The Subscription Model

Episode 961: The Subscription Model, with Robbie Kellman Baxter

The subscription model is great for future revenue streams. Learn the ins and outs when you’re setting up the subscription model.

The subscription model is a must for every industry and organization these days to keep members in the loop. Robbie Baxter will guide you through the process of creating one and the pitfalls you need to avoid.

Robbie Kellman Baxter has been advising entrepreneurs on business strategy for 20 years. Her clients have included solopreneurs and venture-backed startups as well as industry leaders such as ASICS, Netflix, Electronic Arts, and The Wall Street Journal. She has worked with nearly 100 organizations in over 20 industries on growth initiatives.

A sought-after writer and keynote speaker, Robbie has presented at top universities, associations and corporations, as well as to corporate boards and leadership teams around the world. Robbie has created and starred in 10 video courses in collaboration with LinkedIn Learning on business topics ranging from innovation to customer success and membership.

As the author of The Membership Economy: Find Your Superusers, Master the Forever Transaction & Build Recurring Revenue, a book that has been named a top 5 Marketing Book of the Year by Inc.com, Robbie coined the popular business term “Membership Economy”. Robbie’s expertise with companies in the emerging Membership Economy extends to include SaaS, media, consumer products and community organizations.

Prior to launching Peninsula Strategies, Robbie was a strategy consultant at Booz-Allen, a New York City Urban Fellow and a Silicon Valley product marketer. Robbie received her MBA from the Stanford Graduate School of Business and graduated with honors from Harvard College.

What you will learn in this episode about the subscription model:

• Why membership and subscription plans are becoming ubiquitous across almost all industries and types of organizations
• What key trends Robbie is identifying around the subscription model, and why subscriptions offer greater value to customers even for physical products
• Why embedding a “forever promise” into your long-term strategy is vital for helping you refocus your business, and how to achieve product/market fit and scale your model
• Why periodically reviewing how you are delivering on your promise is necessary to ensure that you’re doing so in the most effective way
• What common pitfalls to watch out for, anticipate, and avoid when setting up the subscription model
• Why a “dashboard of metrics” can offer you better insights into where your opportunities for improving engagement can be found
• Why identifying your problems and challenges using intentionality and strategy is the secret to providing great value for your membership
• Robbie shares the story of the founders of LinkedIn’s first business, a dating website, and the issues they had with a “short term promise” business model
• How to navigate the infinitely complex issue of pricing, and how to change your pricing in a transparent way
• How to avoid the trap of “subscription fatigue” with your customers by delivering the right amount of unique value, and why hiding your cancel button is a huge mistake

Resources:

• The Forever Transaction by Robbie Kellman Baxter: https://amzn.to/3hLjsNh
• Website: https://robbiekellmanbaxter.com/
• LinkedIn: www.linkedin.com/in/robbiekellmanbaxter
• Facebook: www.facebook.com/MembershipEconomy/
• Twitter: @robbiebax
• Learn about proper pricing when creating the subscription model for your business

Additional Resources:

• Sell With Authority book written by Drew McLellan and Stephen Woessner
• Predictive ROI Free Resource Library
• Connect with Stephen Woessner on LinkedIn
• Listen to this related podcast about the subscription model with Sandra Martini

 

 

The Subscription Model: Full Episode Transcript

 

Get ready to find your recipe for success on the subscription model from America’s top business owners here at Onward Nation with your host, Stephen Woessner.

 

Good morning. I’m Stephen Woessner, CEO of Predictive ROI and your host for Onward Nation, where I interview today’s top business owners so we can learn their recipe for success, how they built and how they scaled their business. In fact, my team at Predictive ROI will be talking about this now for the last two weeks. Really, actually, for the last several months, about how we continue to rebuild and expand our free resources section on PredictiveROI.com.

 

In fact, it’s not even a resources section any longer. It’s more of a resource library. So you can download free practical and tactical guides for everything. How to build out your own authority sales machine. Everything you need to create your ideal client avatar, how to create a value ladder, how to build out a sales funnel, and how to make sure your content strategy aligns with the ten truths to what makes someone in authority within your niche.

 

So just go to PredictiveROI.com/Resources and as always, everything a request. We will send it right to your inbox. Okay Onward Nation, if you’ve ever wondered or considered the possibilities, like if you were to add a subscription or membership component to your business in the opportunities that doing that would bring to your clients and the potential challenges that you would need to thoughtfully plan.

 

Then today is an encore interview with Robbie Kellman Baxter is for you. Robbie is the leading expert on membership and subscription models. She’s written two books, and she’s consult with over 100 companies on their membership models, including Microsoft Electronic Arts in the Wall Street Journal. So Robbie and I we’re going to focus our discussion around the practical and tactical recommendations that you need in order to build a subscription model for your business that are so compelling Onward Nation that your customers will never want to leave.

 

Robbie’s latest book is entitled The Forever Transaction, which you can find on Amazon, Barnes and Noble, and everywhere books are sold. So without further ado, welcome back to Onward Nation, Robbie. 

 

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The Subscription Model: Robbie Baxter’s Introduction

 

Oh, it’s so great to be back, Stephen. Thank you for having me again. You are very, very welcome. Thank you for saying yes. And this is just such an incredible opportunity for Onward Nation to be able to learn from you.

 

I mean, the depth of your expertise on this topic, this is just going to be awesome, super practical and tactical and yet strategic too. So this is going to be a lot of fun. So but before we dive in with what I’m sure is going to feel like a litany or a barrage of questions that I want to send your way, actually give us some a little bit of context here.

