Build Recurring Revenue, with Robbie Kellman Baxter
My guest on the podcast today brings more than twenty years of strategy consulting and marketing experience.
Robbie Kellman Baxter is founder of Peninsula Strategies, helping companies leverage subscription pricing, digital community and freemium to build deeper relationships with customers.
Her clients have included start-ups and mid-sized venture-backed companies as well as industry leaders such as Netflix, Oracle, Electronic Arts and eBay.
As the author of The Membership Economy: Find Your Superusers, Master the Forever Transaction & Build Recurring Revenue, a book that has been named a top 10 marketing book of all time by BookAuthority, Robbie coined the popular business term “Membership Economy”.
Here’s my conversation with Robbie Kellman Baxter in series two, episode seven of the Financial Planner Marketing Playbook.
This is the largely unedited transcript of our conversation, so apologies for any typos or weird spellings![00:01:00] Martin: Perhaps you could start by introducing yourself. Tell us a little bit about you and about your background and what it is you do. [00:01:20] Robbie: [00:01:20] Yeah. I’m Robbie Kellman Baxter. I’m a subject matter expert on membership models and subscription pricing, and I’m based in Northern California in the same town where Facebook got its start, Menlo park, actually the house where Facebook started right around the corner from me. I have been focused on this area for about. [00:01:41] 17 years, uh, actually a little longer, but since, uh, I got laid off and I was on maternity leave, uh, as a product manager decided I need to be in control of my own destiny. And about a year or two years into that, that experience of being an independent consultant, I found and fell in love with the subscription model. [00:02:04] While I was working for Netflix, I was a consultant for Netflix and a philosopher. However many years that is, I’ve been completely focused in that space, working with a pretty broad range of companies, and now I’ve written my second book on, on that topic. So kind of deeply entrenched in all the things that subscription businesses share. [00:02:26] Martin: [00:02:26] Well, why is it you think that the subscription business model has come of age right now? Because there’s nothing new, is it? And we’ve, we’ve had subscriptions for various services going back decades. Why now? What makes it so relevant today? [00:02:37] Robbie: [00:02:37] So as you point out, we’ve had subscriptions forever, and we’ve had memberships forever. [00:02:42] You know. Trade guilds and Charles Dickens wrote his books on subscription models and all of the, you know, CD clubs and music clubs and book clubs and book of the month clubs had been around for a hundred years. I didn’t realize that, but more than they just celebrated their hundredth anniversary. But what’s changed is the enabling infrastructure. [00:03:02] So technology is extending. The infrastructure that enables trusted relationships. It allows us to comfortably insecurely, give our credit cards, um, to somebody else to, you know. Withdrawal automatically on a regular cadence. It’s a billing as possible, and also the ability to, to create, upload and share content, um, which, you know, that was really the first wave of, uh, of subscription mania, the, the software and the content. [00:03:32] Um, and so, and then of course. Companies have always wanted it because you know what is better than money that comes into your account on a regular basis. Right. That’s what we all want. [00:03:44] Martin: [00:03:44] Well, I was going to ask about that. So I guess if we were to compare the value of an ordinary customer with the value of a subscriber, how do you compare the two? [00:03:52] Is there a multiple of value attached to it? [00:03:55] Robbie: [00:03:55] Well, well, um, the public markets have given a seven to one multiple. Right? So subscription businesses generally enjoy a seven X valuation relative to their transactional peers. And there’s a relatively new, um, model of valuing businesses, which I’m sure you know, around on some of the parts. [00:04:20] Uh, some of the parts valuation and companies right now are scrambling. Big companies are scrambling to demonstrate that some component of their business. Is subscription so they can get that seven X multiple, at least on that part of the overall organization. So it’s a [00:04:38] Martin: [00:04:38] bit like when, um, uh, blockchain and Bitcoin became popular. [00:04:41] Everybody wants to become a blockchain company. Now everybody wants to become a subscription company. [00:04:46] Robbie: [00:04:46] Yeah, yeah, absolutely. And, um, almost every company is at least experimenting with subscription pricing somewhere in their organization