Steve Schramm

October 26, 2021

The Psychological Power of a Subscription Business

"If a customer needs to contact you to discontinue the service you are providing, they can’t do so mindlessly. They have to put some thought into explaining why they don’t want or need your service any more. If you provide a great service that solves a genuine problem, they’ll usually realise, upon reflection, that staying with you offers access, certainty and stability. So they stay." - James Schramko

The subscription business model changed my life. Today, I have a 6-figure subscription model services business that supports our family and our lifestyle. Here's the story.

Growing up, I had a deep love for music. Not just any music, though, a particular genre called Southern Gospel. My grandparents and mom were both huge fans of many Southern Gospel groups, went often to concerts, subscribed to the magazines, etc.

I always had an inkling that I would be involved in the music industry one day, but since I did not play an instrument nor could I carry a tune in a bucket, I was not sure just how that was supposed to happen. 😅

Thanks to the Lord's provision and guidance (and a special nod to the School of Rock movie with Jack Black), music became a huge part of my life in my early teenage years. (Very) long story short, I became best friends with Jared Easter, who's family was a staple in Southern and Bluegrass Gospel circles. 

For around a decade I lived my dream of working in a recording studio and playing music full-time. Jared's dad, Russell Jr., owned the studio and is one of my real mentors in life and business. He taught me that the gold standard of income, for any business, was residual income. He was doing the subscription business as a service provider well before it was cool. 

If I had to distill it down, I would say that what he taught me could be summarized in three important lessons, which I feel like it would be prudent to pass along to you.

A Membership Has Selling Power

Admittedly, one of the biggest reasons I was attracted to the subscription model was...fear.  Yep---I was sorely afraid that someone would balk at the thought of paying me hundreds or thousands of dollars for a website. (Needless to say, I was still  VERY much in the employee mindset at the time.)

The thinking was elementary, and yet even today seems sensible: A business may not want to pay thousands of dollars for a website, but I bet they will pay $75/month. And, if they stick around for awhile, their lifetime value will definitely hit the mark of thousands of dollars.

Elementary as it may have been, I was right.

They bought, over and over. Fortunately, I eventually learned how to raise the price. I learned a lot of lessons along the way, which I spilled all the beans about in this podcast episode with my business mentor, Josh Hall.

People are used to subscriptions these days. And while it may have been rare at the time to see someone with a web design business charging via a subscription model, it caught on, and many others have built successful businesses using such a model today. 

A Membership Has Saving Power

Although my initial foray into the subscription business model was rooted in my own fears about selling, knowing what I know now, I would do it all over again. "Why?" you may ask? After all, wouldn't it be preferable to charge thousands for a project and get windfalls of cash? 

I guess that depends on a lot of things: Your tenacity, the length of relationship you want to have with a customer, your ability to plan for the future financially, your ability to quote the budget for a project accurately, etc. My model had elements of risk, but the simplicity was alluring: Give me (at the time) $75 per month until the end of time, and you will always have a rockin', up-to-date (visually and technically) website. Simple. 

Here is what I learned. I grew my business slowly, but steadily. As I began to take on projects for a higher monthly retainer, I really got to see the kind of steady growth I desired. I just didn't want to pound the pavement for new clients every month. I wanted to work with the same people over and over, and I wanted those people to be in the rhythm of paying me every month. (As a seasoned business owner, I now understand that this is the concept of transaction frequency, and it's vitally important to the growth of any business. The membership model can't be beaten when it comes to transaction frequency.) 

So, it has saving power. My business financials have ALWAYS been consistent. I've always been able to save a little and account for profits. No windfalls. Boring, but consistent, and predictable. 

A Membership Has Staying Power

The quote that spurred this article is from James Schramko's book, Work Less, Make More. FWIW, it is one of those "textbook" sort of reads. You don't read it once and then move on with your life. If you want to understand how business really works, you will master the concepts in that book and refer to it often.

The quote highlights one of the BEST and BIGGEST advantages to the subscription model. Let me ask you: How many times have you talked about canceling that Netflix subscription, Sam's membership, etc? I'd be willing to bet you still have it.

There is tremendous staying power in the membership model. As a client or customer's transaction frequency increases with each passing month, so does their loyalty (even if only subconsciously). It's hard to hit that cancel button! Of course, customer satisfaction is a big part of this. If the customer stays happy, they will stay loyal. Why cancel?

There are exceptions of course. These days, I am charging considerably higher retainer fees for my services, not only because of inflation, experience growth, etc., but because we are offering much higher tiers of marketing services. In this scenario, my clients are paying attention to their ROI, so it's not as though we can just "set it and forget it." The principle still applies, though. If they stay happy, they stay. 

Final Thoughts

There is so much more that could be said. Entire books have been written which argue that pretty much every business will adopt the subscription business model in the future. Will that truly happen? Time will tell. 

As history repeats itself, I am nearly certain will see a return to the "pay once" model in broad scope. As an entrepreneur though, I think the subscription model is here to stay, and it's worth investing in learning how to implement it in your business.

Steve Schramm
IG: @swschramm

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About Steve Schramm

I write about marketing, design, business strategy, and productivity. This blog is my personal “cookbook” to help you design a healthier business through self-directed learning. I'm the CEO of NorthMac Services, a small digital marketing and web design agency.