Even though I grew up in Florida, I never learned how to fish with a cast net.
You are supposed to throw the net into the water, it’s water-laden and made heavy by the lead weights meant to drop the net to the bottom as you let out the line you are also holding in your hand. The net is meant to trap fish on its way down. Then you use the line to haul the net back up. As the net emerges, you look to see what fish you caught.
I couldn’t figure out how to toss the net so that it landed on top of the water in a big circle, casting the widest possible fish-catching surface. For me, the net flew from my hand and dropped into the water in a big, useless ball of tangled net. I’d drag the thing back to the surface and untangle it only to have it tangled again after my toss and before it hit the water. The only activity that has proven itself as fruitless as cast net fishing is golf.
If you go through all the long practice of learning to throw a perfect cast net, you don’t want to use a net with big holes in it that let the fish slip through. Can you imagine finding the perfect place to fish, doing all the work of learning how to net fish, and doing all the tossing and hauling, and only catching a small fraction of the fish your efforts deserved?
And yet, I see the equivalent all the time within the membership subscription world. Too many people invest to create membership businesses, create marketing campaigns, and fulfill subscriptions monthly without generating the revenue they deserve based on their market and business model. Money escapes from their business like fish squirming through holes in a cast net.
Here are seven common recurring revenue-sucking “holes” that lead to slow member growth, lost revenue, and frustrating member growth plateaus. It’s like doing a $10,000.00-per-month job and only getting paid $5,000.00 a month every month for the rest of your life.
Are you frustrated with making half the money you should for all the work and effort you are putting into growing your subscription membership business? Good. Let’s fix these seven holes.
Ineffective New Member Marketing
The first killer of membership growth is a high cost per acquisition. Subscriptions and memberships are the hardest things to sell to new customers.
It’s like trying to find a wife by inviting every woman you meet into a long-term relationship. That’s not how it works. And if you tried this approach, you’d be left wondering if women even want to get married, because each one is rejecting your proposals. Instead, the path to building a long-term relationship is a series of small commitments to build trust and rapport. Then there’s a commitment to form the foundation of a new relationship.
Instead, membership marketers are inviting strangers into relationships and wondering why every prospect doesn’t jump at the offer. Someone may love you and love your product but not want to commit to consuming your product on an ongoing basis.
I often feel the same way. Each time I read The Economist, I love the nonjudgmental way of presenting the news of the world. And yet, I couldn’t have that magazine showing up each month. It’s too much of a commitment for me even though there’s more than enough value there.
The secret to subscription membership marketing isn’t about the value you deliver; it’s about creating a new relationship. It’s about growing trust and connection until that member says, “Yes, I really like you. I want to hear from you every month.”
This new member conversion confusion over value versus relationship is the first “hole in the net” for membership marketers. The next one is …
Low Initial Transaction Size
Just a few years ago, the fad was selling memberships on a free trial basis. The idea was to make the threshold to get into the membership as low as possible to induce as many new members as possible to join.
There are two problems with this idea. First, free trial offers attract members who are more focused on getting something for free than becoming your member. It’s a tough way to build long-term relationships. And second, even if you charge a small fee for shipping to verify you have a valid credit card for rebilling, you are generating so little revenue that it takes a long time to recover your marketing costs.
A few years ago I was running a $99.00 membership. I could scale the business with a free trial offer at a new member acquisition cost of $148.00. But with my member churn rate and margins, it took three full months for me to break even on the marketing costs. I was stuck.
Instead, consider offering a product to your prospects with your membership positioned as a bonus or upsell to your customers. When I sold a product for $297.00, the rate of new members declined slightly, but I could afford to spend a lot more to acquire each new customer. This allowed me to grow membership revenue faster than with a free trial.
This is one of the biggest misunderstandings of the subscription world. Some try to solve it by offering six-month or 12-month discounts to their new subscribers to increase their initial transaction size. That’s a start. But what’s better is when you pull together a more comprehensive offer that gives you more margin to increase your front-end marketing.
High 90-day Churn Rate
In every membership I’ve ever reviewed, the majority of members quit within the first three months. Even when your membership renews after a year, if they aren’t at the Retention Point by month three, the member is not going to renew.
