Lately, the Peaka content writing staff obsessed over the subscription model, bringing you blog posts analyzing this particular model throughout April. I thought I would join the party by reviewing a book on that particular model for the Peaka's Book of the Month.
John Warrillow discusses ways of creating recurring revenue in any line of business in his book The Automatic Customer: Creating a Subscription Business in Any Industry. The author urges everyone to look at their businesses from a broader perspective and seek ways to disrupt the market. He suggests his readers keep an open mind about the model and encourages them to think, “How could this model apply to my industry?” and “What part of this model could I borrow for my company?”
The Automatic Customer is a comprehensive survey of the existing subscription models, the thinking behind them, and how they are implemented. The author had previously run a traditional consulting business wherein he chased customers for a month to achieve his financial goals, only to start over at the beginning of the next month. Exhausted by this never-ending cycle, he started to look for another model that would make his customers automatic and save him the monthly hassle.
Warrillow cites eight reasons for entrepreneurs to consider the subscription model: The potential increase in the valuation of the company; the boost in the customer lifetime value; the fact that subscribers buy more from the brand they subscribe to; the increased efficiency and lowered cost resulting from the improved predictability in revenue streams… All convincing and sensible reasons to give the subscription model a chance.
The author then moves on to discuss the most common business models based on subscriptions. By no means an exhaustive account, Warrillow’s list gives the readers an idea about how versatile the recurring revenue model can be if you have a little bit of creativity. It also provides us with a glimpse into some of the motives that get people to sign up for products and services: To gain exclusivity; to have peace of mind with regard to tasks of utmost importance; to receive front-of-the-line service; to have the luxury of not having to deal with routine, monotonous tasks…
This section is uplifting for any entrepreneur as it shows the scope of opportunity the recurring revenue model offers. Dollar Shave Club example is a well-studied one and one that we wrote about on this blog. Warrillow demonstrates that there are people out there willing to sign up to receive fresh-cut flowers every week or month or have their light bulbs at home checked and changed regularly.
Warrillow brings to the readers’ attention that any business can be reconfigured as a subscription business. If there is seasonality or uneven demand in your line of work or your sales cycle starts all over again every month, you can, and probably must, give the subscription model a chance.
There are several passing mentions of churn and how to contain it throughout the book. Churn is critical for the future success of a business. The recurring revenue model promises an ever-growing, long-lasting revenue stream but with a caveat: You have to minimize churn.
However, the way churn is dealt with in The Automatic Customer is quite descriptive and leaves much to be desired. The most striking aspect of churn, the compounding effect it creates on monthly recurring revenue (MRR) over the long run, is missing from the account. For a more detailed analysis of the churn issue, one would do well to refer to a product-led growth guru like David Skok, whom Warrillow cites more than a few times in his book.
The Automatic Customer offers a good read with many interesting examples from the author’s personal career and other successful businesses that took advantage of the subscription model. However, it isn’t the kind of user manual some readers might hope it would be.
Although it demonstrates the extent of what is possible with the subscription model, The Automatic Customer falls short of providing a detailed roadmap that businesses can rely on. Entrepreneurs should turn to the qualitative analyses offered by people like Wes Bush and David Skok for that.