Last week I mentioned how an entrepreneur I know was shocked that many of his customers would rather pay $200 upfront rather than commit to a $20/month ongoing subscription.
Longtime reader Roos responds:
It's weird how ‘the market' all want to create a recurring business, but ‘the customer' (I think) still likes the one time payment better.
When all marketeers move to recurring, how long before the customer reaches its limit, no longer wanting to add to the monthly costs?
Recurring seems/is more profitable, but is it wise to ride the wave, or go against it, foreseeing the problems?
I've been watching this exact dynamic play out in one of my personal favorite businesses, GymnasticBodies.com.
Gymnastic Bodies is a bodyweight mobility and strength training program that I've been using almost daily since 2016.
The founder, Christopher Sommer, is a businessman I really admire. He spent 30+ years preparing gymnasts for Olympic-level competition.
Then he took that knowledge, and spent the next 10 years retooling his knowledge to benefit adults who a.) aren't genetic freaks and b.) have spent 20 years sitting at a computer and not using their bodies.
The result is the first training program I've ever used that has actually made me feel better every time I work out.
All that to say, as “information products” go, Gymnastic Bodies is the gold standard in my book.
Late last year GB announced that they were switching to a monthly subscription model.
Instead of selling individual courses for $100-200 each, they would charge a flat rate of $29 per month for access to everything.
When I saw that, my thought was, “Hand me the popcorn.”
Predictably, their online community squawked.
Many longtime members like me had invested hundreds of dollars in the standalone courses, and they didn't want to be forced into paying for a subscription now.
Coach Sommer has a bit of a “you'll know what's good for you when I tell you what's good for you” approach from his many years of coaching, so I figured he'd stick to his guns on this.
And he did—for at least 9 months the only way to get into Gymnastic Bodies was via a subscription.
Then last month I got an email saying they were bringing back the ability to buy courses individually.
Now you can get the courses one at a time, or you can opt for the $29 monthly “all you can eat” route.
Now Coach Sommer is NOT someone who makes changes just because people complain.
So I'm willing to bet that they found the customer lifetime value was was significantly lower on the subscription model.
This makes sense.
Their entry level package previously sold for $200.
New subscribers would have to “stick” for almost 7 months just to break even.
Then throw in the fact that most people like Roos would much rather make a one-time investment than pay a monthly fee, and the math starts to look pretty ugly.
Recurring revenue is a great thing to have.
The real key though is customer lifetime value.
And in most cases the way to maximize LTV is through a mix of standalone and subscription sales.