 

Take us behind the curtain. And because I know that you’re actively researching and consulting in and working in this space every single day, tell us why you decided to write this book. You wrote a fantastic book. And now that your second book, mythos together, why did you feel so compelled to write this book? Yeah, it’s a good question.

 

It’s a little bit like having a second child. you know, you’re kind of like, I’m never going to do this again. And then you do it again. So, you know, five years ago, I published the membership economy, and I really wrote it because I’d been working with businesses using subscription pricing, digital community, liberal use of free trial and freemium in their business models.

 

And I’d seen all these patterns. And yet when I would talk to entrepreneurs or executives, a lot of times they would just scratch their head and say, well, that’s kind of interesting, but it’s not really relevant to my business because I’m in fill in the blank, whatever space they they didn’t see the connection. They didn’t see how the principles of, let’s say, Netflix could apply to their work selling dog food or professional services or subject matter expertise.

 

So I wrote the Membership Academy to share my vision. You know, this is a massive transformation. Here’s why it’s happening now. Here’s what it looks like in different industries. Here’s some of the key elements. five years later, I don’t have to explain to anybody why subscriptions are powerful and why memberships are desirable. everybody from, you know, Burger King to the local nail salon, everybody is doing membership, ship or subscription.

 

They all understand the power of recurring revenue. They all understand it leads to a better valuation in the public markets makes their business more sellable. When the time comes to move on and the challenges that they’re facing are how do I do it? They’re trying it. And they’re bumping up into problems, wherever they are.

 

So, you know, the questions, you know, used to be, I don’t understand why this will be relevant to me today. The comments are. Oh, you’re a subscription expert, Robbie. Well, we tried subscription, and it didn’t work for these reasons. Why didn’t it work? Or, we’ve been thinking about it, but we haven’t quite made the leap or we’ve been doing subscription for a while, and we’re now running into some new challenges and we’re not sure what’s changed.

 

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The Subscription Model: The Forever Transaction Book

 

And so this book, The Forever Transaction, I really wrote to break down the how, in three phases, how you launch a new subscription business, whether you’re starting from scratch or you’re already a going concern with real revenue and you’re adding subscription in, how to scale it once you figure out, product market fit and then finally, how to maintain a leadership position in a fast changing world and disruption proof your subscription model.

 

So, you know, really, if the first book was a why, the second book is the how. So this is going to feel a little bit disjointed potentially because the section three or stage three, phase three is where I’d love for us to be able to go first, because I know that you study trends, and that might be a great way to sort of set the stage for our conversation.

 

So if you were to pick a couple of the emerging trends that I know that you study, which ones do you think would be the most important to kind of set the stage for a conversation? Well, I think the single most important trend is that subscription is a box to check. Now, it’s part of the new normal.

 

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The Subscription Model: Becoming Sophisticated with Your Subscription

 

Every business has subscriptions. So that I think is really important to just understand. If you’re an entrepreneur thinking about subscription or even if you’ve had a subscription model for a while, it’s really important to understand that, for better or worse, this is what both business customers and consumers expect from virtually, you know, every organization that they deal with.

 

So that means that they’re going to ask you questions like, how come you’re onboarding isn’t nice, like Amazon’s? How come you don’t keep track of my behavior like LinkedIn? How come you know all these? How come, because they’re comparing you with these big subscriptions, it’s these big membership natives. That makes it hard. They also are not going to tolerate any kind of shenanigans on your subscription.

 

Like hiding the cancel button, making it hard for you to get out of your membership or selling something as a subscription that doesn’t merit subscription pricing. Like, you can’t subscribe to one book. You can subscribe to one idea where there’s a lot of different ways to grow and evolve and learn and master and get better.

 

But just to give somebody access to 300 pages of content and call that a subscription, you know, they’re going to read through all the content and then they’re not going to want to subscribe. So consumers and business owners are much more sophisticated about it. They’re also more willing to do it. Subscription is a global phenomenon. So the good news for entrepreneurs is, you know, I can launch a subscription here in Menlo Park, California.

 

And I could have. I wouldn’t be surprised at all if subscriber number four is from India and subscriber number 12 is from the African continent truly global in the way that you can reach people and also global in terms of competition as well. So that’s another big trend. And then I think a third big trend in the world of subscription is the rise of, you know, what I call the physical membership economy.

 

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The Subscription Model: Take A Step Back

 

So phase one of that was being able to subscribe to buy products on a recurring basis. So replenishment models or discovery models where, you know, you get a basket or a box of interesting products in a category you care about, like, you know, makeup or snacks or cigars or whatever your passion is. And now phase two is all about being able to subscribe to the thing itself, like a peloton.

 

You know, you buy the peloton, but you subscribe to get more value out of that product. We’re seeing Caterpillar do that in the heavy equipment world, where you can subscribe to services around your piece of heavy equipment to use it more efficiently. To benchmark it against how other people are using the same device and to anticipate maintenance and replacement needs through a subscription format.

 

So those are a few. So, you know, the ubiquity of subscriptions, the global nature of subscriptions and this rise of physical products that you could subscribe to. So, I did not know the caterpillar example that is fascinating to me. And here’s why. Because like if you can take a capital equipment manufacturer like Caterpillar and be able to bolt on a subscription service, then that stands to reason that literally any business with some creativity and some content and some smarts and some audience and so forth can do it.

 

Like if you can do it with industrial or capital equipment, there’s lots of opportunities, right? Absolutely. And the key, I think is for the organization to take a step back. Oh, you know, we all love our products, right? We love the things we create. But take a step back and say, why is the customer buying it in the first place?

