Jason Hartman hosts Robbie Kellman Baxter to discuss subscription services. They discuss when companies should apply subscriptions, how the business model has changed, and why sales don’t end when a client subscribes. Keeping things simply is the best way to keep clients. For subscription-based services, one best practice is to always keep things up-to-date.
speakers, publishers, consultants, coaches and info marketers unite. The speaking of wealth show is your roadmap to success and significance. Learn the latest tools, technologies and tactics to get more bookings, sell more products and attract more clients. If you’re looking to increase your direct response sales, create a big time personal brand and become the go to guru. The speaking of wealth show is for you. here’s your host, Jason Hartman.
Jason Hartman 0:40
It’s my pleasure to welcome Robby Kalman Baxter. She is the leading expert on subscription pricing and membership business models. She’s founder of the consulting firm peninsula strategies and it has been providing strategic business advice to Silicon Valley companies for over 20 years. He’s the number one best selling author of the membership economy, find your super users, master the four ever transaction and build recurring revenue. And her new book, The forever transaction, how to build a subscription model so compelling, your customers will never want to leave. Robbie, welcome. How are you? I’m good. Thanks so much for having me. It’s good to have you on the show. And of course, we’ve got a few slides up that you were gracious enough to share with us. So if you’re watching on YouTube, you can see the visuals. If you’re just listening. You’re okay because we’ll make sure we try and explain them really well. But after you’ve listened to the episode, if your audio only you may want to go back and look at our YouTube channel and and see the slides there as well. Anyway, you’re located in Menlo Park, California, is that correct? I am. Yep. Good, good stuff. Great to have you. Well, this slide that we have has a whole bunch of corporate logos. names. We all recognize everything from Costco to Amazon to h To Hulu, to the Financial Times to CBS, Netflix, Spotify, neighbourly Facebook Nordstrom kind the kind protein bars really. Okay. Nest. Harry’s peloton. Some of these obviously we know our subscription models, but tell us about some of the maybe a businesses that we might be surprised are subscription based.
Robbie Kellman Baxter 2:25
Yeah, well, I’ll tell you I was surprised when Burger King announced their subscription model, which is, which is for unlimited coffee for $5 a month Panera Bread followed shortly thereafter with a much more expensive coffee subscription of I think 899 a month. But if you had told me five years ago that Burger King was going to be a subscription innovator. Yeah, I would have I wouldn’t have believed you. Maybe the same thing with Caterpillar, Caterpillar, heavy equipment company, you know threshers and crushers and cranes. They have subscription model and they They’ve actually publicly said that they’re moving away from the ownership model of having to own the crane toward a model where you would subscribe to get both that piece of equipment to use when you need it. And also all of the software and data around it on a subscription.
Jason Hartman 3:16
Well, actually, that’s really interesting now that you mentioned it, the automobile companies are kind of some of the new players that are trying to make a splash with this. And honestly, I was just reading something about Volvo’s subscription model this morning. And the lease on my BMW is coming up. And I’m thinking, you know, maybe I should do a subscription but to me, it just seems like a warmed over lease. I mean, big deal. I don’t, you know, I have my assistant, look into all the high end auto companies offering subscriptions Porsche, Mercedes, Volvo, several others that I can think of at the moment. And it’s spotty as to where they’re offering it state, by state and so forth. But a Volvo of any of the companies seems to really be going after this model. And in reading about it, it’s a two year commitment. So what’s the difference? Please? Yeah. And but you can change your car every Well, you can change it after the first 12 months get a different model. But then you have to any up for another two year contract. So I don’t know, the auto thing doesn’t seem that substantial to me. Am I missing something?
Robbie Kellman Baxter 4:26
Yeah, well, you’re not missing something. But I think Volvo is, to be honest, the concept of having a subscription is it’s a different way of packaging value that allows it to focus more specifically on a particular type of person, and what it is that they want. So for example, Porsche, you mentioned their model, they actually give you access you subscribe. It’s much more expensive than the Volvo model.
