What to focus on to build a great subscription business

Avrom Gilbert, quoted in Israel’s subscription challenge by Michael Eisenberg:

There are two ways to approach growth in net lifetime user value. [“Net lifetime user value” is the profit from a user over their lifetime as a user, minus the cost of acquiring that user.] One is to reduce your customer acquisition cost. The other is to improve the product so that you grow lifetime user value.

It’s likely that at some point you will reach a point with your customer acquisition cost where it will be hard to improve it significantly. However, if you keep improving your product then your lifetime user value can keep growing indefinitely, which keeps growing your net lifetime user value. This in turn means that you can choose to increase profit or, more likely, spend more to take more market share (even at the risk of increasing your customer acquisition cost). Growing lifespan through improving product gives you another fantastic growth engine for your business in addition to the free customers you get.

As an interesting aside, reducing customer acquisition cost is an exercise with limited upside. Put another way, you can only reduce your customer acquisition cost to zero, but you can grow your lifetime user value many fold.

Notes:
(1) Cf. Obvious, but forgotten: the best way to lower customer acquisition costs.
(2) Cf. It’s easier to fix marketing than engagement.

2 thoughts on “What to focus on to build a great subscription business

  1. Pingback: Jeff Bezos on how much you should spend on potential vs. actual customers | A Founder's Notebook

  2. Pingback: How to extend a SaaS business from small to large sales without using outbound calling | A Founder's Notebook

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