right now. [00:04:59] Martin: [00:04:59] When, when we think about that subscription model, I guess we, our thoughts immediately turns to the likes of Netflix. [00:05:04] And Netflix is a fantastic example of how it works, isn’t it? But is this something that can apply to businesses of all sizes? [00:05:10] Robbie: [00:05:10] Yeah, absolutely. So, um, here’s an example. Let’s say, you know, my nails are not looking very amazing these days because I’ve been on a shelter in place for 14 days now, but I like to have them look nice. [00:05:24] And yet most nail salons allow you, you know, you have to get a manicure or you have to get a fix. But what if you could pay a monthly fee. And just have your nails look good all the time. It would change the behavior in the nail salon because they would be more focused on techniques that allow the manicures to stay looking nice as opposed to now and you know, it’s great if you come back and they would get the recurring revenue. [00:05:49] And all of that takes is a change in focus for the owner, the business owner from product, which is, I do manicures or process to outcome. Shared goal. Uh, I help people’s nails always look good. If I run a car wash, we want clean cars. We don’t want to go to the car wash. we don’t even want the car wash to be one minute shorter, which is how car wash people think about it. [00:06:15] We want a whole new solution. We’re a little fairies to keep our car clean all the time and we never have to deal with it. So any business can really be a subscription business. [00:06:24] Martin: [00:06:24] So how, how would a business start thinking you’re going about that, that turnaround from being an ordinary business to a subscription business? [00:06:31] What, what steps do I have to have in place? I think you mentioned earlier community, uh, and obviously the tech enabled side of it. So those are important things. [00:06:39] Robbie: [00:06:39] Yeah, yeah, absolutely. But you don’t have to be super high tech. Or make a huge investment in order to take advantage of this membership economy. [00:06:48] What I would suggest to a business owner who’s listening right now who’s got a going concern, a successful business, is take a step back and say to yourself, what is the promise that my customers, my best customers, wish I would make to them? So, for example, um, I wish that my interior decorator. Would make sure that my house never looks out of fashion or that nothing ever gets shabby cause I can’t see it. [00:07:15] Right. Um, I, you know, you sort of think instead of saying they’re going to do this one thing, what is the ongoing thing that they can provide? What is the reason that you came to them in the first place and how do you build around that? And then you can start to incorporate more features. In what you offer. [00:07:33] More, more products, more services to better deliver on that promise. So if you’re, let’s say that you are a podcaster and you provide a certain type of expertise, what else would the people that are listening wish you could do. Workbooks, conferences, a real book coaching, mentorship group. There’s so many other ways to actually help your listener achieve whatever it is. [00:08:00] That’s their goal. And that’s really where you start. And then, you know, figuring out the technology and the pricing and the underlying support. That’s all [00:08:08] Martin: [00:08:08] tactics. Mm Hmm. And the best way to go about finding out what our audience wants, is it to look at what others are doing for the same audience or similar audience? [00:08:17] Or is it to go directly to those individuals and actually ask them a question? You know what? What do you want from me? [00:08:22] Robbie: [00:08:22] I think it’s best to go directly to them and ask them. And the questions that you ask are really important. Because, you know, as some smart person said, if you’d, if you’d asked the customer what they wanted when, when you’re building cars, they would have said faster horses, right? [00:08:39] So customers can’t always tell you what they want, but they can tell you what their problem is and they can tell you what their goals are. So with the car example, or the faster horses example. The customers in that time might have said, you know, I’d like to get where I’m going faster. I’d like to have greater predictability. [00:08:58] Taking care of live animals is really hard. I wish that were easier. It takes a lot of time, you know, those kinds of things. And so your job is to figure out the solution. You’re the product manager. Their job is to tell you the problem. So if the taxi industry. You know, had done this with their customers and said, what’s hard about, you know, what do you, what do you use a taxi for? [00:09:20] I use a taxi to get from place to