Jason Hartman 4:51
dollars a month. Yeah. Yeah. So it’s a hot
Robbie Kellman Baxter 4:53
and shaky access, though, to their fleet of cars. So in other words, you could have a Cayenne on On Monday for toting around the kids, and you can have a sports car for the weekend. And so for people who want to have a variety, and who really enjoy new cars, that’s a good deal. Sure. So another subscription option is over has a subscription, where you can I think it’s $200 it’s again, it’s spotty, because all these companies are in the launch phase, and they’re still experimenting, but they allow you to for I think it’s $200 a month you get 20 $15 rides. So that’s already a savings if you use Uber a lot, and then you get no surge pricing, so the pricing stays constant. So you get some protection from those high prices at peak hours. And so for somebody I thought the
Jason Hartman 5:42
surge protector was the one that I have my TV on my computer is quite okay. It’s a new kind of surge,
Robbie Kellman Baxter 5:50
different kind of surge pricing, so
Jason Hartman 5:51
I just thought of their next ad campaign anyway. Yeah, me credit for that. Yeah, I love it.
Robbie Kellman Baxter 5:57
So in the world of cars, there’s a lot of ways to be creative, where people are saying, you know, I only need a car on the weekends or I need this kind of card during the week in this kind of car on the week on the weekends, or I want to be able to have access. There’s another company, Turo, where they’re on this on this chart somewhere where they allow you to actually borrow someone else’s car. So let’s say you have a house and in the country, and you only use it on the weekends, or you only use it in the summer, but there’s somebody who lives there during the school year, you can rent it to them, give them access to your car, for when you’re not using it. So sort of a sharing economy membership. So that’s for people who are saying, you know, I don’t need to own the whole car, I’d like to share my unused value with somebody else who can use it. So the idea of this whole concept of you know, how to think about your subscription model is focused on someone’s long term goals. Think about what you can promise them that they can’t get elsewhere that they’re going to need for a long time and then design the offering around that value. Instead of around owning the product,
Jason Hartman 7:03
mm hmm, good, good. I see the Starbucks logo on here. I didn’t know they had a coffee subscription.
Robbie Kellman Baxter 7:08
Yeah, well, I think they have a coffee subscription where you can access new coffees on a regular basis like a replenishment model. But they also I wrote about them in my first book, because of their loyalty program. I see loyalty programs that retailers and hospitality organizations do. This is like your airline programs and your hotel programs and your punch cards and you’re, you know, I’m a special member of Safeway supermarket or whatever. They took it to another level in terms of the benefits, they gave you access to music, they gave you access to free refills on your coffee, when you have the card. So by being part of their community, you get access to these special benefits. It’s not about points, which is what most people think about with loyalty programs. And it’s really about a sense of belonging and being recognized when you go into the stores.
Jason Hartman 8:00
Truly amazing how big the subscription economy is. Are there any numbers on the size of? Well call it the subscription economy? Maybe you call it the same thing. But in any numbers on this?
Robbie Kellman Baxter 8:10
Well, it’s like doubling year over year, the valuations of companies in the membership economy. Generally, they enjoy a valuation of five to seven times traditional businesses. And the average American, I believe, has somewhere between 15 and 20. subscriptions. Interesting.
Jason Hartman 8:29
Okay, let’s dive in a little deeper. Take us to the next slide, if you would. Okay. So when we look at the way to have a successful subscription in a business, you’ve outlined seven steps here. And why don’t you take us through just give us the overview first, and then maybe it will do a deeper dive into individual steps.
