pay. Keep in mind that the pricing you set can and likely will change. As your organization grows and as your product increases in value, your prices will likely increase.
You can also consider a freemium option, which means that you offer a downsized and free version of your membership or product. We have all taken advantage of the free version of software and other subscriptions. This is not so much a pricing model but a tactic to nurture free members to become lifelong paid customers.
7 Tips for a Successful Subscription Model
Are you inspired to implement a subscription model for your organization? If so, we have a few more tips to ensure your membership organization thrives.
1. Is it Worth Signing Up?
The upside of a surplus of subscription-based companies is that you will have plenty of models to draw from and an increase in resources to use the model successfully.
The downside? Subscription fatigue.
Today, there are so many subscription businesses that you must have a strong value proposition to stand out. Know your customers’ challenges well, and create an offering that perfectly solves their problem in a way that other solutions out there don’t yet.
2. Figure Out the Why
Why do you want to have a subscription model? Do you want to increase your revenue, grow faster, or create an engaged and long-lasting community?
Having clarity on what your goals are will allow you to reach them strategically. These goals will inform how you price your offering, who you will market to, and how exactly you plan to get and retain members and customers.
3. Keep It Simple, Silly
You put in the work to identify your ideal members and their pain points. You created an incredibly valuable solution for them. Now that it’s go time, it needs to be incredibly easy to sign-up. (Think Amazon express check-out easy.)
When people are ready to become members, they should be able to do so on multiple channels, whether online, mobile, or with assistance.
Automate your sign-up so that the experience is seamless and straightforward. Be sure you have customer service readily available and on several channels.
When you’re ready to create your own membership site, read The Ultimate Guide to Creating A Membership Site and How to Create an Amazing Subscription Website in Less Than a Day.
4. Avoid Zombie Members
When was the last time members engaged with you? Do you have zombie members on your hands?
“Zombie members are people who are paying for your services but not using them,” says Robbie. These kinds of members will eventually leave your membership, since they’re not seeing value. Tracking and understanding your members’ engagement will help you identify inactive members, so you can intervene and retain them.
To track engagement, there are three things you’ll want to look at: recency, frequency, and depth of usage. “When was the last time they did something with you? How often do they do something with you? And when they do something with you, how long do they spend and what breadth of features do they use?” asked Robbie.
For example, if you notice that several members are not taking advantage of workshops offered through your membership, email them and ask them what kinds of workshop topics they would benefit from. If you’re tracking those metrics, you’ll know when they’re not where they should be and you can adjust from there.
“You want to get them back as soon as you notice it, and not wait until the next renewal,” said Robbie. That way, your members won’t feel like they only matter to you when you want to get more money from them.
Want to learn more about member retention? Read 9 Proven Ways to Increase Member Retention Right Now.
5. Money, Money, Money
Billing for a subscription business model is more complicated than your usual online store selling only products. You will have new accounts, prorated accounts, and multiple billing dates. Without a solid and holistic financial system in place, you could spend your whole day suffering through billing alone. Not to mention that if your members have billing issues month after month, they will jump ship.
Do your research when choosing a subscription management system. At the very least, be sure it’s reliable, automated, and seamless for both you and your members.
6. Make a Plan
No matter what phase of the subscription model you’re in, have a plan to scale.
At the most basic level, keep a good record of new member rates, churn rates, revenue, and operation costs. This big picture snapshot of your organization will reveal if your organization is sustainable and growing.
With this knowledge, you’ll know when it’s time to upgrade your systems and infrastructure to take things to the next level.
7. Ask for the Truth
The reality is, churn rates will always be part of having a subscription model business. And that’s ok. No company retains every single member.
Understanding why members are leaving will provide invaluable insight into improving your subscription organization.
Track the reasons people are leaving with a simple exit survey or even an exit interview as people go. Seek out honest and straightforward reasons why people left.
If you can develop the kind of value your former members were seeking, you’ll have an opportunity to engage with lapsed members. Maybe billing was frustrating, and you can relay that you have invested in a new system. Perhaps they were overwhelmed with content — reach out and let them know they can now download resources for later use.
You can also consider implementing a pause button, so that lapsed members can quickly come back on board when the time is right for them.
There’s a reason why the subscription business model is booming. It’s built to create community and long-lasting customer relationships. It’s a savvy payment method that many organizations can implement with the right offering, tools, and planning.
Is your organization considering a subscription business model? We would love to hear about it! Let us know in the comments.