Blueprint for Subscription Success

The Art and Science of Subscriber Acquisition

The Art and Science of Subscriber Acquisition

The purpose of a business is to create a customer.” —Peter Drucker

Acquiring customers is a complex undertaking, involving numerous decisions related to various aspects of marketing—decisions based on both instinct and data, art and science.

To start, the business needs to have a clear idea of who their ideal customer is—a buyer persona—and how the subscription product or service meets their needs. At these early stages, a business won’t have a wealth of sales data on which to rely, so research and well-founded assumptions are used instead. This is the ‘art’, and these insights allow the business to design a customer acquisition strategy for creating awareness and converting prospects to customers. ‘Art’ comes into play in the form of storytelling, branding, content creation, visual messaging, and more at this stage too.  

As the business implements its marketing programs and wins customers, it acquires data on customer purchase journeys, conversion triggers, which marketing investments are most effective, and which plans or products customers purchase most frequently. Analyzing this data is the ‘science’ side of the equation.  

Subscription businesses are uniquely positioned in that they gain new data every month from their customers’ and prospects’ activities—meaningful, actionable data on trends, and patterns that reveal the factors driving customer satisfaction. The business then iterates and optimizes, producing improved results each cycle. Having the flexibility to make changes easily to plans and pricing in response to data and new learnings is critical to customer acquisition.

The Rewards and Challenges of Subscription Commerce

Strategy without tactics is the slowest route to victory. Tactics without strategy is the noise before defeat.” —Sun Tzu

While customer acquisition is key for any company, subscription businesses face an additional challenge in that they are asking for a recurring purchase, which requires them to consistently ensure customer satisfaction. At the same time, those customers who are acquired provide greater lifetime value to the subscription businesses due to the recurring nature of the relationship.

For this reason, subscription businesses tend to expend more time and resources on acquiring customers than other kinds of businesses do because there is a potentially higher return on the investment, as well as a longer period over which to amortize the acquisition costs.

As with any investment of time and resources, subscription businesses must be thoughtful about their customer acquisition strategy to make sure their marketing spend is optimized. Fortunately, there are a number of different strategies and tactics which subscription businesses can employ to capture prospects’ attention and entice them to convert.

Acquiring Subscribers

Free Trials: Card Required or Cardless?

Make your product easier to buy than your competition, or you will find your customers buying from them, not you. —Mark Cuban

A free trial allows prospects to test or sample your product or service before committing to a subscription. This can be an effective customer acquisition tactic especially if the value of the service is best experienced first-hand. One decision you’ll need to make is whether or not to require the prospect to submit payment information in order to start their trial.

There are pros and cons to either approach. Requiring payment information can make for a more seamless conversion experience: the prospect converts to a customer automatically, without having to enter any additional information. This is especially useful in scenarios where a trial requires a few steps to set up the account and configure preferences.

On the other hand, by not requiring a credit card, prospects may be more inclined to sign up as they perceive the trial to be risk free. Although conversion rates at the end of the trial period may be lower, committed prospects will convert.

Of course, a free trial may not be appropriate for every type of subscription business. Your analysis will determine if it makes strategic sense for you to offer this option to potential customers.

Promotions and Discounts

When dealing with people, remember you are not dealing with creatures of logic, but creatures of emotion. —Dale Carnegie

Everyone loves a bargain—and promotions and discounts are a time-tested way to increase awareness and gain new customers. From the first coupon, distributed by Coca Cola in 1887 and redeemed by 8.5 million thirsty Americans, to location-based coupons that are sent to your phone when you walk by a designated ‘beacon’—a coupon or discount is a proven marketing tactic. Used largely in (but not limited to) the B2C realm, there are a number of ways to create a compelling coupon campaign.

For example, coupons can create buzz around a new product or subscription plan and increase awareness and adoption. Or, target specific customer groups with a special offer to upgrade to a higher-value plan or to add a one-time product via a coupon. And if someone puts an item in their shopping card but ultimately abandons the purchase, offering them a discount might just be the nudge they need.

While offering something at a discount can be very effective, customers and prospects may sometimes need a bit more encouragement to act. Adding a time element (“Sale ends Friday”) is a great way to add urgency to the buying decision. Or increase their spend by requiring a minimum purchase in order to receive a discount, such as free shipping. Coupons can also be used to A/B split test different promotions, discounts, or even email subject lines. Consistently testing your campaigns ensures your promotions are optimized.

And while it’s great if your campaign goes viral, you’ll want to prevent your coupons from being copied or shared—and creating unique coupon codes in bulk is one way to do this. Look for these types of tools as you consider subscription platforms.

However you design your coupon or discount campaign, you must ensure that you’re not ‘giving away the farm’—that the discount you're offering and the customer conversions you expect to generate from it will yield profits not just revenue. Developing your promotional plan must include an analysis of the impact it will have on business margins as well as an analysis of Customer Acquisition Cost (CAC) and Lifetime Value (LTV).