Robbie Kellman Baxter 8:50
Sure. So I’m in the membership economy, which was my my first book, I outlined these seven steps as being a way that an organization could optimize Their entire business model for this long term like what I call a forever transaction, this long term relationship with their customer. And it starts in the middle with product market fit. Traditionally, product market fit is about having an offering that triggers somebody to buy it, where they say, that’s what I need, I’m going to buy it, you know who’s gonna buy it, you know what the product is, boom, you have product market fit. But now it goes a step further, where it’s not just about the headline benefit to get someone to buy. It’s about features in your offering that get them to stay for the long term. So you have to think about product market fit, not just for the moment of transaction, but forever. And that’s at the core customers always at the center. And then having a subscription pricing model requires changing the way your organization is structured. You need different skill sets, you need different functional areas and you need different metrics. metrics like monthly recurring revenue, like churn which you You know how many customers every month leaves your business subscribed, you know, cancel their subscriptions, you need to track for lifetime customer value instead of just tracking overall revenue. That’s organization, you really need to change how you think about it, the funnel. So we talk a lot about the the funnel, you know, you build awareness and your audience, you give them something to try. So they try your product, and then they buy and then you’re done. That’s the bottom of the funnel. In the membership economy. That moment of transaction is the starting line, not the finish line for your financial relationship with the customer. It only expands after that. So it’s a different way of thinking about marketing, you have to market after the customers already bought from you. pricing. If you’re building a subscription model, you want to keep your pricing as simple as you possibly can. It’s very tempting to add all kinds of you know, with your this big and if you need these features, and if you want this support, we add Bits and Bytes all over the place. The more complicated your subscription pricing is, the harder it’s going to be to build that trusted relationship because They’re going to feel like the customers gonna feel like I have to understand how they price so that I don’t get taken advantage of. And if that’s what they’re thinking about, they’re not going to trust you. Premium number four is the concept of providing some of your customers with a free subscription forever. This is what for example, Survey Monkey does this LinkedIn does this. Some people Spotify does this, some people get something free forever. Other people get, you know, let’s say no advertising access to special features. And that’s in contrast to a free trial. A free trial is a taste of the best that you’ve got, because they don’t understand what it tastes like. or they don’t believe it tastes as good as you said. So you say here have a bite. Now you understand now you believe me? Okay.
Jason Hartman 11:43
So extinction, their freemium is a low grade form of the service. It’s free forever, especially with software companies. We see SAS does that all the time, versus a free trial where you give them a higher level, but it’s a for a short time. Any thoughts on which one of those is more effective? Or why a business should choose one over the other?
Robbie Kellman Baxter 12:06
Yeah, absolutely. So a free trial you give if you’re, if you’re if your problem like if you said the reason we’re not converting our prospects into customers is because they don’t understand what we’re offering. Like, especially with software, something like I don’t get it, or they don’t believe you if I said I have a new source of news that provides more valuable news that is better than any other news you can get for free or for.
Jason Hartman 12:30
Sounds too good to be true. We’ve got to prove it. Yeah. Okay.
Robbie Kellman Baxter 12:33
Yeah, prove it. freemium. So if you don’t have those two problems, I’ll just say right now don’t offer a free trial. There is no other reason for a free trial. Okay. So
Jason Hartman 12:41
the reasons are the don’t understand or they don’t either it’s too complicated without using it, or it’s not believable. The claims?
Robbie Kellman Baxter 12:51
Yep, I don’t understand or I don’t believe you, if that’s what you’re hearing from your prospects, consider a taste. Okay. So
Jason Hartman 12:58
an example of the company It like, you know, Survey Monkey does a freemium, they don’t do a trial. But, but usually they have the SAS companies at least have a trial on the upgrade sometimes, you know, sometimes you’ve got a freemium forever and then upgraded. You can try it for 14 days or something
Robbie Kellman Baxter 13:15
because somebody says, I don’t understand this thing is fine. The freemium model is fine. I don’t understand what is so great about paying and you say, we’ll try it, and you’ll understand the difference and you’ll never want to go back. So some organizations can have both, if they have both issues at different points. The reasons to do freemium are number one, to change behavior. So for example, if you move to digital news, and people say, I’m not going to read very many articles, so I don’t want to pay for it, you say great, if you’re not going to read very many articles, up to 10 articles a month is free. And then you keep bumping against the paywall because you’re reading more than 10 articles and one day you say, you know what, I’m actually using this I should just pay. That’s a good reason for freemium. Another good reason for freemium is if it works in your business model, so If there’s a network effect of, for example, LinkedIn, most people don’t pay for LinkedIn. But if none of us freeloaders were in the LinkedIn community, it wouldn’t be valuable to the recruiters. It wouldn’t be valuable to the recruiters, the salespeople, the job seekers, who are the ones paying? Sure, sure. You’ve
Jason Hartman 14:17
got to have if you can invoke Metcalfe’s law of the network, right, then yeah, it becomes worth having the freebie the freemium people in there, because it makes the non free. Yeah, okay,
Robbie Kellman Baxter 14:29
exactly. And then the last reason is if the people who aren’t getting your product for free, are influencing others to buy so they’re your marketing channels. So for example, let’s say that you’re trying to sell to end consumers, but they’re being advised by their accountants whether or not to buy your software, you might give it away for free to all have a free service for accountants, because you know that if the accountants like it, and they tell their customers, their clients to use it, the clients will have to pay or vice versa.
