Good Governance for Subscription Businesses

Many subscription businesses provide ongoing, recurring value to their customers. On the other hand, there are plenty of “single use” services that masquerade as subscription businesses. These businesses appease shareholders by tacking on pricey subscriptions with difficult cancellation terms on the heels of a “special discount” to entice customers to buy. For the latter, some of their best “customers” have no usage in years.

These dormant, paying customers have meaningful benefit to several subscription business model metrics such as average billing cycles, monthly recurring revenue (MRR) and lifetime value (LTV) and they make marketing teams look promotion-worthy.

Still, a real toll is paid by unwitting consumers. These super-loyal customers don’t love the product. No, they simply overlook the charges, fail to identify the merchant of record, lack the time or energy to cancel, no longer readily access a billing statement, or the charge is too small to warrant investigation from a corporate finance team. Often, it’s a combination of a few of these.

Unfortunately, a defining characteristic of the subscription-based business model is that many of a company’s best customers don’t know that they are customers at all. It’s because of this that Netflix’s most recent letter to shareholders is a step in the right direction for how subscription businesses should operate, a model to live up to.

They write:

A very small percentage of our members have not watched anything for the last two years and although we make it easy for people to cancel their subscriptions with just a few clicks, they have not taken advantage of that ability. So, we decided to stop billing them and will do so for members meeting the same criteria going forward. Like all of our former members, they can easily restart their membership in the future. While this change resulted in a slight hit to revenue, we believe that pro-consumer policies like this are the right thing to do and that the long-term benefits will outweigh the short-term costs. In a world where consumers have many subscriptions, auto-pause on billing after an extended period of non-use should be how leading services operate