Why should your organization care about recurring revenue? Here’s why: even before the pandemic, running non-profit arts and cultural organizations meant running businesses driven less by available revenues and market demand and much more by expense-side decisions. And rarely did the twain meet! So staff and board leaders were constantly in the “revenue chase” all year/season long until the very last day of the fiscal year, at which time the revenues (hopefully) met long-ago-spent expenses. If not, there was an endowment to draw from (!), or next year(!!), or a knight that rode in on a white horse to save the day/season/budget (!!!). None of these reactional strategies made organizations financially resilient or fit.
Post-pandemic? The story I heard last week from the chief executive at a large North American theater company is now the standard: “Jill, we had to lay off 10% of our work force last year, but my payroll expenses are still 32% higher than the previous year.” Staffing costs, production expenses, heck, the cost of paper and ink…it’s ALL more expensive now, with no relief in sight. In this new reality, how on earth can we continue to make these business models work?
Look. This answer is situational and dependent on market, mission, strategy and so much more. But here’s one thing I KNOW is true: whatever your organization’s revenue streams include, the more recurring and renewable and repeatable they are, the more financially fit is your organization.
In my last blog on this subject, I described the benefits of RFMG math. Annually renewing (R), frequently participating (F), highly invested (M), stable and growing (G) customers make for more organizational revenue security. Yes, creating these revenue streams requires discipline and focus and courage and choices. But when these things converge right and well, customers reward organizations with their consistent behavior. This enables organizations to move from scarcity mindsets to abundance that fuels risk and innovation, investment and exploration, curiosity and creativity. These are the behaviors our creative industry should be defined by!
TRG clients have gotten the message. I was in London recently, presenting the stats to a group of our clients who saw: their recency, frequency and monetary values are higher than that of the larger field represented in TRG’s Arts & Culture Benchmark, as detailed below:
Our clients follow TRG’s learnings and practices, of course, but/and: my new friend Paul Chambers recently expanded my thinking about today’s practices in the world of recurring revenue. For more detail, I’d point you to SUBTA’s annual report, as well as one from Recurly. Here’s a summary of three key take-aways from our conversation:
#1: A retention obsession is required to sustain recurring revenues. First, Paul detailed that the best subscription brands generate 80% of their revenue from existing customers. What is your organization’s % of revenue from existing vs new customers? In arts and culture, we’ve always under-invested here, both from a staffing and marketing perspective in both marketing and development departments. Paul told me, “…recurring revenues is about relationships, segmentation and personalization all focused on retention. And retention starts on day one of acquisition. In fact, I was talking to the folks at The Washington Post about this recently. They believe retention starts even before acquisition. You’re constantly applying learnings about customer retention, even before customers buy.”
What kind of learnings? “There are two kinds of churn…voluntary and involuntary. The involuntary is when a credit card fails or expiration dates or credit card numbers need to be updated on an auto-renewed program. These folks aren’t choosing to leave, they just forgot to update information. There’s a lot of cool tools out there now that make these easy fixes.”
Arts and culture note: we can and should be automatically renewing our membership and subscription programs. It’s cost-effective, reduces churn, and does NOT prevent price increases (which we all know from our experiences with companies like Netflix, digital media and more). But Paul warns, “you’ve got to make it as easy as possible for users to cancel that subscription or membership so that when the time comes that they decide they need your services again, they feel positively about your business. You’ll still have access to their prior data, and you can make the experience of coming back to your brand more meaningful.”
Voluntary churn is different, and the more data you have the more you can anticipate churn reasons or churn timing and address the potential problems before they become problems. Paul again: “So if you see in your membership data that churn increases after the nine-month mark and you have research data that describes why customers churn, you can begin to address the potential problems in month two. Give value early on in the membership so that when they get to month nine, the customer thinks it’s a no-brainer to keep the membership going. Handwritten notes, a photo of the ensemble from a show, a thank you phone call. We call it a nurture campaign, and it’s a must in today’s recurring revenue management.”
Arts and culture note: nurturing our members and subscribers. Our development teams do this with major donors, but here we’re talking about scaling the nurturing, and basing it on data. We must step up our game here. Do you know when your members typically churn? Do you collect data from your subscribers and members about the reasons they don’t renew? There’s a value disconnect there that you can evaluate and work to close right after the customer makes the purchase and onward.
Finally, let’s talk referrals. At last year’s SubSummit, Jay Myers at Bold Commerce detailed that while most companies invest just 3% or less of their time collecting referrals, these referrals are gold in two ways: 1 they boost acquisition rates in big ways, and 2 those customers who purchase on referral from a friends have much lower churn rates.
