The Automatic Customer By John Warrillow - Book Notes

The automatic customer by john warrillow

Read: 2/21/18

Part I

Business are much easier to sell that have some form of recurring revenue.

Find two forms of revenue.

  • Installation revenue for building the main site/project whatever.

  • Monitoring revenue in the form of the monthly payment for keeping an eye on things.

The reason amazon is so successfull with prime. Is that people want to ‘get the most of it’ and buy from amazon.

Subscription model is back in full swing because people trust enter their credit card online, internet speeds are fast.

The internet has lowered the cost of distribution for many products and services.

Customers want to express their individuality and increasingly they are using subscriptions to do that.

Amazon, adobe, microsoft, apple are all moving towards subscription models to supplement their income 5 to 10%.

Subscription models are cannibalizing local pet food stores, vitamin shops etc.

Subscriptions are good because….

  1. They increase the value of your largest asset.

    1. Most businesses are valued at discounted cash flow.

MRR: monthly recurring revenue

ARR: annual…duh

Security businesses that monitor alarm systems and charge a recurring monthly monitoring fee to do so are worth around double what security businesses that just do system installations are worth.

Example: Mosquito squad. Subscription based pest control vs you call when their is a problem.

  1. The $29 sale vs the $4,524 sale. Flower shop example

  2. Smooth out demand

  3. Free market research

  4. Get paid automatically

In a subscription business, the model is reversed. The customer subscribes and pays.

  1. Customers get sticky..from the convenience of it.

  2. Subscribers purchase more

  3. Recession-proof your business. Focus on high margin recurring maintenance revenue.

Part II

9 subscription business models.

“How could this model be applied to web development?”

“What part of this model could I borrow for FM Web Studios?”

The membership website model:

Publishing your know-how behind a paywall that requires members to buy and access to your secrets.

This could be applied to web development in creating a course in how to build a site, how to make your site accessible.

If you have developed a unique approach to running your business or have been able to achieve above average results in a competitive industry, other web people may want to know about it.

The most financially successful membership websites tend to focus on helping business owners master a specific industry or niche.

Restruantowner.com

Contractorselling.com

B2B sites are some of the more successful memberships.

Monetizing your members…the subscription could be an entry into selling a larger ticket item.

$7 article example to a $1500 conference.

The best response rate will always come from customers who bought something similar less than three months prior.

Who the membership website model works best for

Consider it if you:

  • A tightly defined niche market, dance studio owners or italy junkies.

  • Access to steady flow of unique knowledge or expertise/insider information that is constantly changing and that subscribers need to stay in the know about.

  • Another product or service you can sell to your subscribers.

What the insiders say

  • The most profitable membership sites are those of B2B companies that solve a real problem. Offering must have information and maintaining constantly evolving forums that require a subscriber stay lower over the long term.

  • Most successful operators produce a piece of content in multiple formats (video, podcast, blog/transcript) to accommodate subscriber preferences for consuming information and increase the chances the site will be found by Google’s search engine.

  • It can be difficult to make a good living from just revenue you get from subscribers along. So having other ways to monetize through adjacent selling (conferences, courses, coaching) is the best way to build a significant business around a membership website.

The all you can eat library model

Early iTunes example in early 2000s.

Vs current day spotify.

Netflix, hulu pandora etc.

Winning formula is a two stepped approach.

  1. Get unique visitors to your website to opt in to a relationship with your company by subscribing to an e-mail newsletter or joining a facebook fan page.

  2. Then convert opt-ins to paying subscribers through a sales funnel.(what is a sales funnel?)

The private club model

Mastermind groups.

Consider it if:

  • Something that is in limited supply, always a service or experience and is in high demand among affluent consumers

Font of the line model

Buy your way to the front of amusement park rides.

Salesforce: everyone gets basic level support. Submit a ticket and you can get a response within 2 business days. If you want it faster than 2 business days pay more. 15 minutes turnaround pay even more

You’re being transparent about who gets served first, which is in some ways fairer than deprioritizing customers without telling them why.

You can offer faster response times through an application like zendesk/desk can easily route subscribers to the front of the que.

Consider the front of the line model

  • A complex product or service

  • Customers who are not price sensitive

  • Customers who waiting in line too long can have catastrophic results(lost revenue etc.)

  • Front of the line model can be used in conjunction with other subscription models to add additional stream of recurring revenue.

  • Need a good reputation for baseline service.

  • Leverage technology/systems to automatically put these customers to the front

The consumables model

Dollar shave club

https://www.youtube.com/watch?v=ZUG9qYTJMsI

Must differentiate yourself..mega retailers or e-tailers: Let us buy your or we’ll put you out of business.

Ie. facebook to instagram.
Facebook stories vs snap

Best defense is branding.

  1. Must differentiate to care about the product

  2. Focus on building a brand

When comparing apples to apples, amazon will most definately be cheaper and faster.

The more we beleive a product is unique and offers a better experience, the more the providor has the leeway to set his own price.

The surprise box model

Ie. blue apron

Vetts out products. Before google, vetting of products was done by department store buyers who would consider hundreds of products a year and select only the very best for their customers.

Standard cocoa - nyc chocolate subscription model.

