The general public think Costco makes most of its revenue from selling merchandise. They’re wrong. It comes from Memberships.
As the founder of WPLaunchify, with a focus on helping smart business owners succeed with launching WordPress business solutions, I understand the importance of creating a steady stream of revenue. One of the best ways to achieve this is through a recurring revenue subscription model.
As a single dad of three young men, I also understand and rely upon the value provided by my favorite retailer, Costco, through their premium membership.
What surprised me, at first, was that memberships actually ARE the primary business of Costco…not merchandise sales.
Let’s dive into how this works for Costco and others, the benefits of Subscription Membership Products, and how you can easily achieve the same for your business today!
Bulk Of Net Income
Because the company runs on razor-thin margins, its membership-fee revenue accounts for the bulk of its net income. Fiscal 2022 membership-fee revenue was about $4.2 billion — equal to more than 72% of Costco’s net income for the period.
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Here are Five Reasons why your business needs a Subscription Membership Product today
- Predictable & Compounding Revenue
- Customer Loyalty
- Increased Cash Flow
- Better Deals For Customers
- Cost Effective Marketing
Let’s cover these one by one:
Predictable & Compounding Revenue Stream
With a recurring revenue model, your business can predict and plan for future income. This allows you to make more informed decisions about product development, marketing or hiring more team members.
For example, instead of selling an online course one time, a music training business relies upon a subscription model to generate predictable revenue through a growing base of subscribers. They can then use this data to invest in new content, create personalized content for users based on previous consumption, or develop new features that will keep subscribers engaged and paying.
Compare this with selling a product or service to a prospect one time. While the simplicity and finality of this sale is helpful for reducing any resistance to accepting your offer, it ultimately leaves you with a large investment in finding a customer from whom you will never receive another penny. That does not help you to achieve a favorable ROI on your marketing, advertising or customer acquisition costs.
Motivates Members To Action
Psychology plays a part in the success of the subscription model. Membership means Costco shoppers belong to a “private” club. Also, the fee motivates action: the money’s been spent, so it’s best to use the club’s advantages.
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By converting what would otherwise be a one-time purchase product into a recurring subscription product, you create a set of benefits and expectations around the value you will deliver to your customer via that membership on a monthly or annual basis.
It’s not that dissimilar to personal relationships in that regard. If you met someone very nice in a public place, began a conversation that led to coffee and maybe a lunch, it would be very odd to end the lunch without asking for that person’s email or phone number so you could get together again.
Similarly, if your Sales Funnels and checkout are setup for anonymous guests to come and purchase, without sharing their personal data or agreeing to what might become a monthly recurring subscription (if they continue to find value), then you are cheating both of you out of the opportunity for a long-term relationship to flourish.
Let’s use my own WPLaunchify membership product, called QuickStart, as a case study.
This is a bundle of the three things that nearly 95% of our prospective clients say they need for their WordPress business during our free consultation: Hosting, Software and Support.
By combining these three things (and the dozens of choices required of each), into one simple subscription, we create a value-laden package for the customer, making it easy to realize they are far better off staying with us every month.
Customer Loyalty
Subscription models foster customer loyalty by creating a sense of commitment between the customer and your business.
Customers are more likely to stick around and continue paying for your product or service if they already have an investment in the same. This loyalty means that your business builds up a loyal customer base that keeps coming back to upgrade their knowledge and skills.
Why is this? Let’s look back at Costco’s membership model:
This thinking gives Costco its most powerful advantage: customers become loyal to the store. Having paid the fee, members are more likely to visit Costco than a non-membership store that confers no special benefits.
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Increased Cash Flow
Recurring revenue also results in increased cash flow for your business.
This is because a recurring revenue enables you to count on a steady stream of income, rather than relying on one-time sales as I referenced above with our WPLaunchify membership product, QuickStart.
It doesn’t much matter whether your recurring revenue deliverable is a product or a service, as long as you have a built-in profit margin that does not diminish or invert as you scale.
For instance, selling a course or a plugin for WordPress by itself is an infinitely scalable business model for recurring revenue. However, you must be sure that the cost of hosting and supporting your customer questions do not increase your server or team costs beyond the recurring revenue from each customer.
This, unfortunately, has become a far too common problem with some of the early WordPress plugin and theme authors who grew beyond their expectations by not anticipating the costs of supporting their customer issues.
Because the price charged for the annual renewal was not enough to cover costs with a profit margin, the businesses were forced to sell to a larger entity who could reduce support costs or suffer the process of changing the price on new and existing subscribers.
Better Deals For Customers
By owning a steady flow of membership fees, your business can keep your other prices lower and attract or retain more of your customers.
The net profit on membership fees are typically quite high, because you’re merely taking a one-time sale product or service and converting it into a recurring subscription. Thus, other than a few minutes of time to manage the subscription itself, you typically don’t create much other managerial costs in terms of time or infrastructure.
Let’s look at a popular offering such as online videos for entertainment or training. In the past, these were typically offered as one time rental or purchase, such as BlockBuster or the early Netflix with DVD rentals, Redbox, etc.
Today, we have a completely different model at work where there are vertical consolidations of content being offered on an unlimited basis to anyone willing to subscribe as a member. Thus, for an average consumer, you are offered “unlimited viewing” of thousands of movies or shows, for one low monthly price.
This is only possible because of the equitable trade presented by the recurring subscription model. As the site owner, you offer unlimited access to some or all of your premium content at a single fixed price each month, in exchange for the promise by the subscriber that they will stay with your subscription membership model long enough for you to see the benefits of compounding recurring revenue.
As long as your products or services are evergreen in nature, this is a deal that is both easy to achieve and mutually beneficial.
Cost Effective Marketing
Subscription models also make marketing more cost-effective.
You can reach out to your current subscribers with targeted marketing campaigns, rather than spending money to acquire new customers.
For example, if you started an online book club like Book of the Month Club, you would be able to use your subscriber data, to send personalized book recommendations to your members to purchase with one click from your WooCommerce checkout using a Sales Funnel tool like LaunchFlows.
By using Marketing Automation and a recurring subscription model, you can save on marketing costs and increase engagement with your audience by tracking their journey, preferences and past buying decisions.
In conclusion, a recurring revenue subscription model can provide your business with predictable & compounding revenue, customer loyalty, increased cash flow, better deals for customers, and cost-effective marketing.
If you have a product or service that is currently being offered on a one-time basis, it can be very easy to convert this product into a recurring revenue subscription, especially when you make use of the Free Consultation Call we offer at WPLaunchify.
Often times you merely need a QuickStart Solution, providing you everything you need to succeed in one simple and inexpensive package, including our expertise.