Transitioning to a Subscription-Based Business Model
Introduce core topic of restructuring services from one-time fixed fees to recurring subscription fees. This call covers strategies for shifting from a traditional one-off project billing approach to an ongoing subscription model for generating more predictable revenue streams. Chris Do aims to help attendees reimagine their offerings through this alternative framing.
Understanding Fixed Fee Engagements
Summarize pros and cons of fixed fee model
Evaluating tradeoffs of one-time fixed fee billing
Chris Do opens by reviewing the familiar fixed fee approach where clients pay a single lump sum for a defined scope of work with a clear start and end. Advantages highlighted include guaranteed income, predictable revenue, client understanding of the total cost upfront, and ability to make more if work is completed efficiently. However, downsides are unpredictable lengthy gaps between projects, ongoing sales effort required to continually refill the pipeline, and potential "feast or famine" income volatility.
Action Steps:
- Audit your current services and revenue model
- List out pros and cons you've experienced with fixed fees
- Identify any client types or offerings well-suited to test subscriptions
Introducing the Subscription Model
Contrasting subscription vs. retainer agreements
Clarifying the distinction between subscriptions and retainers
Chris Do acknowledges initial confusion around the difference between subscription fees and retainer agreements. A key distinction provided is that retainers are typically use-it-or-lose-it prepaid bank of hours, whereas subscriptions provide defined ongoing access and value delivery regardless of hours used in a given month. Subscriptions shift the mindset to providing continuous access to a role or relationship rather than nickel-and-diming customers for time. This aligns pricing with the value experienced rather than task completion.
Action Steps:
- Determine which current services could transition to a subscribe-and-access model
- Identify any unlimited, on-demand or background support aspects to bundle into subscription
- Experiment with decoupling value from time by exploring fixed monthly fees
Benefits of the subscription model
Advantages that subscription pricing can unlock
The primary benefits covered include smoother monthly recurring revenue and better income predictability, stickier longer-term customer relationships, separating pricing from time-based outputs, packaging up smaller offerings clients couldn't justify large upfront spend on individually, and removing the disincentive for customers to minimize utilizing your services. Other pluses are increasing the total accessible market by lowering initial barriers to entry and capturing more share-of-wallet from existing customers.
Action Steps:
- Calculate your average client lifespan to model lifetime value potential
- Forecast different revenue and market share scenarios with subscription model
- Design service bundles with more components than typically engaged for individually
Reframing Value Delivery
Shifting to continual value-added relationship
Reposititioning the engagement from project-based to ongoing support
A key mindset shift required is moving away from transactional, one-off project completion in favor of an always-available, continually value-additive relationship. Rather than doing a job and moving on, the subscription model means you are perpetually responsible for proactively improving, optimizing and enhancing results for the customer on a recurring basis. This may require up-front overdelivery to demonstrate the expanded value incorporation until renewals occur and trust is built.
Action Steps:
- Define the comprehensive scope of support a continual relationship would entail
- Outline process for regular check-ins, updates and collaborative engagement
- Develop leading indicators to demonstrate ongoing value beyond just project completion
Evolving pricing model to de-risk adoption
Using subscription model to lower barrier to entry
With the subscription model, customers can access high level premium services and expertise with a lower initial cash outlay, allowing them to derived benefit immediately before incurring the full costs of a major implementation or initiative all at once. This essentially de-risks the decision to move forward by letting clients start realizing value first before deciding to double down on a larger expansive engagement. For providers, it allows rapidly seeding the relationship and getting a foot in the door.
Action Steps:
- Identify entry-level subscription tiers for lower buy-in
- Map out natural upsell path from basic to premium levels
- Design triggers/cues for expanding scope based on proven value
Operationalizing the Subscription Model
Aligning services to subscription packaging
Restructuring offerings and pricing for recurring billing
To successfully transition to a subscription model, services need to be repackaged from one-off projects into renewable, ongoing components. This may involve breaking down larger engagements into phases, modules or productive capacities that renew continuously. Value-additive activities like monitoring, optimizing, strategic advising and on-demand support lend well to subscription-based pricing. The aim is providing defined ongoing access rather than nickel-and-diming customers for time spent.