Specialty manufactueres of chocolate/any other craft product, don’t enjoy economies of scale.

The simplifier model

Stuff is getting more and more complex. The number of systems we each must now use ona daily basis that causes our mental overload.

Hassle free home service. Get assigned a tech that will manage your home throught the year.

Able to hire and easily see if you need to hire more help or not.

Can supplement by helpful email summaries, statemends and reminders of work that has been on and has been planned. Want to be in touch with your customers via one way or another every other week.

All that interaction breeds familiarity over time, which means you can become a trusted resource for other things web related. When something goes awray or another big project comes along. You can come in and do the job for an extra fee.

Now you don’t have to remember to A) renew your hosting account B) Post to social media C) Do google citations for local SEO. anything.

Mosquito squad smaller company with less than $500k revenue. Small companies can pump out profit margins of 20 - 30 % before tax. Recurring revenue.

Enormous value in ‘setting it and forgetting it’ systems. You get the recurring revenue and steady work. Customer gets the benefit of knowing its one less thing to remember to do.

Simplifer model

  • A service that your customers need on an ongoing basis(web hosting, seo)

  • The ability to sell to releviley affluent, busy clients

  • A personal service

Insiders

  • Discover your simplifier model by interviewing your target customer. Have her describe a typical day and ask her to show you her to do list. Ask yourself what you could offer to tick something off that list.

  • Part of the value prop is you will remember to do a task so your customer doesn’t have to. Make sure to setup a regular schedule.

  • Its also a platform for cross selling and upselling. Delivering the tasks associated with your service conract offers a built in way to see what else you could provide your customer

  • You don’t need to bundle all of your services in a contract, just pick the ones a customer needs regulary and those tasks should act as a platofrm to ensure you’re the first person they think of for other jobs.

Network model

The utility of the subscription gets more and more valuable as more people subscribe to it.

Ie. facebook, telephone companies.

Peace of mind mode

Offers insurance against something your customers hope they’ell never need.

Website monitoring services. Site24x7.com or dotcom monitoers.

Radian6.

Reputationloop etc

You can listen in on conversations about their brands on social networks so they can know what people are saying about them and tell their side of the story.

Underwriting profit: is the difference between premiums generated and claims paid, while float is the money you make investing the cash people pay in insurance premiums before they make a claim.

You could keep the $75/month in your pocket….or you could invest it. Invest it into the stock market or a vanguard blended fund..or put the money back into your business to make you even more money or save some more time.

Big insurance companies employ an army of actuaries who use statistical models to predict the likelehood of a claim being made.

Tread lightly

  • Offer the peace of mind subscription to only a few handful of customers so you can get a sense on how the claim is made.

  • Limit your customer offer. Offer to cover fixes up to a certain dollar amount

  • Reinsure the risk

Chapter 4

The psychology of selling a subscription.

Subscription fatigue. Once more and more subscriptions the small monthly charges add up. Our bar for a subscription service is getting higher.

  1. Think 10x vs 10%: Make the customer enjoy the alternative 10x more than the competition.

  2. Appear to their rational side.

  3. Give the customer an ultimatum

Netflix, salesforce etc are 100% all in on the subscription model.

  1. Give them the freemium option

  2. Offer a trial

    Osler example. A bajillian 14 day free trial options.

Zendesk example. Have the main focus not on buying the product, but on using the product. This will become the endowment effect in psychology. If you use the product there is a greater chance of you becoming a subscriber.

  1. Offer your subscription as a gift.

  2. Set fire to the platform.

    Have an ‘oh shit’ moment where you drop the price briefly or offer a good deal.

The best salespeople set fire to the platform only when the customer has made the decision to subscribe and it is only a question of when.

CAC = Customer acquisition cost.

LTC = lifetime value of the customer

Chrun = cancellation rate of customers.

3:1

LTV: CAC

Chapter 15: Scaling Up

Can have a growth business or lifestyle business. Can have a ton of freedom with this and fund mini-sabbaticals.

Lowering Churn.

First step is to understand WHY they are leaving your business.

If your customers can avoid your product or service and they still get their jobs done, you’ll have a MUCH higher churn rate than if they need to interact with your service to complete their daily tasks.

Watch the 90 day onboarding clock.

  • Afte the first 90 days the customers LTV and profitability will have been practically set in stone.

  • Customers expect a high level of interaction

  • They expect to be asked for personal information

  • They are in switch mode and are open to new offers.

  • They are much more likely to defect before ‘bedding in’

For a subscription to stick, customers need to change their behavior and use your service.

Need to track a group of cusomers called co-horts

Have co-horts of 3 and try different things on each of them.

Reduce churn #3: wow up front

Churn #4: Charge up front..weed out people not super commited.

Offer a price reduction if they pre-pay for a year. 10%. Charign up front and using your service for a year makes your service ‘stickier’ deeper commitment and end up staying longer as a result.

Churn #5: Over communicate

6-7 points of contact is ideal..

Churn #7: Drop a hapiness bomb.

Drop a small gift of spontinaety.

Amazon patent ‘anticpioatory shipping’

Chrun #7: Target larger businesses

Larger businesses..more stable more employees and less likely to change strategy ona dime.

Churn #8: Focus on net churn