Jason Hartman 14:59
Usually, that’s the Other way around or get the business to pay, but yeah, got it. Okay.
Robbie Kellman Baxter 15:03
Yeah. So that’s freemium. So the next one is onboarding. So when you bring a new customer on board, you really want to choreograph their experience. And you want to do three things, you want to make sure that they know that that they get the value they’re paying for right away. So give them what they came for. Second thing is you want to reinforce the wisdom of their decision. And the third thing is you want to show them how to get all the value they’re entitled to. So helping them to create habits so that they don’t cancel. And customer success. Number six on my on my circle is kind of onboarding, giving people value for what they’re already paying for, for the rest of their of their time as your customer. So, you know, in contrast with customer support, which is if they tell me they have a problem, I will fix the problem. It’s making sure that your customers never have a problem. Because often the moment when they have a problem is the moment they cancel and then it’s too late to save them. And then the last thing I have is number seven is technology and what I’ll say there That almost any business that is using subscription pricing probably needs to start to think of themselves at least a little bit as a technology company. And the principles the the founders leadership, somebody in the organization needs to start thinking really strategically about how to incorporate technology more thoughtfully into the organization.
Jason Hartman 16:20
So we have finished all steps. Is there another one of those steps that you want to dive into any more or did we cover that pretty well? I think we covered it pretty well unless there’s something that that you think your your audience would find, especially useful organization, funnel pricing, freemium, onboarding, customer success, technology. Good stuff. Let’s jump to the next one. So five
Robbie Kellman Baxter 16:41
years ago, I was trying to convince entrepreneurs and executives that taking thinking of your customers as members, and using subscription pricing was a great business model for almost any kind of organization. And that if they move to that model, they would enjoy recurring rates. Revenue better data about their customers ability to evolve more nimbly, and higher valuations in the public markets. And people didn’t get that. That’s why I wrote the first book. But five years later, 2020 people, everybody wants to have a subscription business. So I took all of the research I’ve done in all of the work I’ve done with over 100 companies. And I mapped out a framework so that wherever you are in your subscription journey, you can anticipate what the challenges are going to be and understand what the steps you need to have to take are, and I divided it into things you need to do when you’re getting started. things you need to do as you scale your business, and things you need to keep doing and not forget about if you want to maintain a leadership role.
Jason Hartman 17:46
Okay, good stuff. So launch leverage lead. Let’s drill down on those a little bit more.
Robbie Kellman Baxter 17:51
So when you’re getting started, if you’re an entrepreneur and you want to build a subscription business, you certainly need to gather resources. You also need to set x Expectations among your investors, or certainly with yourself that it’s going to take a little while before you figure out the product market fit. And revenue starts coming in. Also, in general, if you’re coming out of a world where you’re very transactional, so you sell a thing to somebody, and you get a big spike in revenue, and then you have a dead period, and then you sell another thing, and you have a spike, subscription is great, because it smooths that out. But those numbers are smaller at the beginning. And so you need to be patient, and then
Jason Hartman 18:32
you need to be well capitalized.