place when I don’t want to, or I’m not able to use any of these other options. Right? What is hard about using a taxi? Those are the two questions. What is, what is the goal that you have when you use me, when you use my products and what is still hard about achieving that goal? [00:09:37] So what is still hard? Well, even when I take a taxi. You know on those dates. Sometimes the taxis aren’t there and I can’t find one. Sometimes the taxi smells bad. I always feel uncomfortable passing the money through the little thing, and it’s just an awkward and uncomfortable interaction. I don’t like that. [00:09:53] You know? Those are the problems. And then you take a step back and say, if we were going to solve those problems, what would we do? And you come up with totally different ideas than if you have a product focus. If you start with the problem focus or the opportunity focus. [00:10:09] Martin: [00:10:09] Yeah. That makes a lot of sense. [00:10:11] You talk in your new book about the freemium model, so what’s, what does freemium mean? It’s not a term I’ve come across. [00:10:17] Robbie: [00:10:17] Oh, yeah. So, so freemium is a term that is when you have a free subscription and a paid subscription. So free plus premium equals freemium. And it’s lots of companies use this model. So, so one example, it’s a survey monkey survey monkey. [00:10:35] You can, um, give surveys, uh, for free for up to like a hundred people or something like that. And up to 10 questions. If you want more questions or you want to reach out to more people, or you want tools, analytic tools that are integrated or you want to be able to call the help line. You have to have a paid subscription, but you can solve a lot of your problems forever. [00:10:57] Just with the free one. Most of us use LinkedIn. For free. Very few people pay for it. That’s another example of a really powerful, um, freemium model. The idea with freemium is that your customers are getting something free that is really valuable forever, even if they never buy from you. [00:11:18] Martin: [00:11:18] Well from the businesses perspective, I guess you’re looking to give them a taste of what you do and and demonstrate that what you do is so good that they’re going to want to pay and they want to pay because they want to upgrade and get more features or the way wants pay out some out of some sort of sense of loyalty towards the brand. [00:11:34] Robbie: [00:11:34] Yeah. It depends as a really good question. So, so there’s two kinds of free. First of all, there’s a free trial and then there’s freemium free trial is that taste of what you have for one of two reasons. Either they don’t believe you when you tell them how good it is, Hey, taste my cookies. They’re the most delicious cookies in the world. [00:11:52] They’re the better than anything you’ve ever had. You’d probably say. Yeah. I don’t really believe that they’re that different than other cookies I’ve had. And I say, taste it, and you like you say, Oh my gosh, you’re right. The other one is when somebody doesn’t understand. So there’s a lot of new business ideas and business products where people just don’t even understand what you’re saying. [00:12:10] You know, what does it do? I don’t understand. So you’re giving them an opportunity to experience it. It’s like a test drive and freemium is. You know, if, if free trial is a taste of filet mignon, a teeny tiny taste, you don’t want to fill them up, then freemium is like hamburger forever, right? You’re going to get full. [00:12:28] You don’t need anything else. Even if they don’t upgrade, they’re still going to get value. And that’s really important, and it’s for three reasons. Freemium is either, as you said, to change behavior. Right? I don’t believe I’m going to use it as often as you think I’m going to use it, but yet I keep bumping up against the paywall or the limitations or the features I want. [00:12:47] I realize I want it more than I thought I did. Second reason is because there’s some kind of a network effect or because the free members are part of the product. So with LinkedIn, even the most people will never pay for it if the re, if all of us weren’t there. The recruiters, the salespeople, the job seekers wouldn’t pay for their subscriptions because we are the product. [00:13:10] Um, same thing is true with advertising models, right? People wouldn’t advertise if the eyeballs weren’t there. So the eyeballs get the content for free. And then the last reason. Is if your free members are actually a marketing channel. So this is like the viral thing. Uh, one of the benefits of survey monkey in an early days survey monkey grew mostly because freemium members. [00:13:34] We’re sending surveys to people who then paid. So I sent it to you cause you’re in my book club and I’m not