Upsells and Cross-sells

Whether marketing to a prospect or an existing customer, upselling and cross-selling can be very effective ways to increase revenue. It’s why waiters always ask if you’d like to see the dessert menu—suggestive selling works! Let prospects know about other plan options that might better meet their needs or add-ons they hadn’t thought of. They may appreciate the suggestion.

One way to upsell is at the end of a free trial period. The customer may have trialed the most basic service but would actually benefit from a higher-level plan. Suggest this option at their time of conversion. Cross-sells can happen the same way, by offering an item that is complementary to the plan being purchased, on the checkout or other conversion pages.

Gift Subscriptions

“When done properly, gifts work like nothing else.” —Seth Godin

Similar to coupons, gift subscriptions are another valuable customer acquisition tool, one which leverages the love your best customers have for your subscription business by giving them a means to share this love with friends and family—via a gift subscription. 

There are two types of gift subscriptions: gift cards and gift plans. Both types are popular for those who don’t want to shop for a physical gift, then wrap and ship it. Also, since there’s no shipping involved, there’s no delay, which is great for procrastinators who wait until the last minute to buy gifts.

Subscription gift cards come with a pre-loaded monetary value which the recipient can use to purchase a subscription (or one-time item) from your company. They may be physical or electronic. If electronic, they require only the recipient’s email address which means they can be transmitted immediately, making them more convenient. They are also more secure: if the card is lost or stolen, the company can simply deactivate it and issue a new one. These factors make gift subscriptions very popular during the holidays, especially for those last-minute shoppers.  

The beauty of a gift subscription is that it exposes new people to your subscription offering. If, at the end of the gift term, the recipient enjoyed the subscription service, many will decide to renew with their own payment method.

Measuring Results

“However beautiful the strategy, you should occasionally look at the results.” —Winston Churchill

As noted, one benefit of the subscription model is the data it provides on a regular basis—data that can be used to continually hone your business strategy, create efficiencies, and anticipate challenges.

The data that subscription commerce provides is unique. Based on the intersection of marketing investments, customer behavior, and billing events, these insights allow businesses to continually optimize and build revenue.

Following are some of the key metrics you should monitor closely—in addition to the metrics associated with individual marketing campaigns and promotions

Monthly Recurring Revenue (MRR)

While not specific to customer acquisition, MRR is a critical metric which measures how much revenue a subscription business can expect on a monthly basis, based on the sum of all recurring charges, normalized to monthly values.

MRR = Sum of all recurring revenue for the month, including gains and losses

This metric can help answer questions such as:

  • When compared to previous months, what is the growth trajectory of my business?
  • How is customer acquisition or churn impacting my revenue? 

Customer Acquisition Cost (CAC)

This is an obvious metric to track carefully. It generally includes all of the costs associated with acquiring a customer, including marketing, sales, and related headcounts.

CAC =
Costs spent acquiring new customers
Customers acquired in the period the money was spent
Your CAC will give you a sense of how effective your sales and marketing efforts are and how long before you can expect to receive ‘payback’—i.e., recoup the expense and start profiting from the customer.

Lifetime Value (LTV)

This metric is an estimate of the profit made from the average customer over the period that they remain with you.

LTV =
Average revenue per customer (ARPC) x Gross margin percentage
Customer churn rate
Note: Recurly Analytics uses a discount rate of 10% in its calculations of LTV. This is to account for the face that lifetime value is a future-looking metric, and the value of a dollar today will be worth less in the future.

Customer LTV is an incredibly important metric as it represents the upper limit on how much you should spend to acquire new customers, along with other key decisions related to sales and product development. It helps to answer questions such as:

  • Who are my most valuable customers and my least valuable customers?
  • How much money should I spend to acquire new customers and still maintain profitability?

When combined with CAC, LTV will tell you if you’re spending too much to acquire customers in relation to what they’re worth.

Trial Conversion Rate

If you offer a free trial, you want to track your trial conversion rate.

Trial Conversion Rate = Total number of subscriptions in trial that end up converting to paid subscriptions

This will help you understand how effective your trial is at bringing in paid subscribers and answer questions like:

  • Why are people not converting?
  • What improvements can I make?

For a more sophisticated analysis of the effectiveness of your free-trial option, look at the retention and LTV of subscribers that started with a trial vs. those that did not.

The Key to Growth

“Our customers are the most important stakeholder in our business.” —Whole Foods' Mission Statement

Asking for a recurring purchase from customers means that subscription businesses must work harder—both to acquire customers and keep their satisfaction levels high in order to retain them—using both the art and science of marketing. Flexibility to make changes, iterate, and optimize is a key requirement. And having a frictionless, satisfying sign-up experience for when prospects are ready to convert is vital. If the prospect abandons, they may never return.

The right subscription management platform is one that is built to support a variety of acquisition methods, provide insights into performance, increase retention, and minimize churn. Because having the right platform is key to growing your subscription business.

Download the PDF

Table of Contents

Recurly provides enterprise-class subscription management for thousands of businesses worldwide.