145. Building Customer Relationships with Recurring Revenue
(Episode 1 of 2 with Paul Chambers)
Recurring revenue is a great model to have because it can provide us with stability, but how do we make sure we continue to provide value to our recurring customers and not just treat them like commodities? In today’s episode, Paul Chambers and I discuss the ins and outs of recurring revenue and customer service, as well as Paul’s entrepreneurial journey.
Paul Chambers is an expert in subscription-based business models. For more than 20 years, he has built, scaled, and sold multiple subscription-focused businesses. He partnered to create and sell a successful subscription box company, Gentleman’s Box. He also operates the Subscription Summit and the Subscription Trade Association (SUBTA), which has the largest conferences and is the largest association in the space.
The Importance of Customer Care
Successfully starting and running the Subscription Summit has been one of Paul’s greatest home runs. That first summit they held was a rollercoaster of emotion as they planned and had speakers back out, forcing them to find new ones. “Even though it was a lot of friends and family, it set the stage for where we’ve been able to take it and where we’ve been able to help that community, and it’s the start of something really big in a movement that’s really big out there,” Paul said.
With the accomplishment, Paul still has two big items on his bucket list. First, he wants to have Elon Musk, who has talked about Tesla becoming a subscription service, join him on stage at a summit. Second, Paul would like to reach companies like Comcast and Xfinity that struggle with customer care. “It’s no surprise that I think this is . . . one of the worst subscription companies out there in terms of how they handle their customers, how they deal with their customers, [and] how they don’t even treat their customers like customers. They treat them just like commodities.”
Companies like this know we need their services, so they continue to raise prices. With SUBTA, Paul believes there is an opportunity to reach whoever’s in charge of customer care and help them realize their customer service needs to be better.
“That’s our opportunity to make an impact,” Paul said. “And at the end of the day, if we can help Comcast fix that, then we can impact millions of lives. . . . That’s what’s super important in this space [of] recurring revenue. It’s not [just] one transaction, it’s ongoing, and you have an opportunity to make a big impact in people’s lives.”
How do we make sure we’re making the right impact with our customers? Here are Paul’s tips for treating customers well in recurring revenue models.
Increasing Longevity and Building Relationships
About 10 years ago, Paul was working on a company called Quotegine, which was an online proposal software. The company used a recurring revenue model. Paul said, “[Recurring revenue is] so nice because you can count on it, you can build your model around it, you can understand your acquisition costs, and it’s not a one-off transaction. . . . For me, it’s a comfort level . . . because I can count on it.”
Paul built another piece of software called Unity that helps teachers’ unions collect dues from the teachers online instead of having to hand collect checks or charge credit cards. “Finding an opportunity where something is a very manual process,” Paul said, “and putting a piece of software behind it, and then collecting the subscription revenue behind it as well is oftentimes a very fun way to look at a traditional business model.”
These kinds of recurring revenue models have so many benefits like reliability, sustainability, and longevity, but they can also help us plan for the future and give us higher valuations when we are ready to sell. Paul encourages us to increase that longevity by doing things like making it easy for customers to pause or cancel subscriptions because they’ll likely come back. As we understand the customer lifecycle, we can keep giving them value and tailoring our products to them. We can use recurring revenue to build a better relationship with our customers instead of just focusing on the transaction.
The Company’s Mindset
When I asked Paul if he considers the SaaS recurring revenue stream to be the best recurring model, he said it was a tough call. “While I just finished saying SaaS tends to see a little bit higher valuations, I think there’s a big movement in the DTC (direct to consumer) space and other types of subscription that can yield just as much value. Any subscription is a great one because there’s recurring revenue behind it. It’s, oftentimes, the mindset of the company that will dictate that success or failure.”
If our goal is just to get subscribers without nurturing them, caring for them, or giving value to them, we won’t be as successful as we could be and we could fail. “The truly successful subscription is one where the company embraces [a nurturing] model and continues to find ways to enhance it,” Paul said.
MeUndies is a great example of a company that does this. They don’t look at their customers as subscribers, they look at them as members. They must be constantly asking, “How can we continue to do more for them? How can we continue to offer more value to our members as part of this?”
Subscribers vs Members
What is the difference between subscribers and members? A subscriber is someone who pays us on a monthly basis, and a member is someone who belongs to something. There is a difference between how we provide them value. We might give members exclusive access to events, special promos or deals, special pricing on additional purchases, etc. We continue to provide them value beyond the product they are subscribing to.
Paul started his first business when he was 16 years old. He borrowed $10,000 from his grandfather to build an internet service provider. He bought a bunch of equipment, but he had no idea what he was doing and it failed. He needed to pay back his grandfather, so he started building websites using the equipment he’d bought. He started a website hosting business as well and that was his first true subscription company.
He loved the website hosting business because it was hard for people to leave. They knew they had to pay their bills every month and if they didn’t we’d have to shut their website down and nobody ever wanted that, so it gave him a more secure income. Paul worked in that business for 10–15 years until the FBI told him he had some bad guys inside his servers.
After that, Paul decided to leave hosting, but he still had his business building websites, and he still has that agency today. About six years ago, two of Paul’s close friends approached him with the idea for the Gentleman’s Box, a monthly subscription that sends ties, socks, and pocket squares to make every man a true gentleman. Paul loved the idea. He said he would help them out in exchange for an equity stake in the company. He became a partner and they built the company until they exited last year to focus on their summit.
As they were working on the Gentleman’s Box, Paul and his partners tried to find a conference where they could meet other subscription box owners, experts, and entrepreneurs. They searched for one but couldn’t find any, so they decided to create their own.
They learned it was hard to run a conference, but they pushed through and had the first one in 2016 with about 200 people. They persevered and in 2019 they had over 1,000 attendees. Their focus now is to help create the biggest, most supportive community around the direct-to-consumer subscription industry by making the barrier to entry very low and providing tons of value.
Build a Community First
Paul has realized the importance of reflecting on mistakes, learning from them, and moving on. “I’m never one to say, dwell on the past, go back and say, ‘Gosh, I wish I had done this differently.’ It’s always good to reflect. What I always say to the team is, ‘It’s okay to make mistakes, as long as we don’t make the same ones over and over again. Let’s learn from our lessons and let’s move on.’”
When they first launched SUBTA, they made some mistakes. Paul said at their first event they should have given everybody a free membership for a year, which would have immediately grown their community. Instead, they tried selling it for about $40 a month. “We weren’t exactly focused on the solution, more on what the end was. [We] didn’t put the building pieces, the billing components, in place.”
When we focus on our customers first and on building that community, we can show them we’re going to treat them well and it will grow loyalty and credibility.
Thank you so much Paul for sharing your stories and insights with us today. Here are some of my key takeaways from this episode:
1. Recurring revenue can usually provide stability and sustainability for our businesses.
2. Instead of just focusing on the transaction, recurring revenue allows us to continually provide value to our customers and tailor our products to them.
3. As we continue to provide value, we can continually develop relationships with our customers.
4. Which recurring model we choose doesn’t matter so much as our mindset about it. If we have a nurturing mindset, it greatly increases our chances of success.
5. Treating our customers like members can help us constantly provide them more value.
6. Like Paul, we can build supportive communities in our niche by always providing value and focusing on that community first.
Connect with Paul
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