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Using Feedback Loops to Manage Your Subscription Business

Using Feedback Loops to Manage Your Subscription Business

Measures like attrition and customer lifetime value can combine to provide a powerful picture of future revenue before new business is counted. This can give you a more precise way to build and achieve sales targets. At the same time, triangulating with measures like lifetime value and the cost of new revenue can provide insight into not just revenue but its profitability too.

By Denis Pombriant
03/26/14 3:08 PM PT

Everyone in business claims to want to listen to the voice of the customer. It's a noncontroversial issue, but the approaches are all over the map. There is little consistency -- and truthfully, many vendors do a poor job of it.

Capturing customer feedback always has been a challenge for conventional vendors because they have to generate new processes to reach out to customers. Surveys, focus groups and even social media are useful, but many of these approaches are time- and resource-intensive, and they are not automatic in business models that make and sell things -- then move on to the next opportunity.

Subscription vendors are in a much better position because they can take advantage of all the customer data generated in the normal course of business. Virtually every customer action gives off data that when aggregated and analyzed can give a business great insights into the customer base. Savvy vendors can use the information thus generated to measure, iterate and scale their businesses.

One of the greatest built-in data sources a subscription company has is its billing data, and this data becomes even more valuable when it is time-stamped. Capturing billing data and its timing enables a vendor to make comparisons between periods -- and even between years -- that can reveal variations in use and uptake, and signal some aspects of satisfaction.

Measure Early and Often

Subscription vendors have to measure everything -- at least, they should. Often, a subscription business can run on an impersonal website, and a decision about continuing use or changing to a competitor might come down to cosmetics like ease of use, clarity of design, and other things that a vendor can't improve without feedback.

Customer feedback does not usually come from long emails or in-depth interviews. It emanates from simple decisions by customers about how and when to subscribe. So use data can be a gold mine, and analyzing this data is what ultimately drives business improvement.

Measurement provides vendors with visibility into customer behavior, from initial purchase to future demand. Leveraging this visibility gives businesses the assurance of customer knowledge on which to make decisions.

Iterate All the Time

Visibility is fleeting, and gaining it must become a repeatable exercise. Once you've figured out what to measure to gain the most useful insights, there are two steps you need to take to ensure the health of your subscription business.

First, by all means, keep measuring and comparing results with earlier measurements. Some businesses notice seasonal fluctuations, and understanding this makes it easier to see the difference between a normal variation and the start of a worrying trend.

Second, use what you learn to improve your business. This might sound like common sense, but some times your research will suggest doing things that are either expensive or counterintuitive. In either case, don't reject the findings out of hand. Do more research.

The measure-iterate cycle can do more than simply tell you the health of your cash flow. For instance, it provides a simple and economical approach to researching product demand. Customer use data can provide a quick and economical means for A-B testing as in do customers prefer this or that? With subscriptions, there's no need to guess and hope you get it right. The answers are available if you know how to set up a controlled experiment.

Pricing and packaging are two areas where subscription companies must constantly iterate, and the measure-iterate cycle can be a great solution for helping a company zero in on the best pricing and packaging approach for the moment. Keep in mind that customers constantly change their minds, which is why measure-iterate is a cycle and not a one-time event.

Scale Your Business

If you analyze your customers' use and payments data, you can develop the confidence to plow good ideas back into the business. This will enable you to scale your business with confidence because you have real customer-generated information to back up each decision.

Measures like attrition and customer lifetime value can combine to provide a powerful picture of future revenue before new business is counted. This can give you a more precise way to build and achieve sales targets. At the same time, triangulating with measures like lifetime value and the cost of new revenue can provide insight into not just revenue but its profitability too.

Final Thoughts

Every business uses some form of measure, iterate, scale -- and some are more effective than others. Subscription companies are fortunate because they have so much data in their possession to start with and so many ways to apply it. However, some measurements are best made against outside measures.

For example, you might be able to measure and accurately predict customer attrition, something every subscription business faces. Objectively, it's easy to conclude that less attrition is better than more and determine levels that are acceptable for your business -- but how does your business stack up against other subscription vendors in general and in your market? What is the best practice goal?

Historically, this kind of information has been available only through independent research; however, it also could be generated from anonymous customer data. As the subscription market continues to evolve and mature, providing this kind of information will become a necessity, and I foresee a time when subscription vendors will pool their resources through a trusted third party to provide this kind of information.

We hear a lot about the customer experience these days, but many prognosticators have little more to go on than their opinions about customer behavior. Subscription companies have a great advantage in the data they collect if they collect it faithfully and analyze it rigorously.


Denis Pombriant is the managing principal of the Beagle Research Group, a CRM market research firm and consultancy. Pombriant's research concentrates on evolving product ideas and emerging companies in the sales, marketing and call center disciplines. His research is freely distributed through a blog and website. He is the author of Hello, Ladies! Dispatches from the Social CRM Frontier and can be reached at denis.pombriant@beagleresearch.com. You can also connect with him on Google+.


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