 

And what is the goal they’re trying to achieve and how can I use my resources, my skills, my strengths to better align with their journey to achieve whatever their goal is? So when the case of Caterpillar, let’s say, let’s take a different simple case of agricultural equipment, right? The goal is not to have a picker. The goal is to be able to harvest the fruit when it’s ripe in the most efficient way possible.

 

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The Subscription Model: The Forever Promise

 

So what else is that? Well, there’s certainly the picking machine, but also, when’s the right day to do the picking and how do I make sure that my team member, who is best at operating the machinery, is in that part of the farm on the right day? Right? So those are not necessarily heavy equipment features but their solution features.

 

And so we can all do that. We can all take a step back and say, what is my goal? What is my customer’s goal? And how do I give them an ongoing experience that actually helps them better achieve that goal, that forever promise? Well, interesting that you just said that the forever promise because that was something that I wanted to ask you about, right?

 

Because it’s not just giving them the experience; it’s actually giving them a promise. Right? So, take us inside. Why? Because promise is such a strong word. So why do you call it the forever promise? Because I think the human piece of it is so important. You know, I think it’s important. You know, a lot of you brought this up in the introduction that a lot of entrepreneurs, they want to have subscription revenue, right?

 

They want to make more money on a recurring basis. They know that that, you know, allows them to invest more thoughtfully. It makes their business more valuable. But they don’t necessarily focus on why would your customer want to subscribe. Why would a subscription be better for them? And that, I think, is both, you know, just as a human being who wants to feel good about the work that she does every day, you know, that’s part of the reason why I believe in this, you know, starting with the forever promise.

 

But even if you want to be like a cynical, bottom-line-oriented, money-making machine. You know, if you want to build a business for the long term, you have to have that forever promise embedded in your strategy. You can optimize for a quarterly number. But usually when you do that, it’s at the expense of your long-term brand equity.

 

So by asking my customers, my clients to start with a forever promise and to make it very human. We all know what a promise feels like. What is the promise you’re making to your customer that justifies their trust in you and their willingness to pay you on an ongoing basis? It kind of refocuses the business on the right things that are going to lead to the right outcomes of that.

 

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The Subscription Model: Hiring The Right People

 

Love that. So one of your chapters, you said need to be able to understand the right who for the how. And so tell us a little bit more about that. Because when I interpret that, I think of like resources, I think of people, I think of clients too. So tell us, because I know there’s a bunch of layers in there.

 

So help us unpack that. Yeah. So that chapter in the book was really focused on staffing. Because it’s a question I get a lot what kind of people do you need to launch a subscription is often the question I get what I’ve experienced in a large organism. I mean, a lot of people listening are entrepreneurs and so this will come really naturally to them of like, you know, working without or without guardrails, you know. Kind of trying to create something from nothing, being really visionary, being willing to do something that hasn’t been done before.

 

There’s a certain kind of person that loves to work in that unstructured, creative, iterative kind of world. And those are the kinds of people that you need to launch a subscription business because it’s all about big vision, and then trying to map out a journey where there’s no path marks and it’s about being resilient enough to say, oh, that didn’t work.

 

I’m going to try something else up. That’s not quite right. But I learned three things and I’m going to try something different. Once you get to the point where you have product market fit, meaning not just what a lot of people think of what the product market fit, which is if I put it out, will somebody buy it or will somebody sign up?

 

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The Subscription Model: A Different Team for The Next Phase

 

But also once they sign up, will they stay for a long time? Once you have product market fit, you want to start scaling the business and then you might need a different team. You certainly need a different mindset, right? Because now it’s about operationalizing. It’s about investing in an infrastructure. It’s about algorithms to replace the human intervention and often in organizations.

 

And, you know, I work with a lot of solopreneurs and startups, but I also work with some very, very large companies. You mentioned a couple of them. And in those cases, what I’ve seen is that sometimes the team that actually is working off in the corner developing a new subscription mode. Once they have proof that the subscription is really working, they hand it off to a different team that’s much more operational in nature, much more structured, much more buttoned up, much more like, does this work with the edge case?

 

You know, is this up 99.99% of the time and it’s less dependent on kind of what I think of as, you know, the chewing gum and paperclips and sheer force of will of that entrepreneur. Right? You get to a point where you’re like, we can’t hit our numbers by sleeping under the desks anymore, right? We gotta have a system in place that it just works without people doing heroic things.

 

Very accurate description. So I think a lot of people in your community have, have slept under a desk at one point or another. But this is interesting, though. I mean, as you were describing, you know, very entrepreneurial. You said big vision. They have to be resilient. I love your metaphor of the no guardrails. And I’m sure our Onward Nation business owners are like, yep, that’s me.

 

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The Subscription Model: The Resilience Piece

 

But it sounds like there’s also this recognition of okay. That person that creates it has the genesis, the vision of it gets it to. I think you described it as product market fit. And once that is there, then it makes sense to scale it with a different team. If I’m tracking. Yes. Right. Yes. And especially, you know, for business owners, you know, a lot of us have had that experience of like I come up with this great idea and then I really need to operationalize that.

 

And it’s not as interesting to me because I like thinking of the next really good idea. And that’s why many of us have, you know, and I know this is something that you teach on Onward Nation. How to operationalize some of these processes so that they become habits so that each new thing that you discover is, you know, leads to exponential growth as opposed to replacing the prior.