Instead, “move the finish line.” Rather than congratulating yourself for doing a good job getting a new member, focus on your new members who stay beyond three or four months. This way you’ll engage your new members, continue promoting the value of your membership, and keep a whole lot more of them. If your average lifetime value is $1,500.00, keeping a member at the four-month mark could be worth $1,300.00 or more to your business. This is a huge opportunity hidden within membership businesses.
And when I work with clients who pay me a percentage of the improvement in recurring revenue I generate for them, this is ALWAYS where I begin. If more than 30–40 percent of your new members are quitting before month four, there’s a massive recurring revenue opportunity there. It always breaks my heart to see it in the numbers when I’m working with a new prospective client, but I know I’m going to be able to make a huge positive impact on their business.
Few New Member Upsells
My clients fall into one of three categories:
- Totally understand upsells and have a marketing system in place to maximize upsells to their new members over the first 90 days of the relationship. They split test different offers and sequences to maximize the 90-day value of each new member. My goal is to get all my clients to this point.
- Love upsells but send their new members the same offers all their other members receive. It’s a once-size-fits-all approach where campaigns created to engage long-time members get to deliver to the newest members as well. There’s no split testing and little measuring other than how much revenue each campaign generated, which is basically useless.
- Absolutely afraid of offering products to their new members. Some even go so far as to be afraid that new members will quit if they send them anything other than “content” emails. The fact is some of your newest members will quit within the first 90 days. Upsells increase the value of these new customers. Any new members who purchase the upsell will stay at a much higher rate than members not offered upsells. And members who are offered upsells but don’t buy retain at a higher rate when compared to members who receive no upsells. Do this well, like the clients in the first group above, and you’ll improve your retention, revenue, and customer value.
Low Member Retention/Renewals
When you look at your retention reports and see that you are losing 5 percent or more from one month to the next, there’s an opportunity there. Your member churn may be higher than 5 percent. This is often because the churn rate is really high in the first three months and tapers off over time.
For members who have been subscribers for four months or more, your goal should be to lose less than 2 percent from one month to the next. If you are renewing on an annual basis, your first-year renewal goal should be 85 percent, with your renewal rate thereafter exceeding 90 percent.
Anything more is like having a hole in your net. This may sound impossible. The truth is I’ve often felt that way when working with different clients. I wonder if it’ll happen. But when we set our minds to it, we can almost always make this happen. I’m sure it’s possible for you too.
Poor Revenue Administration
This is a topic most membership marketers believe they have well-handled, although I discover they rarely do. Even if you are paying an outside company to pursue failed charges, there are dozens of details that determine whether your transactions fail and how to maximize revenue without increasing your merchant costs.
The one that has so far tripped up everyone I ask is, “Are you verifying that your monthly merchant costs are correct?” Your merchant discount and transaction fees are ridiculous enough. Most people just pay whatever is billed without review. This is the same as having employees in your business and paying them whatever they ask without verifying hours worked or performance.
Have your bookkeeper verify the number of transactions through your shopping cart together with volume. Check your discount rate together with the transaction fees. Clients often discover merchant processors don’t do any math; they just bill a number. It’s sort of like the water company billing you for the water they think you used without actually checking your meter.
While there are more than a dozen details, when my team member Denise and I work through our clients’ accounting managers, this is one that’s reliably overlooked.
Too Many Customer Refunds/Chargebacks
If you are getting chargebacks, it’s too many. Although your merchant processor may love the monthly merchant fees you generate, VISA or MasterCard will shut you down and put your taxpayer number on their blacklist, preventing you from getting merchant services in the future.
Even though you may not see it, we are living through a major crackdown on subscription membership programs. You will never be large enough that VISA Worldwide will take the time to listen to your side.
Chargebacks immediately cost you money in debits from your checking account, and when they stack up, they can shut you down completely.
Would You Like a Net Inspection?
Each week, I work with membership markets to review their programs to look for revenue holes they can close up. In fact, my goal is to identify three or four quick wins that will generate fast cash to give us more time and space to invest in this effort.
If you are wondering if you have any of these opportunities in your business, connect with me via email at RS@RobertSkrob.com. I hate it when I hear from business owners who are suffering from Retention Deficit Disorder™, and I’m happy to find ways you can cure it.
Let’s make 2019 the year you break through membership growth plateaus, attract more new members, and grow the recurring revenue you deserve.