When it comes to recurring revenue, we all think we can do better. Or at least, we all hope to be able to do better and to constantly increase our profit. The good news is that you don’t have to stop at hopes and thoughts. You can actually go towards building strategies, as increasing your recurring revenue is definitely a goal that can be achieved.
In the following How-To guide, we’ll talk a bit about the ways through which your subscription business can increase its earnings or better said, can charge a fair amount of money, based on the value it brings to its subscribers. Squeezing your customers for every dime they own is not a good idea, but trying to align value with cost is definitely something you need to do.
One mention though. You need to always remember that recurring revenue is a metric you cannot particularly rely upon when trying to make future strategies. It is not a good idea to look at this metric and confuse it with details regarding your actual profitability. MRR only displays your revenue, without excluding costs. And it is on a determined amount of time. That’s why it is not recommended to use the December MRR when trying to set up profit growth strategies for the following year. It is a necessary metric, we’ll give you that, but MRR is or can be deceitful. So, watch out for it.
Sometimes, we undervalue our work
Indeed, this is a common problem in most subscription businesses, especially the ones that have only recently changed sides. They see pricing as the boogie man and prefer to lower it as much as they can afford, thinking that this way they will draw the attention of their customers. However, after some time, they realize that they are simply underpriced. They are not swimming in a sea of subscribers.
They are simply selling their work for a price that is just too low. Of course, this affects the MRR. So, the first thing you could do is start lifting that price until it displays your real value.
There is even a right way to do this. You can start by doing by you should have done in the first place. Make an analysis of all the aspects that influence your price, the work you have put into creating your product, acquiring customers, providing subscribers with solid customer services and with a team of dedicated coders that can quickly fix problems. And don’t forget about your competition. You should have a look over what they are doing. Increase the pricing of your product and see what happens. Try not to overdo it, though.
Goodbye Free trial, hello Premium
There has always been a battle between these two, as you can imagine, each doing a great job at representing its side perfectly. Freemium does a lot for your subscriber, but not so much for you. Sure, it helps when you want to win over customers, but quite frankly, it doesn’t exactly help you in having them, if they are not paying, right? So, you need to ditch this plan and go for the paid version. It’s a lot more useful when it comes to serving your interests.
However, be prepared for a wave of goodbyes, as some of your subscribers will no longer pay for your services. Still, it is not the worst thing that could happen. That would be keeping all those subscribers that are unwilling to pay, close to you for a long, long time. They generate cost and bring no profit, so, yes, things could be worse than actually saying goodbye to them.
Going from freemium to premium will be a real test in the quality of your product. If you have designed a product you know aligns with the demands of the market, a product that is helpful and professional, then you shouldn’t have to worry too much. You will keep the clients that matter. Still, don’t make your transition a state secret. Inform your customers of your intention and provide them with actual reasons to stay on-board.
Play with features
When switching to the subscription model, we tend to be overly excited about what we can offer. So, we tend to bring everything with us, all of our features, our benefits, we bundle them into one package and then offer it to customers, for an undervalued price. And if you think about it, a solution is used for its core features. Everything else is extra. But to you, it isn’t. To you is hard work thinking of what features to add to a subscription plan, time and staff to test those features, to implement them and so on.
You could start earning money for these efforts by turning them into add-on purchases. Leave the core of your product untouched and charge whatever price you feel is correct. Then, advertise your extra features within your solution and the customers that need them will most certainly pay for them. Those that don’t most likely do not need them.
Also, forget about the unlimited approach. It’s really not profitable. You can’t go higher than unlimited so how do you plan to increase revenue in the following years?
Aligning price with customers
When looking at the points we are making, you cannot help from noticing that there quite a few of them regarding price. One can only wonder if pricing is really such a complicated affair that so many entrepreneurs cannot seem to do it right. In our opinion, it is not a question of being able or unable. It is really a question of novelty. You are new on the market and pricing is actually not that simple.
But while you need to align price with value, you also need to align it with your customers. Do a bit of customer profiling, build buyer personas and another thing, understand who your target audience is. If your solution is fit for corporations, then price them as such. If you are into small and medium-sized business, then a lower price might be worth it, but a lower price, not an undervalued one.
Work on subscriber loyalty
There is nothing better than seeing your customers willing to commit to your offer over a surprisingly long period of time. Plus, if you are constantly working on acquiring new customers and you manage to convince them to commit over long periods of time, you can seriously increase customer retention, which evidently leads to a growth of your monthly recurring revenue.
And these are your loyal customers, so adding up-selling to the table makes things even juicier. As a friendly piece of advice, do consider up-selling as part of your strategy. Do it right, find the right moment and pick the right offer for the right audience. Up-selling takes a bit of planning but it definitely pays off.