 

Really good thing, you know, you’re not trying to replace it. You’re trying to add to it. Yeah, I love that okay. So let’s go back to your word resilient because, you know, in your book you talk about testing, learning, adjusting and so we’ll get to that in just a second. Let me just kind of put a pin in that for a second.

 

Because what I’m really curious about is the resilience piece. Like how often in your experience, how often do companies get it right, you know, get it correct when they come out of the gate? like, I’m super curious if do any of them get it right or is it just a constant pivot to get product market fit and they just have to be testing?

 

Yeah. So most of the time, they don’t get it right. So I always tell entrepreneurs and especially like if you’re working with a team or you’re part of an organization to make sure that you have permission and expectation that you’re not going to get it right the first time. And also, to be really clear, when you start doing your little experiments, what each experiment is going to prove.

 

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The Subscription Model: Testing With an Experiment

 

So, for example, I’m working with a company right now and they’re working on this vision. They’re a bigger company and they’re working on this subscription offering off to the side. And they want to launch in September with their first experiment. And the question is, what are you going to test with that experiment? Are people willing to buy it, which you can do without a product at all?

 

Right. By just offering them the pitch and seeing, would you buy it right? Would you click on it? And then separately, they want to figure out if we build something. Do people actually, you know, if we give it to somebody, let’s say for free, why do they use it? How do they use it? Do they come back whether and those two things are actually they’re related?

 

But you can really do a lot of testing completely separately. But knowing that you can sell it, that there’s a buyer who will buy it does not by itself tell you if you’ve got a winner because I might sell you something that you’re really excited about the promise, and then it doesn’t work for you, and you stop using it like, you know, as everybody who has ever used their treadmill as a coat rack knows.

 

So, you really, you know, you have to think about both of those things and say, okay, this test is going to tell us if people will buy it. This test is going to tell us if people will keep using it, and this test will tell us if they actually get the result that we’re promising back to that forever.

 

Promise, right? If I tell you, buy my treadmill and you’ll get fit, lose weight, build muscle, build heart capacity. You know, I measure separately. Did he buy my pitch? Yeah, he bought the product. Does he use it every day? Yeah, he does use it every day. No, he doesn’t, which is a separate problem. And then the third thing is and when he uses it every day, you know, how is it?

 

How are his lungs houses, heart houses? Wait. Right. Did the doctor notice anything? Has he changed? All three of those things are important, but when you’re doing your testing, you might test each of those separately along the way to product market fit. That was awesome. So then that that tells me. Well, I guess I will test. My assumption here is that all along the life cycle or whatever we want to describe the membership that a company is launching, they’re always going to be testing, learning, adjusting like that real infinity loop never stops, right? Totally. Yeah. Because your promise has nothing to do with your product. 

 

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The Subscription Model: How Would You Deliver Your Promise?

 

So let’s think about the world of news. Most news organizations would say that their forever promise is to help people understand what’s really going on in the world around them. So they can make better decisions and move through the world with more confidence. Right.

 

That’s what most news augments. I mean, and so you pick one that kind of, you know, that you trust, that has the point of view and the way of looking at the world that you have. And then they kind of magnify it, simplify it, and help you make your way. Most news organizations, many news organizations, when they launched the best way to deliver on that promise was through print delivered to your home or delivered to a newsstand in your town, or you would pick it up today.

 

There are a lot of better ways to get that news right, both to create the news and to deliver the news. But many news organizations have invested so much in their in their printing presses and their delivery systems, that it’s very hard for them to move to digital or even to social. And so they need to take a step back and kind of pull away from their products and say, okay, is this still the best way to deliver on that promise?

 

If I were starting out today, how would I deliver on that promise? It might be through live events, might be through training, might be through mentorship, might be through coaching, might be through, you know, holograms. Who knows? And so test and iterate. Yeah. You’re constantly improving the way you deliver on your promise. Even as that promise remains your constant and Northstar.

 

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The Subscription Model: Creating a Catalog of Video Content

 

I love that also because you then have a North Star that so all the decisions going forward, all the different iterations, all the results of the experiments and how we make adjustments. The adjustments ought to be guided by the North Star. So, we never lose sight of the promise. Right. Exactly! And so you might look at where you are like Netflix for example.

 

Right. 15 years. So 15, you know, professionally created a catalog of video content delivered with cost certainty in the most efficient way possible. 15 years ago, that was three DVDs out at a time. With content that they got from other people that you could get in other places today. You know, we can stream it on our phone, on our smart TV, through our PlayStation.

 

And the content is unique to them. But the promise, you know, still the best place in my opinion, to get access to a really wide selection of you know, high-quality video content with cost certainty and you know, it’s still the most efficient way possible. Tomorrow there might be a more efficient way, but for today, you know, I say that getting it on my phone is pretty darn efficient.

 

Absolutely is. Great example. Let’s go back to something that you had shared a few minutes ago when we were just kind of starting out our conversation. You mentioned, hey, Robby, we tried subscriptions and they didn’t work and or it did work. And now we’ve got these new challenges or, you know, these things are changing. We’re seeing the landscape change.

 

And so we know we need to pivot and so forth. And that makes me think of the chapter in your book where you talk about the common setbacks and struggle points and so forth. 

 

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The Subscription Model: The Setbacks

 

Would you share with Onward Nation some of those setbacks that you think would be the most helpful? Yeah, absolutely. So yeah, there’s a chapter in the book called setbacks because they’re, you know, they keep popping up and I thought, you know, I always believed that you know, if somebody tells you, you know, you might expect this to happen because it helps you because, number one, it tells you this is normal. So don’t feel bad or like, this is weird or crazy or unexpected. 

