Subscription businesses had a hot and brief time in the limelight a few years back—but while the hype has died down, subscription businesses are still making good money and providing great value.
That being said, a lot of subscription brands haven’t really cracked the code for acquiring new customers, and this is especially hard on Facebook with competition for eyeballs getting more and more fierce.
We get it. Marketing a subscription business is hard. Solutions aren’t clear cut and often times they don’t work, especially in today’s cutthroat-attention economy where each prospect will give you a total of three seconds to capture their hearts.
What makes it even more difficult is that everything you have heard about subscription businesses is tired and cliche. “Start with the customer” or “ownership is dead” might be good pieces of general advice, but aren't specific enough to help you grow your business.
Not to mention, you have to navigate a lot of potential potholes with this business model. Customers are fickle and can drop your subscription at any moment’s notice (the worst case scenario for subscription businesses that need to eat a lot of costs upfront).
There also seems to be new subscription business in multiple verticals popping up every day. The competition is intense! And let’s not even talk about what happens if you can’t get your subscription pricing right.
We've been there and we've learned A LOT from the work we've done with subscription companies. Give us a few minutes and we’ll help you understand what it takes to make subscription businesses work, how to market them successfully, and how to scale your business profitably.
Let's jump right in:
Subscription Businesses (And Marketing Them) Are Different
The first thing to understand about subscription businesses is that they require building consumer trust to get an initial commitment. Brands need to demonstrate their purpose clearly to the consumer to elicit that trust. After gaining the initial level of trust, brands have to manage the experience.
Subscriptions are not about the product, they are about the experience. Customers care more about the experience than the products themselves. Subscriptions (and oftentimes memberships) are usually a luxury commodity, so the experience has to feel equally luxurious. This applies only to the products and packaging, but also to the marketing initiatives.
Lead With Your Best Box
This is why it's important to lead with your best box. The first thing a customer should receive is a box of the best possible items because that not only establishes a high level of trust, but it delivers the best possible impression (and a first impression is your most important asset).
Scarcity Works Well For Subscription Businesses
It's also important to leave the customer wanting more so they continue to subscribe. A lot of subscription businesses have heavy costs up front, so it is in their best interest to deliver just enough product to keep the customer happy so they look forward to the next shipment.
The worst thing a subscription business could do is to send too much product to the customer, only to have the customer think they have more than they could ever want and then cancel their subscription.
Data And User Research Are 9/10 Of The Game
One of the most important things for subscription businesses to determine is costs. They have to figure out the expense for new subscribers, and the spend for prospecting and win-back campaigns. They also have to (if they haven’t already) calculate the cost of goods and fulfillment. All of these factors will determine what they will charge for their subscription.
One of the biggest reasons some subscription businesses fail is they don’t charge enough to profit after all of these initial expenditures. How does one determine how much money they're going to bleed on the front end? Data and user research.
Data is everything, and the Facebook marketing platform is one of the most cost-effective and efficient ways to test a product and get the necessary data. After spending a fixed amount (determined by the marketer), one can understand what the average CPA currently is, and how much each campaign (prospecting or win-back) will cost.
Data is also a good thing to use for predictive analysis. Predictive analysis is difficult but the best brands are using some form of predictive analysis to not only calculate lifetime value (LTV), but also target customers who resemble high LTV customers (using Facebook’s smart lookalike audience targeting).
How To Predict LTV More Accurately
Most companies use a top-down approach to predict LTV. They look at their profit and loss statements, their budgets, their current business standing and other big-picture numbers to try and calculate what their average customer was worth last year and what they will be worth in the future.
The better way to calculate LTV is by using a bottom-centric analytical approach. One has to look at the lowest levels of data in order to predict LTV more accurately. Key details that are useful to look at include return rate, churn rate, by cohort, by source, by time, etc. These details can all be used to help a business calculate LTV. Getting as granular as possible instead of looking at the big picture will help the business run scenarios, depending on how variables change in the future.
**NOTE: There is a lot more to predictive analysis and LTV than can be explained in this blog post. Stay tuned for more on this subject.
User Research With Facebook Ads
One of the most underrated and overlooked sources of user research are paid ads (specifically Facebook). That is because every paid Facebook ad is its own micro community.
Facebook ads are a great source of insight into how a customer thinks. You can see how they honestly react or respond to the product. Oftentimes, you can find many great ad ideas simply by reading the comments. You have to get in the habit of reading your comments every day. In the case of subscription businesses, customers will tell you which of your products are resonating with them the most. That feedback will help you determine what your best products are and therefore help you improve on sending your best box for new customers! All of these steps resonate and feed off of each other. You just need to approach your strategy from the mindset of incremental improvement.
The Best And Most Cost Effective Ads To Win In Today’s Attention Economy
Remember how we talked about trust being the most important factor in getting customers to commit to your subscription? How do we build trust when people are conditioned to resist advertising?
We use ads that don’t look like ads at all.
Best Ad Content Type: UGC
User-generated content (UGC) is one of the most effective forms of advertising content today. It is the reason why top influencers can charge thousands of dollars per Instagram post.
UGC is transparent, intimate and familiar. A lot of prospects are more likely to trust someone who acts like a familiar friend or peer rather than a paid commercial actor. UGC helps sell a lot of products or services on Facebook because it features real human beings actually using them.
Another amazing thing about UGC is that it is cost effective, versatile and easy to produce. There are many types of UGC that work for multiple verticals, and they work regardless of how big the influencer is. Even content from a micro-influencer (100 to 1000 followers) can lead to a lot of conversions. Plus, UGC is scalable and works at all stages of the funnel. Need to target a new audience? Get new UGC content from a relevant influencer who mirrors your target audience!
Fastest Growing Ad Type: Instagram Stories
Instagram Stories are the fastest growing product in Facebook history. The Facebook family of apps are among some of (if not the most) used social media products today. The fact that Instagram Stories stands out as Facebook’s fastest growing product is no small matter.
Subscriptions benefit heavily from the use of Instagram Story ads. Facebook estimates that there are 300 million daily Instagram Story users. 40% of Instagram Stories are video and 60% of those videos are made with sound on. Instagram Stories work well with subscriptions because they are a great platform for complicated, longer customer journeys. They also look native (meaning they don’t look like ads at all).
Just like with UGC, they are very cost effective, versatile and work within all stages of the funnel.
In this blog post we briefly discussed how subscription businesses work, how important data and user research is for them, and how cost-effective ads work well for subscription businesses. While this blog post doesn’t cover every topic completely, we hope you were able to learn something new to help you grow or market a subscription business.
Still feeling uncertain about marketing your own subscription business? We have you covered. We are a full-service marketing agency and have helped many subscription businesses improve their revenue by multiple figures in less than one year. Please don’t hesitate to contact us and see how we can help you grow your subscription business.