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The Best Subscription Companies Know That Their Kitchen Rules

Nick Cherrier, APAC Chair, Subscribed Institute

Subscription businesses are a little bit like restaurants – most have dining areas and kitchens. What a company’s subscribers see and deal with – the customer experience – happens in the dining area. What they don’t see – quoting, ordering, contracting, invoicing, collections, renewals and more – is like what happens in the kitchen.

In the same way that a restaurant patron doesn’t really care about intricate chopping or laborious sauce preparation, a subscriber doesn’t care about PO numbers or bank transfers. As long as the meal tastes good, gets to the table reasonably quickly and is consistently good time after time, they’re happy. Oh, and the menu needs to change as well; but we’ll get to that in a minute.

I’m talking about subscribers as “they” because this is really an article for the chefs, the people for whom all those kitchen processes – what we often shorten to quote-to-revenue – is absolutely essential. They might be invisible, but they go a long way to making the dining room stuff memorable.

And just like in a kitchen, these processes can be automated or left in the hands of highly skilled people. They can be standardized or customized.

Recently, Zuora’s Subscribed Institute collaborated with McKinsey & Company to study 500 companies in this very area. Our research covered four years and we considered 50 different data attributes and fields. Among our many findings, one of the most interesting was that getting the balance right between automation and customization is crucial.

A change in menu brings more patrons but more complexity

What makes this balance so important? Well, once a business starts to grow, complexity is inevitable. Where initially it might have been possible to say “We’ll do everything by hand,” at some point that becomes unrealistic.

You might start with a really straightforward offer, a tiny little catalogue of products or services and extremely easy-to-understand pricing options (perhaps just two). But as the business matures new subscribers come along with new requirements.

That’s a good thing. We know there is a direct correlation between users making changes to their subscription – switching pricing tiers, changing the number of users on an account, altering volume and requirements, etc – and growth. But it’s not easy to manage. And it’s not something you can ignore. Deciding that quote-to-revenue processes can stay the same because change is too much work is a surefire path to stagnation – at best.

It’s a balancing act

So, how do you get your ‘kitchen’ running in such a way that your enterprise consistently grows. Here’s where that balancing act I mentioned earlier becomes critical. The best subscription companies find a sweet spot where some quote-to-revenue processes are automated (the repetitive ones that are essential but provide little direct value to the end user) and others remain manual and highly customizable (the ones you want to be managed by a creative individual using their discretion).

Our research says that when a company gets that balance right, they improve their performance across three key areas: adding new accounts, growing existing accounts and reducing customer churn. On average they grow four times as fast as their competitors in these areas.

Let me give you a real-life example. iRobot is the company that makes Roombas, the first automated vacuum cleaners to have wide commercial success. Over the last few years their revenue growth has been at 20 percent year-on-year and their profit growth has been even higher. During this period they introduced a subscription membership called Select, as part of which you pay a monthly fee which includes a cleaning robot in addition to automatic delivery of accessories, a premium protection plan and eligibility for a new device every three years.

But the kicker is their dedicated support team, including an “Experience Manager,” which is also included as part of the plan. They’ve deftly amalgamated sophisticated services that can only be offered by humans with an automated subscription system.

Subscribers are looking for lifetime value

One truism that covers the entire Subscription Economy is that the sale is not the conclusion to a transaction (as it so often is in product economy), but the beginning of a relationship with a customer. And to make sure that relationship continues, that the subscriber stays subscribed, customer lifetime value is critically important. The survival of a subscription business relies entirely on the satisfaction of their customers.

A well-run restaurant never stays exactly the same, but it produces the same quality over and over again. Diners, for the most part, don’t know and don’t care what happens in the kitchen to create that consistency, but they do want to feel that their tastes are being catered to.

The best subscription companies work in the same way, keeping the kitchen running like clockwork so that the dining room is something people want to keep coming back to.

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