 

And two, you see it coming and so you can nip it in the bud before it becomes too big of a problem. So, you know, one of those is not having the right skills or the right experiences. Right? And a lot of times in going concern organizations, like if you’re very transactional or episodic in nature, in your organization, which is true of, let’s say, a lot of consulting firms or professional services firms where, you know, a company, you know, a customer says, I’m broken.

 

The consultant comes in and fixes the brokenness, and then they leave, right? Versus, I’m going to help you never break. I’m going to help you optimize. It’s a very different mindset. It’s a very different way to deliver value. So you might need different product people. You might need different metrics. You’re going to need to sell it differently because selling is going to be easier and subscription retention is going to be harder.

 

So you need to apply some of your resources to what happens after the moment of sale. That moment of transaction becomes the starting line, not the finish line for the selling process. so you need different kinds of people. You need to keep in mind, you know, whether you’re going to actually destroy the business that you have.

 

That’s a huge fear that a lot of my clients have. So in other words, you say, look, I’m making a lot of money by having a fixed fee. Let’s say that you have courses, right? Let’s say you have ten courses for business entrepreneurs. And each course costs $100. And most people buy fewer than one course a year.

 

Right. and a few buy more. So let’s say that for $150 a year, since the vast majority people don’t even complete one course, you say you have unlimited access to your courses. If the only people who who move from buying your courses to subscribing are the ones that are buying two or more courses a year, you’re going to lose money on the subscription.

 

It’s going to be, you’re going to be net worth as a result of your big investment. So you’re very worried. You want to make sure that people that are buying only a little bit from you buy more and people that never bought anything from you now buy something. And so it’s a big fear of that.

 

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The Subscription Model: Technology Problems

 

Another thing that happens in organizations that have gone through a middleman, and now we’re going direct, is that they are risking relationships that are very lucrative. Another thing that could damage their existing business, another issue that comes up all the time is the technology doesn’t work. I’m just going to say to you, you know, 99.9% chance you’re going to have a technology problem if you move just like are you’re like, something’s not going to work the way you thought.

 

You’re going to grow in a different direction. Just put it in. You know, like my mom, when she was remodeling her house, she wrote into her schedule, like, you know, build new fireplace, fix things that we did wrong, you know, like unexpected things, fix unexpected things because it’s like, you know, it’s not going to work, right.

 

You know that, Stephen. Right. And so, you know, the set setups, another really big thing that comes up is a change in leadership priorities. So you know, you go all guns blazing. You’re going to invest in this new subscription. And then Covid comes and you’re like, oh man, we can’t take care of people for the long term.

 

We need to optimize our short term revenue. Right? We need money right now to keep the lights on. And so let’s take advantage of our subscribers and throw in some extra fees. Or as a bunch of gyms up in Boston did, let’s close the gyms in March and then charge people who don’t cancel in April, right? Oh yeah, they did that.

 

They did that. There’s a class action lawsuit. But, you know, they were I know why they did it. They’re like, well, they didn’t say they wanted to cancel. So maybe they just enjoy paying for things that they don’t get value for so that can happen. And then the last thing, kind of like the technology is that you might get results that are disappointing.

 

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The Subscription Model: Test, Learn, and Adjust

 

And so you need to anticipate if you’re on the team that’s working on a subscription, you say, what are we going to do if the results aren’t as good as we expected? And so there’s a bunch of things there. Number one, you should be really clear before you go into it what you expect and what you hope for and what you’re going to do.

 

If the results aren’t what you had hoped for, are you going to take that learning and try again, or are you going to just cut your losses and give up? Because a lot of times organizations aren’t really clear about what defines success, and they’re not really clear about what they’re going to do if the results aren’t as successful as they’d hoped.

 

And then they often quit when they’re on the verge of succeeding, or they don’t recognize the success because they’ve already moved on to the next shiny thing. Well, okay, so when you said that, that made me go back to our conversation a few minutes ago about test, learn, adjust. So in my mind, is there this fine line between testing, learning, adjusting and then chasing the shiny object like how to know, okay, we have something here.

 

We need to not move over to that shiny object. We need to drill a deep well and continue testing, learning, adjusting to go deeper and stop going so wide. So help us there. With what? Yeah, I’m sure you’ve seen it all. So what is your advice? Yeah. So in most cases I tend to be more about focus than about new okay.

 

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The Subscription Model: Understanding Human Behavior on Memberships

 

You know so really understanding and optimizing perfectly for at least one group rather than optimizing in a so-so way for a lot of people. So that’s the first thing. Second thing is, once you’re going concern, once you have product market fit, you have real subscribers and you’re thinking you’re kind of into that. You talked about that infinite loop of test, learn, adjust.

 

You’re always going to be looking like I always encourage organizations to have a dashboard of metrics. So not just like not just one metric, but a few, because it’s really about, you know, acquisition, engagement, retention. Right. And so you want to know where is the biggest opportunity at any point in time. So for example, a lot of associations, a lot of newspapers, a lot of gyms, a lot of long time subscription organizations have great tension.

 

They have members that have been around for 50 years, and yet tomorrow’s members don’t join. Right? People kind of look in the window and they say, that doesn’t look like it’s for me. I think I can do better at achieving my forever promise with another solution. So those organizations need to really understand why aren’t tomorrow’s members joining. Right.

