Grow Your App Revenue with This Proven Subscription Framework

Hey, Phil. I want to get into the subscription value loop a bit, too. Can you talk a little bit more about that? >> Did you coin this term, Phil? Because I’ve only associate you with this term, by the way. >> I did. I did. I It’s my claim to fame. And And I, you know, it’s one of these where I will I will uh throw myself under the bus. For those who watch Silicon Valley, I don’t know if you remember the conjoined triangles of success. I feel like any any framework on its face, the best frameworks are simple, right? And so like on its face, it’s a simple idea which is that every great consumer subscription business is

built on a unique and enduring core value promise. Unique because it needs to be different enough to stand out from the hundreds of thousands of other consumer subscription apps in the app store and enduring because it needs to provide value over an a significant period of time. Otherwise, you’re not going to be able to generate enough revenue from your subscribers in order to sustain the business. Right? So that’s the center of the core value of the subscription value loop is the core value promise. And then you have these three steps. You have a value creation, value delivery and value capture. So value creation is typically led by core

product teams. This is building the core product um and uh building the right features in order to support the unique and enduring value promise. You have value delivery which is led by marketing teams, growth product teams and in the case of B2B products um also sales teams. And so that’s all about costefficient distribution of the product. And then you have value capture. And this is the one that I think gets most often overlooked, especially by early stage startups, which is making sure you’re converting the value from your product into enough

revenue that you can actually reinvest in product innovation and paid marketing campaigns. And so then over time, those three steps drive LTV over cap ratio up. That’s customer lifetime value over customer acquisition costs. They drive payback period down, which means you’re able to just spin the loop faster and faster. The business is able to grow faster and more efficiently. Um, and that leads to a lot of good things. And actually, if you go to the line’s newsletter guest post I wrote on the subscription value loop and and so as as I was saying before, like it’s a relatively simple framework, but I think

it’s really compelling. And and the origin of this was um when I joined Quizlet in late 2018, the company was already growing very fast, but my job was to figure out how to sort of systematize that growth and make it repeatable. And so over over the next few years, I found that we were using these words like, well, the core product team, they should be creating value. And the growth product team, they’re more responsible for distributing that value and then capturing the value through the right monetization strategy. And so we were using these words informally and

there was no framework that really laid it out this way. And so I wish I I wish I had could say that like I wrote all this out at the time and this was the playbook we followed. The reality is, and I think this is often true, it’s like I took the lessons I learned at Quizlet, the hard knocks I I took and then I I sort of created this framework out of it um several years later, >> either talking about how indies because a lot of our audience are going to be more indies and founders or and how AI can leverage them or talking about what you contributed to revenue about optimizing onboarding flows. What do you

think? Where should we? >> Yeah, I mean we could cover both, but why don’t we um why don’t we start with the second question. So I am a big believer that uh there are about half a dozen areas for consumer subscription businesses that carry 80 plus% of the leverage in terms of their ability to grow both subscribers and revenue. >> And so these include subscription pricing and packaging, payroll optimization, um driving more organic growth, reducing a voluntary churn, but one of the biggest ones is onboarding. And part of

the reason this is so important for consumer subscription in particular is consumers are very fickle and they’re very busy, right? The average attention span um has gone down significantly in the last couple decades. And so you really have this very narrow window of opportunity to convince users that they should use your product, let alone pay for it, right? And the RevenueCap data backs this up. And so this was my contribution to their latest report. Um, what it shows is 82% of trial starts occur the same day that a user installs

an app. Um, which is even higher than last year’s report. Last year, I think it was hovering more like 75 to 78%. So, it just keeps going up. More and more trial starts are happening right away on the first day, which means most of that’s happening on their first session, probably within the first five minutes. And so, you you have this very narrow window of opportunity to convince the user that your app is special. But the good news is if you do a good job, there’s a huge amount of leverage. So, so at the bottom of the slide, it talks about how P90 apps, apps on the top decile boost a 20% trial start rate.

That’s 3x better than the median app. Um, versus trial conversion, P90 apps are only 2x better. And so, what that says is one of the highest leverage points in the whole funnel for these consumer subscription businesses is getting users who’ve just installed the app to start a trial as quickly as possible and then you buy yourself time to convince them to pay for the product. Um, and so there’s just a lot of innovation happening around onboarding. One of the things I tell my clients is if you have the resources to do it, you should just be continuously investing in onboarding optimization all the time.

I I talked at the beginning of um this bimodal distribution, right? You’ve got like on and this is oversimplifying it but on one end of the spectrum you have the indie developers and the small teams who are trying to build 5 to 10 million AR businesses and they recognize that their businesses are never going to be larger than that but they can still make a great living building an app like that if it’s a small team. Um for those companies I think it really is often as simple as show the payw wall as quickly as possible. Maximize payw wall view rate. Keep the onboarding flow short and to the point. Um you know don’t

underpric yourself. make sure that you’re capturing enough value from subscribers who convert, that your unit economics are strong. That opens up Meta and other paid channels as a way to just reliably grow. It’s sort of money in, money out. Um, and it really is that simple in a lot of cases. But then on the other end of the spectrum, you have these ventureback businesses like Dualingo, Spotify, Netflix, Straa, uh, you know, and I could go on and on. Then the game really, it’s like checkers versus chess. With those companies, there is a lot more innovation around reverse trials. Hey, we’re not going to

make you put down the credit card at all. You get seven days free. You get all the premium value up front. Or multiple subscription tiers like look at Tender. Uh we’re going to give you Tender Plus, Tender Gold, Tender Platinum, and each one has a different premium value prop. And that way we’re capturing more consumer surplus under the demand curve. It’s a it’s more complex buying decision, but it’s ultimately worth it. Like those are two different games. And I think the challenge is when you’re an indie developer, sometimes you can over complicate things by trying to do all the stuff the big companies are doing. And then vice versa, if you’re a big company, like to get to$10 billion plus,

you got to have a different set of playbooks than, you know, the the entity developers that are just trying to get people to pay right away. [music]