Healthy Subscription Businesses Focus on Acquisition and Retention

There’s a saying in the ad business: “CPMs don’t pay the bills; revenue does.” I knew a guy once who would brag that he got away charging a $10,000 CPM on an ad product because he was charging $1,000 and only got 100 impressions on the ad. In his mind, it was the best product. 

Yet, he only ever sold 200 of these per year for a couple hundred thousand dollars. Could he win an award for highest CPM ever? Sure. Was he making much money? No, no he was not. 

Subscription businesses have been going through a slow evolution over the past few years. Increasingly, they realize that it’s not the number of subscribers that pay the bills, but the amount of money generated from those subscribers. Having 1,000,000 subscribers paying $1 a year is still only $1 million. 

But in many of these publishers’ minds, the goal was to maximize the number of subscribers rather than maximizing the revenue. In their minds, if they had the people subscribed, the rest was easy. “Just get a reader to pay something and then we can charge them whatever we want,” they’d say. It just doesn’t work that way. 

Anyone can judge whether a subscription business is going to be healthy and successful based on the first price you’re presented with. If the offer is egregiously low for an inordinate amount of time, I would bet money that the actual revenue from the subscriptions—not the number of subscribers, but the revenue—is likely not good. 

While low-priced offers worked wonders for acquisition, they were disastrous for retention because people had grown used to paying the lower price. As people grow accustomed to that, they begin to associate your brand with a lower-priced product. Suddenly changing the price on them results in a spike in churn, a nightmare for any operator. 

Ultimately, to have a healthy subscription business, acquisition and retention need to be thought of through a single lens. They are not actually two functions; instead, they are interconnected. If you are acquiring the right subscribers, you can retain them better. And if you are diligent with your retention strategy, revenue will grow over time.

This came up earlier this week when The New York Times’ CEO Meredith Kopit Levien took questions after the Q4 2022 earnings release. She said:

…we put a lot of energy and resources into deliberate intervention to get people if they were new subscribers to experience more, and if they were bundled subscribers or potential bundled subscribers to do other things with us.

We said a year ago at this time, maybe even a little further back that it was going to be really important to keep churn to a manageable level. And I think we’ve done that. It will be an ongoing focus, given the size of the base now. It’s quite important to the net add story.

That bold emphasis is mine, but that’s the entire premise of this piece. Keeping churn under control is fundamental to hitting their subscriber, and therefore revenue, goals. Retention is an unsexy, but critical part of growing subscription revenue. 

Back in late 2020, I spoke with Bloomberg Media’s Julia Beizer, and she had this to say:

Our goal is revenue. The way we will measure whether we’re on track to hit our revenue number, is by measuring active subscribers, and then for active subscribers, that means we have to acquire a bunch of subscribers and we got to retain a bunch of subscribers.

The idea of active subscribers is that its people on any given day who are subscribed to your publication. That’s new users you acquire day one and users who have not yet churned, any user who is not yet churned. Why do I love that metric because it’s inclusive of both acquisition and retention. You can add a bunch of users, but if they all churn out after a one-month free trial or low-paying trial, you are not actually growing your long-term revenue.

You are not actually building a sustainable business, so what active subscribers allows us to do is to look at those two metrics, those two levers we can pull in terms of acquisition and retention, and try to figure out where we should on a month to month or quarter to quarter basis where we should put the most of our efforts to make sure we’re driving the most sustainable business.

Bloomberg is a healthy subscription business. It has been consistently growing its subscription revenue over the past few years. Focusing on active subscribers irrespective of when they subscribe ensures that it has both new and returning people coming to Bloomberg.

And so, what needs to happen to ensure the business is thriving?

Kopit Levien uses the phrase “experience more.” The single most important tactic to ensure that churn remains low is for subscribers to use the product. People look to unsubscribe from things they’re not using, so if you can help them build a habit, they’re more likely to let the subscription continue to run. 

When I signed up for HBO Max, I had a specific movie in mind. However, part of what kept me coming back every week was the email I’d get showing me different pieces of content in the library. Discovery is a big part of getting users to experience more. 

This is why newsletters are so critical to media companies. Yes, they’re great businesses on their own; however, even more than that, they’re a great way to ensure users are seeing more of your content. Each click on your content is another step in building habit. There’s also an opportunity for personalization here. If you are tracking what subscribers are consuming, you can begin filtering that type of content to them more often so that they build a deeper habit.

But habit forming is not done simply through email. I’ve been a subscriber of The New York Times for going on a decade. I’ve never lapsed. Every once in a while, I see a NYT story promoted on Twitter. Why would NYT pay to promote a story to an already paying subscriber?

When we think about paid spend, it’s through the lens of acquiring new subscribers. However, like Kopit Levien said above, “It’s [keeping churn down] quite important to the net add story.” It would rather make a little less profit on me than lose me outright. And so, paying some amount of money to keep me engaged—especially since I’m worth hundreds of dollars a year to them—is a worthy marketing expense.

The ultimate goal is to slowly increase how much money you’re making on your readers the longer they stay. If average revenue per user (ARPU) is rising without costs rising with them, you’re on the road to a much stronger and healthier subscription business. It’s hard to charge newer subscribers more money before they’ve become loyal; therefore, if you’re keeping people coming back, over the years, you can incrementally push the price up, making more from the same readers.

As we think about our acquisition and retention, it’s important to think of them as interconnected. A great acquisition strategy might be an unbelievably cheap introductory offer; however, we know that this will make retaining those subscribers far harder. Think about it as a full funnel rather than disparate tasks and the business will be much healthier.

Thanks for reading today’s newsletter. If you have thoughts, hit reply or join the AMO Slack. I hope you have a great weekend!