One of the lessons that I wrote about from my time as head of growth at Codecademy is that there are no "silver bullets" for growing a subscription business.
Subscription businesses grow by getting five core things right and then aggregating hundreds of small wins across the product.
The five core things are what I call the brass bullets.
They're not as powerful as silver bullets, but they matter. They are your:
Paywall & Pricing
Initial Purchase Journey
Ratio of Short to Long-Term Plans
Subscription businesses, especially consumer-focused ones, are much slower to grow than B2B enterprise companies for a few reasons.
B2B businesses that sell to large companies have an initial growth advantage because they sell large contracts. This means that one purchaser can buy hundreds or even thousands of accounts in a single transaction.
B2C subscription businesses have one user buying (typically) one account. This makes the initial growth of the company's revenue much slower.
Product Lead Growth style
Subscription businesses are powerful because of the consistent revenue and diversification of the customer base.
One user leaving doesn't matter to a B2C subscription business, but it can really matter to a B2B Enterprise Sales business if it's your biggest customer.
If you look at the premium account growth for Spotify, you can see the power of this consistency. They're growing 5-15% each quarter, which isn't huge, but it's been consistent for eight years.
#1: Paywalls & Pricing
The most important, and also hardest, thing to get right in a subscription business is how your paywalls and pricing are organized. Specifically:
How exactly are your products structured?
What features fall into each tier of service?
What do you charge for each level?
This is effectively a never-ending product problem and one that all subscription companies continuously iterate on.
This is also why, for most earlier-stage companies, I suggest starting at the bottom of this list and working up with Paywalls and Pricing being the last major thing you work on.
Paywalls are a mix of art and science, but you know you've found a good one when the following things are happening:
Users/Accounts that are getting the most value from your product are the most likely to pay you and pay you the most.
Additional product usage naturally pushes users into higher-priced tiers of service.
Users understand the difference between the tiers and can easily describe them to other people. The clearer this is, the faster word of mouth will travel.
Users feel the product is great value/deal, so they are more likely to talk about you to others
#2: Initial Purchase Journey
Another area of the application that should get continuous iteration is the path that users take to buy the product.
You can think of this journey as the user:
Sees the paid product
Wants to learn more, be convinced, feel confident, etc
Decides to buy
The payment gets processed successfully
Note: We're calling the "initial" purchase journey to separate it from recurring purchases, which we'll cover in #4.
Products should handle this flow in the most effective way for them, but the deeper that you get down this list, the less variation there is across products. Payment processing success is the same everywhere.
There is still a decent amount of variation here across products, but you should be shooting for the following:
Users become interested in paying and/or upgrading by seeing features that could help them in the right context and when they feel the problem that the paid feature solves. For example, "Try our paid product" at the top of each page is not as powerful as seeing a locked feature you really want to use.
Users understand why they are upgrading during the purchase journey. Typically, companies try to handle this on a pricing page, but at Codecademy, fewer than 10% of users bought from that page.
The purchase journey explains away as many FUDS (fears, uncertainties, doubts) as possible in space that you have.
Once the user tries to buy, e.g., is on the checkout page entering their payment info, you should do everything humanly possible to prevent bugs and errors that you can control. Bugs here are very, very expensive.
Once the payment has been sent, some errors that are out of your control will come back, such as lack of funds, bank declines, etc. You should show them a specific and human-readable error message when that happens. Don't show them "Error, please contact your bank"; show them "Please update your CVV number or try a different card."
#3: Ratio of Short-Term to Long-Term Plans
The ratio of your short-term to long-term plans, typically 1-month and 12-month plans, is one of the most important metrics for any subscription business.
"Plan Mix," as it's commonly called, is the equivalent of "average order value" or AOV in e-commerce.
ts one of the few tides that raise all boats in subscription businesses.
These benefits include:
You collect more cash upfront and, therefore, have more money to run the business with
Users are committed to the product for at least 12 months, which, for most subscription businesses, is likely longer than they would have stayed around.
Users psychologically commit to the product more and are more likely to use it. This also makes them more likely to talk about it.
Understanding your user's LTV (Life Time Value) is much easier when someone commits to 12 months, making acquiring users via paid media easier.
Hands down, the most effective tactics for doing this are:
Price your annual plan at 1-2 months more than your normal LTV - You should be deliberate in choosing the discount ratio for your annual plan. Don't just choose 15% because that's what everyone does. Figure out how long your average user stays around and then price the annual plan to be 1-2 months more. '
Defaulting user to the annual plan on the pricing page and checkout page - A very small and simple change to make, but make sure that all of the purchases default to the annual plan but also give the user the option of switching back.
Clearly call out the savings between the plans - Make sure the user understands how much they save with the annual plan.
Another tactic that I have seen other companies use but not tried myself (yet) is offering longer trial periods for annual plans, as Headspace does below. Every little bit counts when it comes to annual plans.
Arguably, the most effective and least understood growth lever is payment processing. I am defining payment processing as everything that happens between a user clicking "submit" on your checkout page, and you collecting the money.
Payment processing is a great place to focus because it's the only area in a subscription business where you don't have to convince users to do anything. Users are already trying to pay you, and you have to collect the money.
The reason that this is so important in subscription businesses is that, ideally, users are going to pay you repeatedly for many months. This is the power of the business model, but it also increases the importance of collecting payments successfully.
A user might have intended to pay you for six months, but they could fail a payment on month 2, and you might lose them forever.
I wrote a longer guide on this here that outlines what payment processing looks like at different stages of a company, but to summarize, the 3 main things that you're trying to fight back against are:
False Positives in Bank/Processor Risk Models - meaning your transactions are getting flagged as "Fraud" when they are not
Lack of Balance on Cards - If you're trying to charge someone $100 on the 11th of each month, and that person gets paid on the 15th of each month, you might have some charges that fail due to lack of balance that would have succeeded a few days later.
Expiring & Changing Payment Methods - Credit/Debit cards expire every 3-5 years, so the longer you're in business, the better you'll have to be at keeping your payment methods current and nudging your users to update them.
#5: Churn Prevention
If you gave me the choice of improving any metric in a subscription business, it would be lowering the churn rate. This is another metric that you should use every tactic possible to lower. The tricky things about working on churn are:
The best way to fight it is to improve the core product.
The Payoffs from lowering churn are not immediately obvious and it can take a long time to see the impact.
The number to monitor to see the impact of lowering churn is your LTV (Life Time Value). However, as we've discussed in the past, LTV is a very slow number to move, so it might take you six months to understand the impact of your work.
That said, one of the reasons that cancellation is a great place for companies to get started is that the best practices are very established and relatively straightforward.
The best practice in this area is to:
Collect data on why your users are unsubscribing. I'd suggest doing that with open-ended questions first so that you get the full universe of reasons
Turn that into a multiple-choice survey. So users would be giving your reasons they're canceling on the way out.
When they click each answer, try to solve their problem one last time - so if they have issues with the product, then connect them to support. If they want to take a break, let them pause their subscription for two months, etc.
In our database, you can see that virtually all big subscription companies do a version of this: