When you have Options, Know the Benefits of Each

In addition to teaching executives how to design and deliver winning corporate presentations, I teach courses at universities. As part of a business strategy/policy course, I discuss the different subscription models that exist, and why they can help companies more effectively keep clients and increase profits. For example, Amazon’s Prime and Adobe’s switch from selling “boxes” of Photoshop into a SAAS (subscription) program are illustrations of different kinds of subscription services companies can offer. (See The Forever Transaction (Robbie Kellman Baxter) and Subscription Success (Robert Skrob).

Recently, Robert Skrob (BeUnleavable.com) shared a blog comparing trial, monthly vs. annual subscription offers, with some interesting data.

  1. Trial subscriptions have the highest conversion rates because they are discounting the monthly subscription charge by 80-90 percent.  They have a higher churn rate than the others but usually result in more members after 12-months because of the superior front end conversion rate. It's ideal for quick scaling to provide cash flow challenges and/or you have choreographed upsells as part of your new subscriber onboarding to maximize cash flow after subscribers join.
  2. Monthly subscriptions usually have a 50% higher conversion rate than annual subscription offers. Yet, even though monthly subscriptions have a lower retention rate, you will usually end up with more subscribers after 12-months as compared to annual, because of that higher conversion rate. 
  1. Annual subscribers are your highest lifetime value subscribers. These customers retain well and buy other products and services you offer. Only challenge is there will be fewer of them because front end conversion is not as high. 

In other words, saying you want to go with a SAAS offering isn’t enough. You will produce different customer buying patterns. 

Skrob says “I love creating cash flow forecasts for my annual subscription clients because it’s easier to fund your customer acquisition costs when you get a full year of subscription revenue on the day the subscriber joins.”  His advice is to “choose the subscription plan that balances your cash flow needs with your ambitions to scale recurring revenue. And, mix it up, testing different terms from time to time to appeal to unique segments within your target market.” (italics added.)  For more information, watch the Youtube episode. 

His final piece of advice is excellent, because life changes and these patterns could also change:  “Test out your offers before you actually offer it to your customers to better understand the interaction with format, your product and the customers you want!”

Remember, these rules apply to other options you have when making presentation offers. A recent CEO was trying to sell his company to another. The possible buyer had lots of other things going on and wasn’t committed to making a purchase. The seller came up with another way to sell the company to him—but knowing how overwhelmed the buyer already was, and wasn’t sure that offering an alternative or even both options to the Board wouldn’t make things more confusing and sink the deal. 

Once again, we recommended testing the waters, by having a pre-meeting conversation. The buy was very appreciative of the sensitivity that the seller was offering. At the end of the day, the Board felt this was not the right me for any acquisitions…but left the door open for a strategic partnership that hadn’t been considered before.

What have your experiences been in either of these areas? Share them with the community!

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