paying for it. You’re a market researcher. You get the enterprise license [00:13:45] Martin: [00:13:45] and they says, I think all the way back in the day, it was Google mail. Email had a very similar um, know distribution method. [00:13:51] He sent an email to your contacts and you had the banner at the bottom that said it came from, from GM or something. Makes it, makes a huge amount of sense. B, what about where it’s not a technology led solution like survey monkey, like an email server. But it’s a once a one service proposition. So lawyers, financial planners, which is our audience here at advanced planner, maxing playbook. [00:14:11] How do you apply a subscription models for those, those business types? [00:14:16] Robbie: [00:14:16] Yeah, so, so many of them, I think the fee based ones kind of are already doing that in a way. You know, you pay a regular fee and exchange, you have access to their smarts, to their expertise, and whatever needs doing they’ll do for you. [00:14:31] Right? Um, in contrast to, I, um, you know, if, if they’re getting a percentage of, you know, what they generate for you, or a percentage of the transactions where they pay on, they’re paid on a transaction, the model that kind of, um, fee based service is in effect a subscription and a relationship model because it aligns the goals. [00:14:53] Of the two groups, I don’t have to wear that. There’s a meter running. Um, your goal is to give me the best advice you can. I don’t have to worry that you’re biased about what products to give me because we have the same goals, which is you’re trying to give me good advice and I’m trying to make the decisions [00:15:09] Martin: [00:15:09] that makes sense. [00:15:09] So it’s like Sapphire, soy, and it takes the pressure off our relationship in that sense. Yeah. [00:15:14] Robbie: [00:15:14] The other thing is, with the freemium model, there’s a lot of opportunity, I think for professional services providers to build a community and a following around their expertise, whether or not those people are paying clients. [00:15:29] So newsletters, market research, general advice or, or also tangential things. So. You know, if somebody is interested in their financial picture, they might also be thinking about retirement. They might also be thinking about a big investment. They might also be thinking about being responsible with insurance. [00:15:50] So communicating in that way and figuring out what is the value I can provide for free forever to people that will somehow feed into my. Paying members. [00:16:02] Martin: [00:16:02] Yeah, and I like that concept. I guess with that subscription business model, it’s about scalability as well, isn’t it? It’s about how in a large enough audience to make it worthwhile because on that transactional business model with the old traditional one. [00:16:15] You needed far fewer people, so make that stock up. But with subscriptions, is that the case? You’re talking about a bigger client base of be a customer base? [00:16:23] Robbie: [00:16:23] Yeah. I think it’s possible to have a bigger, a bigger base and to extend your reach much further than we could kind of in olden times. You know, I think a lot of times, especially small business, unders lament the rise of digital content and digital community because they say, well, you know, that makes my relationship less meaningful. [00:16:45] But it also, it does, it gives the individual the chance to be heard globally and bring in members. Like, I have a really close friend from college, she’s a financial planner in New York, and her clients are all over the world. And she works with almost all of them. Like you and I are talking right now on zoom. [00:17:06] And so it’s, and it’s much more flexible for her. She doesn’t have to go to the office. She doesn’t have to wait for late people, which is a much bigger market. She can focus also, she focuses particularly on, on young adults making big decisions. And so she can reach those people everywhere. Uh, so she can be more focused and, and skilled in a very particular niche. [00:17:28] Martin: [00:17:28] No, but that’s it. That is interesting. And I suppose if you do have a particular niche, it makes sense to be able to work remotely in that way because your niche isn’t necessarily going to be in your locality and your village or town, et cetera. It might, it might be all over the country, all over the world. [00:17:40] Even before we finish up there, Robbie, if you’ve got any examples of subscription business models that you particularly love, and we’ve mentioned a future in this conversation, but what are the ones that really jump out off off a page and you’re really sort of excited about. [00:17:54] Robbie: [00:17:54] Oh, wow. Well, there’s, there’s, you know, I’m a, I’m a