 

And so that’s where they should be. Investing is understanding that it is it because those members don’t understand the value? Is it because they understand the you know, they don’t because they don’t need that forever promise or is it they’re like that forever promise is important to me? But I don’t think you’re delivering on it. And do they not think you’re delivering on it because you aren’t delivering on it as well as other people?

 

Or is it a communication issue? So you want to figure out where your problem is. And then conversely, there are organizations that say, you know, we’re acquiring like crazy people sign up, they love our pitch, and then they leave after the first month, or they leave after the first day, or they leave after, like, I had one, one client that I talked to and he said, you know, people stayed for six months, and then they left.

 

And his was to help business owners launch in a particular category. And what would happen is people would sign up for his membership. They’d go through six months and they’d get to a point where they felt like they were the experts in the community and where they had used up all the content. They ran out of future and they ran out.

 

Yeah. And so what I said to this guy was, now you have to decide, is that okay with you? And then you call yourself a jumpstart and you’re like, this is a six-month program. You know, this is a membership. You join. It’s summer. It’s a yearlong membership. A lot of people leave after six, seven, eight months. And that’s what we do.

 

Or do you say, oh man, what do we do for month seven? We really aren’t delivering on month seven or month eight or month 15 or year 12. And how do we make it relevant to keep those people? And that was a strategic decision he had to make. So that’s phenomenal because like when you first started talking about it, I started thinking, okay, that’s a failing of the business model.

 

However, the way that you just kind of asked a couple of very strategic questions is like, well, maybe it’s not a failure. The business model, it’s a positioning thing. And if you’re great at months one through six, awesome. And then, the ideal member, the avatar of the ideal member, potentially changes. Right? Right. And it’s a short-term membership.

 

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The Subscription Model: Making a Commitment

 

Now, you and I both kind of, I think intuitively go to the same conclusion, which is if you do all the work of bringing someone in for six months and you see that they still have a lot of journey left where they could benefit from some help, and you see that those experts could probably provide great value for tomorrow’s members.

 

Why wouldn’t you roll out the welcome mat a little further and give them a little bit more? But you don’t have to. So, for example, you could have a membership that’s just about getting ready for your wedding, right? For the period of time when you’re planning your wedding, this is a community from the day that you say you know, yes to the day that you say I do. This is the community for you.

 

We have all the products, we have all the advice, we have all of the, you know, templates and to-do lists. And that’s what we do. You could do that. There’s lots of memberships that are fine. I mean, dating sites. Right. Those are finite memberships. In fact, the founders of LinkedIn, before they founded LinkedIn, they had a different company called Social Net, which was a dating site.

 

Oh, I didn’t know that. Yeah. And one of the really funny things about it, that Ellen Blue, who’s one of the founders of LinkedIn, told me was that, social net, you know, if they the forever promise is find your soulmate. Right. That’s the forever promise of any dating site. Hopefully. Right. Find that person.

 

So then somebody would find their soulmate in, like six months, right. And then, you know, not only don’t they want it, don’t they need to date anymore, but you as the company don’t want them in your dating pool, right? Right. You don’t want this, you know, shark swimming around, right? He’s already found their soulmate. And so they said, you know, they were already an organization.

 

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The Subscription Model: Helping Members Thrive as a Business Owner

 

I was very focused on long-term relationships, on building trust, on, a forever promise. And they’re like. But we focused on a promise that was too small. So the next time they launched a business, they focused on your career, which gave them a lot more runway. They did a good job of helping somebody starting out in their career.

 

They might have a member for 50 years, not six months. Okay. That’s an amazing behind the scenes story. I did not know that story. And what’s really interesting about the story is aside from the two examples, which is cool and obviously everybody knows LinkedIn, but how that early on success and or adjustment. Do you say social net? Yeah. Social net like social network. 

 

How those lessons that they learned there paved the way for LinkedIn that that’s really interesting. Yeah, it’s a really interesting thing because if you’re the kind of person that buys this idea of a forever transaction, building a long-term, trusted relationship with a customer that justifies recurring revenue and you’re thinking about what business do I create?

 

You probably want to create a business that rewards that kind of integrity, right? That kind of, you know, so you want to pick a problem that you’re solving or a goal that you’re helping to achieve that has a long runway, right? We’re going to help you, not I’m going to help you start a business, but I’m going to help you thrive as a business owner.

 

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The Subscription Model: Have A Social Proof for Doubters

 

Right? Not I’m going to help you lose weight, but I’m going to help you get and stay at your optimum health. Right? Weight Watchers, you know, they have a losing weight period. And then when you hit your goal weight, if you keep it for six weeks, they put you on a maintenance program. And maintenance is free as long as you stay within, I think.

 

I don’t know if this is still the truth, but three 3 pounds within 3 pounds of your goal weight which you define. If you stay there, then you can go to their meetings for free forever home. And if you go, you know, up or down by too much, then you have to start paying again. That’s interesting. Yeah. Well, it’s so smart because what it does is it creates and first of all, it creates an incentive for you to keep coming back so that you keep the results that you’ve worked so hard for.

 

And that’s a community, right? And you become a model in the community because you’re going to these meetings and you’re like, hey, I’m Robbie, I’ve lost 50 pounds and I’ve kept it off for three years. So I get all of this positive feedback from new members, which helps me keep going, and it inspires other people to be like, well, Friday can do it, anybody can do it.

 

Right? And so and there’s the social proof against the, sort of the knock on those programs is that you’ll lose 20 pounds, but then you’ll gain 40 back. And so if you have a whole bunch of people who are, you’re walking billboards in the community real. That’s great social proof. Yeah. And of course, the other I mean Weight Watchers, has a million elements that I think are really clever.