Robbie Kellman Baxter 18:34
Yeah, you need to be well, then that’s why so much of the subscription innovation first came out of Silicon Valley, because here in Silicon Valley, we have often five, five years, six years, seven years before our investors need us to actually start making a profit. So we have a nice long runway to build that forever transaction with our customers and start establishing that subscription cadence. So moving on in that early phase, you want to figure out who you’re designing this for, you need to be really focused on who your best member is. And you need to find product market fit. What are the minimum features and minimum viable product? What are the features that are going to get someone to sign up? And what are the features that are going to engage them? So you want to track recency, frequency, depth and breadth of usage? What are the features that are going to get them to use your products regularly and well, for the foreseeable future? And once you have that mapped out, you’re probably ready to move on to stage two, which is really leveraging. So if you’re a solopreneur, or a small business owner, this is when you start growing, right? You start hiring people, you maybe invest in a technology platform instead of kind of doing it on your own with spreadsheets. And it’s when you start thinking about the culture for your organization. What are the metrics that you’re going to have on your dashboard, and then you just continually are evolving your offering to make it better and better and layering in more value to bring in new members, and to continue to engage your existing members. And then finally, once you’re in a leadership position, these are companies like a lot of newspapers, professional associations, some of the older SAS companies that have been around for 20 plus years, they start to run into the problem of aging with their cohort. In other words, the executives of the organization are getting older, and the best members are getting older, and new members are not joining. And a lot of times people have said to me, oh, that’s because you know, young people aren’t joiners or young people aren’t readers or young people don’t like going to gyms. None of that is true. What’s true is they come and they look at your offering and it looks a little long in the tooth because you haven’t evolved your offering. And the reason you haven’t evolved your offering, is because your existing members who aren’t looking for alternatives don’t push you to innovate because they’re happy with the way things are right. But when a new prospect looks at They’re like, Wow, looks really shabby and old fashioned. I’m going to try to find find something else.
Jason Hartman 21:04
Sure. But I mean, are you, of course you’re talking about the look and the design and the kind of the look and feel of safe. It’s a SaaS product. You’ve got to update things. But there’s obviously more to it than that. Right? I mean, it’s sort of that just maybe just the general culture or can you put your finger on that anymore?
Robbie Kellman Baxter 21:22
Yeah, yeah. So here’s some other examples, professional association. So these are like your, you know, American Marketing Association, the AI CPA, the CPA Society of Chartered public accountants, they do all their training for the most part that’s changing now, but they do it in person. So if you want to get your credits so that you can stay current, you have to fly out to Washington, DC or wherever to take the class and you’re probably thinking if you’re a young person, like, Why can I do this online? I don’t have to fly and it would be a lot cheaper, right? But I have no social skills. So you know,
Jason Hartman 21:54
I kind of do every now.
Robbie Kellman Baxter 21:57
The point is, you know, most people would think that the current way of doing it is with technology. Another example would be newspapers, right? newspapers that come out once or twice a day. But I’m used to getting my news from Twitter and it comes out, you know, in the nanosecond when that happens, and why doesn’t the newspaper make use of this new technology so that I can get my news when I need it. So what they’re saying is I see if I’m a new person, just graduating from college looking for a way to get news. I might say, well, newspapers, that’s not the best way for me to get news because I can get news for free and I can get it faster in other ways. So if you have to, if you’re a longtime business, you have to keep in mind how this looks to your prospects, and why you lost the people who cancelled or chose not to go with you. And you have to use your telescope in addition to your microscope, so you have to look out on the horizon and see what new technologies are available and what other companies are doing to solve the problem. That You claim to solve and they might not be your direct competitors. Like, you know, I think that the whole financial world was blindsided by PayPal, and then blindsided again by Venmo. Because those aren’t financial services companies, they’re tech companies, they solve the problem of how do I transfer money to people who I owe money to?
