A subscription-based economy with Patrick Campbell
Whether it's a gym membership, food box subscription, subscription software, or a media subscription, the subscription economy is here and is taking over.
There is no one besides Patrick Campbell, Co-Founder and CEO of ProfitWell, that can discuss subscriptions quite as eloquently as he does. Campbell joins us this week on the Conquer Local podcast to dig deep into what a subscription based price model looks like. The beauty of the subscription model is for the first time in history, there is now a revenue model where how we make money is baked directly into the relationship with the customer. How to price a subscription model is focused on two major pillars of growth, how it's priced and the cost per customer, as well as retaining those customers.
Listen to the full episode here.
The Goods on Patrick Campbell
Campbell is the Co-Founder and CEO of ProfitWell, the industry standard software for helping companies like Atlassian, Autodesk, Meetup, and Lyft with their monetization (through Price Intelligently) and retention strategies. ProfitWell also provides a turnkey solution that powers the subscription financial metrics for over 8,000 subscription companies (it’s free and plugs right into your billing system). Prior to ProfitWell Campbell led strategic initiatives for Boston based Gemvara and was an economist at Google and the US Intelligence community.
Takeaways
The Subscription Economy
The subscription economy is here and consumers are subscribing to things on the daily. ProfitWell is currently in the position they are in because they are serving approximately 20% of the entire subscription market. Meaning, 20% of the market is using one or more of their products. Campbell and his team are able to discover and analyze interesting details around what's happening in subscriptions. For the first time in history, ProfitWell now has a revenue model which demonstrates how revenue is directly baked into the relationship with the customer.
Food for thought: If a business is not providing a customer much value, the customer is going to leave. We know this to be factual. BUT when it comes to subscriptions there are going to be instances where people forget about their subscriptions. There are many examples of this in everyone’s daily lives, such as gym memberships, food box subscriptions, subscription software, or a media subscription, like Spotify or Netflix.
In today’s landscape, we have this caveat, people have access to their banking information via apps. Consumers won’t forget every subscription because of this technology. You have that give and pull that creates an equilibrium, that symbiotic relationship between the customer and company.
Pricing Model
Two things that should be kept in mind.
- Focus on the customers that you're selling to.You have to understand those customers on a deeper level, one of the worst things an organization can do is average out their price.
“If we're selling a mass market media product, we're probably going to have a fairly low price because we're trying to get as many people as possible. If we're doing a premium like the New Yorker, we’re not going for everyone. You would want to go for the people who are willing to pay. So our price might be 3X - 4X that particular low end product.”
- Patrick Campbell, CEO and Co-Founder of ProfitWell
There's a lot of research a company can do simply by talking to their customers and talking to their prospects to try to figure out what the customers are willing to pay.
2. How you charge for a subscription.
“What you want to do is charge based on some sort of unit of value. Whether that's per 100 visits, whether it's per 6 pieces of content, whether it's per 1,000 widgets or what's-it, or whatever you're doing. What's really beautiful about the world of subscriptions is we can now with technology measure the actual value the customer is getting and then we can charge based on a proxy of that value.”
- Patrick Campbell, CEO and Co-Founder of ProfitWell
Compensation
A sales compensation plan can be one of the most underutilized levers when it comes to subscription based organizations. It’s a good idea to have some sort of clawback, whether that is a six-month clawback if that customer ends up leaving, or, on the other end, if that customer ends up expanding within the first three-months, the salesperson would get a part of that commission.
“Clawbacks are super important and I think that if you're seeing something bad happening in your sales, either new sales or in the retention side, the first thing that you should be doing is probably looking at that compensation plan. When we saw this in our own business, what we started to do when we were transitioning to subscriptions for one of our products, it was moving from a one-time purchase to a subscription purchase.”
- Patrick Campbell, CEO and Co-Founder of ProfitWell
Here is some math for you—don’t be scared:
If a sales organization took every one time purchase they brought in, and put a 0.5 decelerator on it, meaning, if a salesperson sold a contract for $100,000, it would only be worth $50,000 in their quota.
BUT, if a salesperson sold a subscription, it would have a 1.25 accelerator on it. Meaning, if a salesperson sold a contract for $100,000 it would be worth $125,000 of their quota.
Salespeople want to be compensated and in an instant they would start selling subscriptions because they have that extra motivation. If it's a year contract you might give salespeople the whole booking, but then have it as a six to nine-months cliff on that, where if they churn within the six to nine-months, they would lose that ability or they lose part of that ability. You have to make sure your retention side is compensated appropriately as well.
Competitors Pricing Model
How much attention should we be paying to the people trying to eat our lunch? How much analysis do we need to do on their pricing model?
“I recommend doing very little; you're assuming that your competitor has done their homework. All data that we have indicates that no one is doing their research. Your competitors are certainly not doing their research. What's really interesting is that with your competitors, you're assuming that you're selling the exact same product to the exact same type of customer. You end up getting in this weird loop that you're chasing uninformed data and also data that isn't congruent to you.”
- Patrick Campbell, CEO and Co-Founder of ProfitWell
Do some value based research, collect data, talk to your customers, and then do some research on your competitors.To put it in context, if you find out from the value based data that the price is $150 or that's the willingness to pay, but your costs are $200 and your competitors are at $80, that doesn't mean you should automatically price it at $80. We need to figure out what is that delta, what's going on there? And how do we fix our costs? Or how do we change the product to overcome those costs?
Advice from Patrick
“In the world of sales we get so caught up in getting the deal done that we don't take a second to step back and try to figure out the why. If they are bringing up a competitor, the first thing I want to ask is, ‘Well what do you see is valuable in them compared to us? What's interesting?’ Ask that question because then you know the objection that you're coming up against, but you will also understand where you might be weaker compared to that competitor. That's a really powerful thing to do and don't be afraid to talk to your customers about this.”
- Patrick Campbell CEO and Co-Founder of ProfitWell
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