subscription junkie, so, you know, there’s, there’s so many that I, that I love, you know, the ones that are kind of right now that I, that I look to a lot as role models would be LinkedIn, Amazon, and Amazon prime. [00:18:09] Netflix. Honestly, just because they, so, so here’s what I would say about each of those. Netflix because they focus on that mission, that forever promise their customers so clearly and with such discipline, nobody else is as good as they are at that. They do one thing professionally created video content delivered with cost certainty in the most efficient way possible. [00:18:32] And you know, over time that’s gone from three DVDs out at a time to streaming, to creating their own content to streaming that content through everything from your phone to your video game console, to your smart TV. They keep evolving, but they only do one thing. They don’t do video games, for example. [00:18:51] You could see how they could think that they could do that, but it’s a totally different thing. They don’t give anything away for free with your membership. They’re very focused. We only want people who want to pay for this. If people don’t want to pay for our product, our product is not good enough. So that’s one. [00:19:05] Amazon I love because they started so narrowly with such an ambitious goal. So their goal is to make it through, remove all friction from all consumer purchases, which ultimately means I’m thinking about something I need and it appears in front of me. I think I realized I don’t want it. It disappears. [00:19:22] Right. And when they started, all they did was books by mail. And they’ve layered in so much value over the past 20 plus years. And then, uh, LinkedIn, I like because of their use of community and because of their focus on helping professionals thrive throughout their career. I love the way they’ve layered in value over time. [00:19:44] I love their use of freemium, and I love their, their kind of origin story. So I don’t know if you know this, but the founders of, of LinkedIn, before they had LinkedIn, they had social net, which was a dating site. Okay. And they had a great forever promise there too, which was, you know, to find your soulmate. [00:20:03] But the problem is people would find their soul mate in less than six months. So even though they were doing a great job, it was not a great subscription. And after six months after someone finds a soulmate, you don’t even want them in your community anymore. Right. And so they said, the next time we start a company, we’re going to make sure that that forever promise has a much longer runway. [00:20:21] And so now it’s, you know, the duration of your career. So I have. You know, recent high school graduate kids who are there, and also my father who’s in his seventies and retired is still there. So much longer runway. [00:20:35] Martin: [00:20:35] That makes sense. It makes a huge amount of sense. No dating models when you think about it, don’t really fit the subscription model. [00:20:41] If they are good at dating website, seeds, you lose. You lose the customer. [00:20:47] Robbie: [00:20:47] Exactly. [00:20:47] Martin: [00:20:47] Yeah. Yup. Robbie, it’s been a pleasure chassis. Thank you so much for your time, Steve. Before I let you go, where can we find out more about your work and about the book? [00:20:55] Robbie: [00:20:55] I’m easy to find Robbie Kellman Baxter is my website. [00:20:58] Robbie backs on on Twitter and Instagram, and you can find me on LinkedIn. I post a actually quite a lot of content there, so you know, find me finding any of those places. Fantastic. In your local bookstore. [00:21:10] Martin: [00:21:10] Of course. Well, once we’re allowed out, again to go to a local bookstore. Absolutely. I’ll make sure I put links in our show notes to your website and social media in the book so our listeners can find that nice and easily. [00:21:21] But thank you so much for your time today. It’s been a pleasure. [00:21:23] Robbie: [00:21:23] Yeah, thanks for having me. [00:21:26] Martin: [00:21:26] A big thank you to Robbie for joining us for this episode of the podcast. I think there’s a huge amount that financial planners can take away from that conversation and building a subscription model is just such a powerful idea. [00:21:39] It makes some sense from a business perspective. Do check out Robbins’ new book. It’s called the forever transaction. How to build a subscription model so compelling your customers will never want to leave. I’ll put a link to her book in the show notes for this episode, which you can find at bamformedia.co.uk/podcast [00:21:53] Also some useful links to Robbie’s site and social media there. So thank you so much for listening to the Financial Planner Marketing Playbook. Until next time, goodbye.