Jason Hartman 23:23
It’s going to be really interesting going forward. You know, this very significant move, I think away from banks, millennials and Gen Z. I don’t know that they view needing a bank having a banker having a bad relationship anywhere near the way prior generations did. That’s going to see a giant change. And I look at all the real estate these banks own in terms of all their branches, especially, especially the crooks at Wells Fargo, you know, I mean, wow, do they have a lot of branches, I mean, that’s just a lot of real estate, will probably become a lot less than necessary, not to mention current events, of course, which are, you know, even more significant. So what is maybe one or two of the best retention models, the membership economy in the subscription economy is largely about retention, right? A lot of companies are good at getting the customer getting the business. But some customers they don’t adopt, they don’t use the product. So when they see it on their credit card next time they they dispute the charges, or they cancel any thoughts on retention? I’m sure you have many, but just
Robbie Kellman Baxter 24:30
so many, so many thoughts on retention. So first of all, retention is everybody’s responsibility in the organization. So I worked with a streaming video content company, they called me in because they said we have a retention problem. And our retention team is not very good. This is what they told me. So we come in and we bring all the different leaders from across the organization together and here’s what I learned. We talked about why cuz What are people saying when they cancel? So number one, the technology glitches. In other words, I’m watching the soccer match and all of a sudden The screen goes dark. Yeah. And so I cancelled, right? Is that the fault of the retention team? I don’t think so for another another issue. They were the marketing team was saying join our subscription, because we have the World Championship soccer match, right? So guess what people signed up. In the two week free trial, they watched the soccer match the world champion soccer match, and then they cancelled before ever paying, right? Is that the fault of the retention team? No, those people never intended to come, they were the wrong customers. So those are just a couple of examples of how the retention can be driven by almost anywhere in the organization. So the first thing I would say is before you invest in acquisition before you invest in marketing, make sure that you understand how to retain your customers and which customers routine. And then once you know that, you want to optimize all the parts of your business to attract the kind of people that you can retain and to teach them the habits that are going to result in them staying. So for example, you won’t To onboard new members for engagement in the world of streaming content again, that might mean you know, I get it on my phone, right I get the new HBO max app from my phone, they’re going to immediately I can guarantee it, they’re going to onboard me to encourage me to connect my phone app to my smart TV. Because if I’m watching on my smart TV, I am less likely to cancel because it’s more fun to watch on the big TV. They’re also going to encourage me if I come in, because I want to watch. So I can’t think of what a good HBO show is. But I want to watch some HBO show. That’s just one time, they’re immediately going to try to introduce me to content in other areas. So if I’m on for drama, they’re going to introduce me to comedy. If I’m watching a TV show, they’re going to show me documentaries. So you want to really understand how to onboard people to get them to stay. You also want to track everybody talks about tracking churn. Tracking churn is kind of very high level for the health of your business, but the leading indicators of churn or usage recently See frequency and depth of engagement. So you want to track those
Jason Hartman 27:04
Robbie Kellman Baxter 27:05
Okay, so recency is when was the last time frequency is how often do they come in? and depth is how many features do they use? And how long did they spend when they come. So, you know, a lot of a lot of software products that the software manufacturer thinks of as an enterprise solution or a total solution. customers might think of as a point solution, like they’re only using one feature, and that makes it more likely that they’re going to cancel because they’re not getting the full value they’re paying for
Jason Hartman 27:33
good stuff. Robbie, I think you have a special offer for our listeners and viewers. Do you want to share that with them?
Robbie Kellman Baxter 27:39
So I have some goodies. If you go to my website, which is Robbie Kellman Baxter comm slash audience. I’ve got some slides these slides that we’ve seen today and some other ones and I have the membership economy membership Manifesto. And then I have chapter eight from my new book, which is the chapter about culture, building the culture to support subsequent Excellent.
Jason Hartman 28:00
What is the manifesto? Tell us about that for just a moment.
Robbie Kellman Baxter 28:03
The membership manifesto explains why this is such a massive trend. What’s driving it both from the customer side from the human nature side and also why it’s good for businesses? And what are the guiding principles that can help any organization go there? So this is really something if somebody’s saying I don’t know if it’s for me, or I don’t think it’s relevant to my business, or I don’t you know, I don’t get it. I don’t get the subscription frenzy. This is what you need to read. Excellent.
Jason Hartman 28:33
Robbie Kalman Baxter, thank you so much for joining us.
Robbie Kellman Baxter 28:36
Thanks so much for having me, Jason. It was fun to talk to you.
Jason Hartman 28:44
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