Action Steps:
- Inventory all services, breaking them into phased components
- Identify areas providing continuous value beyond initial completion
- Package combinations of services into recurring membership tiers
Implementing the subscription operations
Enabling the recurring billing and engagement model
From an operations standpoint, Chris Do outlines needed components like shopping cart software to sell subscriptions, payment gateways for recurring billing, delivery mechanisms for subscription fulfillment, and engagement processes to nurture ongoing relationships. Up-front work is required to build subscription-based sales funnels, marketing sequences, onboarding processes and customer success protocols. However, once established, the model runs more automatically than starting from scratch each engagement.
Action Steps:
- Research subscription management tools and payment solutions
- Map out a customer lifecycle and touchpoints from marketing to renewals
- Develop content, training and standard operating procedures for subscription delivery
Pricing subscriptions for value over time
Determining optimal subscription fee levels and pricing strategy
Pricing subscriptions requires a shift in mindset from bill rates and project budgets to evaluating the value provided over the full subscriber lifetime. Factors to consider are competitive service equivalents, market benchmarks for similar subscriptions, willingness to pay, and projected customer lifetime value. Pricing too low leaves money on the table, while excessive costs reduce adoption. Chris Do suggests starting higher than expected, while removing friction and reinforcing value delivery.
Action Steps:
- Analyze market rates and competitor subscription pricing benchmarks
- Calculate estimated customer lifetime value based on projected renewals
- Test pricing tiers positioning and anchoring based on perceived value
Transitioning Existing Clients
Discussing subscription upgrades
Approaching existing clients about subscription model transition
For existing clients on traditional fixed fee models, Chris Do recommends being transparent about exploring subscription offerings as an option to provide more continuous value and support. Emphasize this enhances the relationship rather than diminishing services. Existing trust and familiarity provides a springboard for testing subscription upgrades and renewals with a familiar audience before marketing more broadly. Chris Do cautions against blindly transitioning everyone overnight, but gaining buy-in adopters.
Action Steps:
- Identify existing clients and segments best suited for subscription model
- Develop talking points comparing current value to enhanced subscription
- Propose subscription upgrade for continual service on a trial basis
Offering incentives for early subscription adoption
Providing migration benefits to convert existing clients
To accelerate transitioning the existing client base, Chris Do suggests offering incentives and grandfather privileges for being among the early subscription adopters. This could include promotional pricing, letting existing fees and agreements roll over into the new model, or providing added bonuses and extras to convey expanded value perception. The goal is reducing friction to adopt the new subscription-based model versus the comfortable status quo.
Action Steps:
- Define a special promotional pricing tier for existing customers
- Allow existing clients to migrate at renewal without disruption
- Add exclusive bonus benefits for current clients upgrading to subscription
Offer Design
Subscription
What is the primary result that the client wants?
What are they trying to avoid? What is creating a headache for them?
How much are they currently spending to solve this problem?
Additional Resources:
Pro Call #246
https://thefutur.com/membership/pro-library/premium-pricing-and-positioning
Pro Call #241
https://thefutur.com/membership/pro-library/lead-generation-support-2
Pro Call #238
https://thefutur.com/membership/pro-library/lead-gen-support
Secret to Running a $1 Million Solo Design Agency
https://youtu.be/8vwgUwgH2Js?si=xC936j3ldJg6MlYo
Pro Call #241
GPT Prompt:
I am a ____. I generally ___ _____.
For the kinds of things that I do help me to design a business model that's a subscription-based model, as described by Ronald Baker in his book Times Up.
Help me figure out my target audience, the offer, and suggest anything that is currently trending in terms of what people need and how you see that moving into the future.
(Fill in the blank with your relevant details about your service/product and goals.)
Example:
"I am a copywriter. I generally write copy for email marketing funnels and websites. For the kinds of things that I do help me to design a business model that's a subscription base model, as described by Ronald Baker in his book Times Up.
Help me figure out my target audience, the offer, and suggest anything that is currently trending in terms of what people need and how you see that moving into the future."