 

Another one is that if you get to that point. So I lost my weight, like I set my goal weight for a period of time and keep coming to the meetings. Those people often get recruited to run meetings of their own. So you get to be a meeting leader and it’s all on a meeting model. And the meetings, I think you get like, I don’t know exactly how much you get paid, but it’s something like, you know, not quite enough money to pay for your parking.

 

Like, you know, it’s like $15 for the meeting or $12 or. Yeah, but it’s a very big honor. Sure. It’s a very big honor. And again, your social proof it keeps you honest. And it’s very emotionally rewarding to have all these people looking at you saying, wow, Robbie, you’re amazing. You fast all this way.

 

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The Subscription Model: How To Approach the Pricing Strategy

 

You’ve kept it off. You have such wisdom. I love to hear your stories. That actually helps me both keep my weight off and feel good about myself. Really smart. So let’s say that some of our organization business owners who are listening to you right now are thinking, okay, this has been super helpful. I understand some of the common pitfalls and thinking through strategy. But how in the world, Robbie, do I decide how much we’re going to charge?

 

Like, how should one of our listeners approach the question around pricing strategy or questions? Really? Yeah. So pricing is, of course, infinitely complex. So we couldn’t cover all of it today. But my point of view is that your pricing should be as simple as possible and that there probably isn’t. I mean, this is just hopefully very freeing for your listeners.

 

It is. There isn’t a perfect price point for most products, very few products that probably we’re talking about have a level of pricing elasticity that there actually is a perfect price point on the pricing. Yeah, that there’s some kind of efficient frontier for pricing. in other words, what that means. So pricing elasticity is this concept that for every dollar you reduce your price, you increase the number of new members.

 

Right. So at $19 I get this many more members than at $20 or $21. And what I find in a lot of models is that they’re inelastic, meaning that it doesn’t matter if it’s $19 or $21, either you want it or you don’t want it. And of course, at some point there’s some number out on the horizon where you’re like, okay, for $3,000, I don’t want it.

 

But 19 or 21, I don’t really care. Either I want it or I don’t want it. Yeah. And so what I would encourage people to think about is what is a price point that covers your costs and gives you a reasonable profit that aligns with the needs of your customer. So something that they could ostensibly afford that would make logical sense to you.

 

Just pass the sniff test, right. If you’re offering to help them make if you’re if you’re offering a subscription to help them save $100 a year, you don’t want to charge $10,000 for it. Okay? You know, if you’re an and you want to know what else is in the market. So if you’re offering another streaming service, content service and it’s entertainment and it’s a lot like, let’s say Netflix, you don’t want to charge, you know, a lot more than Netflix, like if people have anchored it in their mind.

 

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The Subscription Model: Keep Your Pricing Plan Simple at First

 

So if you price really high, you have to understand that your customer is going to start with, is this worth three times what Netflix charges? Now, the answer might be yes, it is worth three times what Netflix charges because it’s very unique, specialized content that I can’t get elsewhere. And that’s important to me. Or because this content helps me achieve a really important goal that is maybe more important than entertainment.

 

So, for example, you know, I was talking to somebody yesterday who has content for elite athletes, and it’s very unique, very specialized expert advice on really special stuff. And he was pricing against Netflix and I said, you’re not Netflix. You know, nobody’s going to watch a video about proper foot placement instead of watching, you know, House of Cards.

 

So don’t get yourself in the trap of saying, I have video content, so I need to price against other video content prices for the value that you’re providing to your subscribers, and try to keep that as simple as you can. There’s a temptation to have lots of tiers and lots of add-ons right from the get-go.

 

I would say you’re better off starting with one pricing tier 20 bucks a month, 100 bucks a month. You can offer a discount or extra features if they commit for the year. But really try to keep it simple to start because if you add too much complexity, you’re forcing your customer to become an expert on your pricing structure.

 

And when you do that, what you’re effectively saying is you need to figure out how you get the value you pay for. You need to know how to get the value, which if you tell somebody, you need to figure out how to get value out of this company that immediately puts them in kind of an adversarial like, how am I going to get the value?

 

You’re not going to tell me how to get the value. So I’m going to need to figure it out, which means I got to get all of the value out rather than being able to relax into a subscription and say, yeah, it’s 20 bucks a month, I don’t know, maybe it’s worth 18 or 25. I don’t really care.

 

I’m getting enough value that I’m totally glad to pay every month, you know, in a few. So let’s say that you get ten people to come in at $100. If that’s your initial price point. And it is, is this a worthwhile experiment where the ten people you’re seeing their behaviors and getting some case study and understanding what they like or what they don’t like and then through your model of test law and adjust, you think of new iterations of value that you can put in.

 

And then maybe at some point you decide to increase the price. Would you keep those ten at the original $100, or would you scale them accordingly? Yeah. So it depends. It depends on the situation. Many organizations grandfathered in their early customers. Often they’ll say you get this pricing as long as you stay current, if you leave and come back, you’re back on the ordinary plan.

 

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The Subscription Model: Be Transparent When You Raise Your Prices

 

And that’s a way to honor your most loyal members and also to avoid having them, you know, freak out and be really angry. When you change your pricing, there almost always will be a vocal group that is really disappointed and angry that you did it, even if you’re providing a lot more value, even if it’s obvious that you’re incurring costs that make it impossible for you to continue at the price you’d been offering.

 

And so when you raise your prices, you just need to think through what’s like what kind of response you’re likely to get. And it’s also really helpful to be transparent about why you’re raising prices. Hey, we’re raising prices because that was beta. And now we understand how it works and everything works really well. So we’re going to charge more.