Arts and culture note: are you asking your current subscribers and members for referrals regularly and often? What about your frequent single ticket buyers? And, The SUBTA 2023 Annual Report suggests that if you find one of these customers has a growing social media presence, you can invite that person to become an ambassador in exchange for free perks or membership and anything else that will help them advertise your programs online. This, too, helps grow referral rates. Fred Reichheld of Net Promoter Score fame tells the same story. NPS Promoters are believers; they’re a great resource for referrals we should be regularly tapping.
#2: Service expectations are higher than ever. This reality has only gotten more true in post-pandemic times as consumers have become much more choosy about how and where they spend time and money. SUBTA’s annual report describes that poor customer service is the #2 reason why customers cancel memberships and subscriptions, after price. Conversely, when asked why they want to stay subscribed, “great customer service” is the #1 reason.
Service begins with packaging and pricing. Required today: a variety of packaging options that enable the customer to tailor their experience; flexible pricing plans, which reduces purchase friction; and customer service that is easy to access.
AI is helping with this latter bit, says Paul. Today and moving forward, AI-powered chat bots should be used “to do all the basic service that can be powered by a machine so that people can follow up and ensure the more complicated issues or nurture-campaign opportunities are addressed. It’s the follow-up that says, ‘we saw that you asked a question of our agent earlier today, and I’m calling to ensure you have everything you need.’ These kinds of outbound efforts go so far, I would think especially in arts and culture.”
Other tactics that boost the customer experience and grow retention: offering free gifts and samples (added perks was #3 on the “why I stay” list); personalized communications that enhance the experience and solve specific problems or prevent them (demographic and behavior segmentation is key here); and regular reminders about the benefits included in the membership or subscription. According to SUBTA, 60% of consumers are unaware of the amount they spend on subscriptions each month, so it’s fair to assume that they may not be certain about the value a specific offering provides.
Arts and culture note: there is so much opportunity for service improvement in arts and culture today. From regular service training for usher and box office staff to web and phone purchase path evaluation…eliminating friction is the service must-do today. Consider joining us for our next TRG [Executive Convene] (https://trgarts.com/executive-convene) where we do a deeper dive on these issues and opportunities.
#3: Not all customers are the same, and it feels like demographic differences have become more pronounced than ever. Paul’s advice? Ensure your packaging and pricing options have different options for different age cohorts. “Young people want to buy things that are the best fit for them. So if you’re building a subscription that has traditionally been marketed to older people…they won’t see themselves in that and they won’t be as likely to purchase.”
He continued, “I’ll skip over Millennials for a second, but Gen Z? Gen Z wants products and services on their terms, provided in the ways that work best for them. For example, there are companies enjoying success with this demo doing crazy things like “Name Your Price.” You tell us what you want to pay in this range, there’s a sliding scale the customer can choose (and the slider starts in the middle). When we talked to one of these very successful companies they said, ‘we were sure when we rolled it out everyone would choose the cheapest price. But that’s not what’s happened at all. The average price point is the middle.’
This company is using this approach to combat churn from their traditional offerings. It’s mind-blowing. They’re canceling a subscription and signing up for a new one in the process. We’re used to complaining about the Millennial generation, but they’re aging now and are beginning to behave differently, with different preferences and needs. The noise about Millennials has quieted and now it’s Gen Zs that are getting our attention. But on the flip side this generation is also used to overpaying for something they really want. I don’t think it’s always about a race to bottom on pricing. We just have to know our customers…listen to them and study them.”
There’s another successful trend we’re seeing in the subscription world now that is working for all demographics, which is “Trial to Paid.” The customer has to provide their credit card and the first X number of weeks or episodes or products are free. After the free trial, the renewal kicks in and the customer is paying. And Recurly has reported the 2023 industry benchmark of 50% conversion on trial to paid leads. 50%!”
Arts and culture note: today’s packaging and pricing options, marketing channels and brand communications must differ for different demographic cohorts. We have a lot of testing and learning to do! SUBTA’s annual report cites the most effective sales channels per gender and age cohort, and I was surprised to see that 21-25 year-old females respond to direct mail alongside social media and that “TV Commercial” was included in every cohort aged 36-60. Men? No direct mail indicators with this group, but TV commercials are equally strong for the 36+ age group.
And regardless of age group, if I don’t see myself and my preferences in your communications and offerings, then as Paul said I won’t see myself and I won’t buy. AI may be able to help us here, with copywriting suggestions better tailored to specific age groups.
There is so much to learn from other sectors whose revenue models, like arts and culture, depend on recurring revenues and retaining customers. I can’t be at this year’s SubSummit, but I encourage you to check it out. A reminder: it takes place in June in Dallas (where, you, fair arts friend, can apply to be funded/paid to attend). Let’s up our game in managing our recurring revenues and shift the RFMG balance to our databases.
I’d like to reflect and expand on the ideas of community building and recurring revenue that were explored in this blog series further WITH you. To that end, I’ll be hosting a webinar in July and I’d love you to come. Sign-up below to save-the-date and I’ll see you there!