Subscription service

How we can transform our relationships and business by learning from subscription businesses.

Background

Every one of us is a consumer of multiple subscription services. Some of us might even feel like we live in a subscription world today with e-commerce, entertainment, news, and even dating apps charging us a monthly fee. However, we have lived with subscription services even in the pre-digital world. We have all paid monthly fees for newspapers, milk, car wash, and laundry.

A subscription service is something that we subscribe to every month (or some other cadence). This means that we get to make the choice of discontinuing a service every month. This is immense power that we are given as customers. We do not exercise this kind of power for one-time purchases we make even for expensive products like a home, a car, or even a refrigerator.

If we are offering a service, we would be tempted not to give our customers the choice of discontinuing it. However, giving our customers this choice is incredibly powerful because it makes us work really hard to win their trust and business each month. This mental model of subscription services is even more powerful when we apply it to relationships and work just as hard to deliver exceptional service to our friends and family.

Applications

Business models

Recurring revenue was a massive transformation in the world of software. It began with a few upstarts like Salesforce changing how they charge customers. Though it seems like an accounting gimmick (pay a small amount every month instead of the entire large amount upfront), it completely transformed how businesses bought and built software. Today, even the largest software makers like Adobe, Intuit, and Microsoft have transitioned their revenues almost entirely to recurring revenue. And their revenues are growing faster than ever before even as the revenue base has grown much larger.

I have seen the power of subscription services firsthand. At cab aggregator TaxiForSure, our customers had a transactional relationship with us - I want a cab, I book through your app. The high demand during peak hours meant regular customers who use a cab twice a day to commute struggled to find cabs. We lost some of our most valuable customers this way. When we saw this, we created a subscription service for commuters. This increased their repeat usage, word-of-mouth referral, and helped us crack a valuable user segment.

Subscription services are extremely valuable for businesses because they create customers with more usage, lower churn, and higher lifetime value. Transactional businesses have to spend continuously to win new customers or get existing customers to purchase again. Subscription businesses on the other hand have to make sure they deliver enough value to customers so they do not cancel. Over time, not only do these customers stay with you and pay each month, most also pay you more when they add on more services.

This does not mean we should shoehorn a subscription model on every business - fridge as a service is a terrible idea (or is it? 🤔). However, with a little creativity, we can figure out how to craft a sticky subscription service out of an existing business. A cleaning product company could send a monthly kit with floor and toilet cleaners knowing we will exhaust them every few weeks. A toy maker could send a box of new toys every month crafted with a specific theme. A therapist could create a one-year detox and transformation package with new steps every month.

Relationships

Most of us do not think of relationships as a contract between a customer and a service. In fact, that is what relationships are. I am your friend because you give me honest feedback or a sympathetic ear or a fun evening. As your son, I am expected to spend quality time with you and treat you with respect and lead a life that makes you proud (or at least does not embarrass you 🤷‍♂️). And so on with other relationships. When we fail to live up to this social contract, it creates a possibility of someone "unsubscribing" from that relationship.

Seeing relationships as transactions or people as nodes in a network sounds dehumanising but this abstraction is meant to help us see past our routines and forces of habit. This mental model will help us ask ourselves if we are offering enough value to our family and friends in every interaction, if our interactions are regular enough for them to keep "subscribing" to our relationship.

What should we do as a subscriber? We have all gone through our bills to see which subscription we do not need and then cancelled it. It is an absolutely worthwhile exercise to do the same with our relationships too. Do you end up visiting certain relatives every time you are in your hometown? Do it only if that subscription delivers enough value. Do you go out drinking / partying / bowling / anything you hate just because all your friends do it? Save your cash and, more importantly, your limited time by doing something you actually enjoy doing with them.

What should we do as a service? We put in a lot of effort in some relationships where the "subscriber" is not really engaged. We are like the subscription service they keep paying for just because it costs very little. If we were a business, we could never grow with such a customer - they would never help us improve our product, they would never pay us more, they would never engage with our product, and they would never bring us more customers. If we were a business, we would aim to get very different type of customers. Then why not do the same for relationships? Why should we cling to people who do not see value in us when we could offer our service to someone who would "pay" so much more for it?