 

But those of you that went through beta, you guys get the same pricing. As long as you stay a member or you know, hey we were we’ve been giving all you guys this really low price for a really long time. Our costs keep going up in order to continue providing you with the same value that we’ve always given you.

 

We have to raise prices or we can’t stay in business, right? That’s another perfectly reasonable message. Okay. So you just need to be really clear on why you’re doing it and communicate it. So let’s talk about subscription fatigue and how we can help our members making the assumption that we launch a membership model. How do we help our members avoid subscription fatigue?

 

Is it just an over-delivering of value, or is there like a specific strategy to help accomplish that? Yeah. So you know, as we talked about at the beginning of our conversation, everybody’s doing subscription. So a lot of people have like 20 subscriptions. So it’s sort of overwhelming. Right. They have a subscription. Well so you have a product market fit and a differentiated offering that justifies a subscription.

 

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The Subscription Model: Your Product Must Justify Subscription Pricing

 

So there’s a lot of subscription offerings that are just bad subscriptions like the book subscription, right? Where there’s not enough value to justify having a subscription in the first place. So that’s the first thing that you need to do is say, do I really have an offering that justifies an ongoing relationship, or is this really a transaction kind of couched as a subscription?

 

So, for example, if I had a video on how to tie a tie, right, which is something that a lot of people struggle with, but once you learn it, you don’t need to keep coming back to it. If I have a subscription and I require you to subscribe every month, there’s no product market fit. Second thing that often causes subscription fatigue.

 

So, you know, sorting through the wheat in the chaff is exhausting for people. The second thing is what I call subscription guilt, which is you’re giving me so much value that I can’t keep up and it makes me feel bad about myself, so I cancel. Oh, funny. That’s like the New Yorker problem, right? All the magazines piling up, and you’re like, I know they’re so good.

 

And the price, it’s not even that expensive, but it makes me feel like a bad person because I never read them. And so I’m just going to cancel for a while. So it’s not even like people are saying I’m paying too much for something that I’m not using. It’s not even the cost.

 

It’s just I feel bad that I’m not using it. The same issue with Blue Apron. We had neighbor last summer and he was over at our house. His family was out of town and he came over and we were all swimming. He’s like, well, I got to get home, make dinner. And we said, well, we’re making burgers.

 

You can stay. And he’s like, no, I got a Blue Apron meal kit in my fridge. And you know, if I don’t use it today, I’ll have to throw it away. So I guess I’ll just go home. And the interesting thing, well, the interesting thing, maybe he doesn’t like that. So that’s like a whole side point that this may just be him trying to, like, gracefully get out of a dinner that didn’t want to stay for.

 

But it’s as silly as doing that. He did like us, you know, the thing that’s interesting here is that he had like it was a sunk cost, right? He paid for the Blue Apron meal and we were going to give him a free dinner. So he was net neutral, right? He wasn’t like whether or not he threw away that meal. He was going to eat dinner that night with no additional cost.

 

But he felt bad about the meal not being used. And that’s what makes people cancel out of subscriptions. Go. And then the third thing that causes subscription guilt, which is the worst in my opinion, is hiding the cancel button, right? If you’ve ever tried to cancel something and found it, you know, like the Hotel California, you know, you it really sours your feelings about subscription, right?

 

And almost everybody has a story of, oh, I tried to cancel my newspaper, my video service, my gym. And so you really, if people listening, if you’re building a subscription, make sure that your your product justifies subscription pricing. Make sure that you’re not overwhelming your customer with a lot of value that they can’t use. Try to curated and focus it.

 

So that actually solves the problem in his elegant way as possible. And please don’t hide the cancel button I’ve been through that. is I think we all have, you know, trying to cancel and it is infuriating. Yeah. It’s like, for Pete’s sake. And then you got a call and it’s just a hassle. Yeah. This has been awesome.

 

I know that we’re quickly running out of time, but this was so amazing. Thank you for being so generous and sharing your smarts. I knew this show would be. But Robbie, thank you so very much. I know we covered a lot, but before we go, before we close out and say goodbye, any final advice you like to share? Anything you think we might have missed? And then please tell Onward Nation business owners the best way to connect with you. 

 

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The Subscription Model: Final Advice From Robbie

 

Yeah, so I think we covered a lot. I think you’re a great interviewer, which I know where I’m like, what is this, like 960 and 72? You know what you’re doing? You’re an awesome interviewer.

 

I think the one thing that I’d want people to take away is go back to your forever promise to your customers. And really, when you’re meeting with them, really focus on how can I help them achieve their goals. And everything else is tactical and will fall into place. And then in terms of where to find me, I’m easy to find. Probably easiest places RobbieKellmanBaxter.com. But you can find me on LinkedIn and Twitter and Facebook and Instagram and all those other good places as well. 

 

Okay, Onward Nation, no matter how many notes you took or how often you go back and relisten to Robbie’s words of wisdom, which I sure hope that you do. The key is you have to take this generous amount of expertise that she so just shared with us over the last 45 to 50 minutes.

 

Take it and apply it into your business right away and accelerate your results. And Robbie, we all have the same 86,400 seconds in a day. And I am grateful that you said yes to come back for this encore to once again be our mentor and guide to help us move our businesses onward to that next level. Thank you so much, my friend.

 

Onward! This episode is complete, so head over to OnwardNation.com for show notes and more food to fuel your ambition. Continue to find your recipe for success here at Onward Nation.

 

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