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Key insights from “How to Create a Successful Subscription-Based Monetization Strategy” podcast

Kate
Kate

Today we’d like to share with you the key insights from the Mobile Action podcast episode «How to Create a Successful Subscription-Based Monetization Strategy» with Michael Stysin, CEO of Qonversion.

You can listen to the full episode with the following links:

Key Insights

What are the key benefits of the subscription business model?

  • Subscriptions allow businesses to provide users a free trial, so they can experience all the premium features and make a conscious decision to subscribe and use the app further.
  • From a developer’s standpoint, subscriptions are a great opportunity to have recurring resources to launch more updates to the app, to add new features, and to provide customer support. 
  • Subscriptions are one of the most predictive business models in terms of forecasting your revenue. 

How to increase a trial to paid customer conversion rate?

  • Think about the customization of your app during the onboarding experience, so that the end user gets the best user experience during his free trial period. If you run a fitness app, gather data about the person and their goals during onboarding and suggest personalized programs. The better experience they have during the trial period the higher the chances the trial will be converted to subscription. 
  • Keep your promises and set the right expectations from your app. If you have beautiful screenshots on the app store of a great product inside, and the product is not there, then you won’t be able to retain the customers and convert from free trials. 
  • Always test your pricing and subscription duration. Maybe the user doesn’t convert because the price is too high or the subscription duration is too short. You can use A/B testing tools for these purposes. 

What is the best trial longevity to lead to paying customers?

  • Seven days. It is the optimal amount of days to test all capabilities of your app. Longer than seven days might be too much free time.

How many pricing packages should a subscription-based app offer?

  • It depends on the product, and the best way to figure this out is just using A/B experimenting. It’s a good thing to have several options, but maybe you should make one option more prominent. After you have figured the basic pricing (and you understand that this pricing works for you), you should show more prominently one main subscription offer, but your end-user should be able to find other options as well.

What’s the ratio of the subscriptions that are monthly and lifetime? Do users tend to buy lifetime access?

  • It depends on the product and the options that you provide. The best approach is to focus on the quality of the product itself and on the nature of the product. Understand how frequently the user uses your product, and start there to figure out what is the best duration for subscription for your type of product. 
  • The monthly subscription is the most popular option, followed by an annual subscription. The lifetime is definitely not the best option, and you shouldn’t be trying to steer your end-users to that, but it’s something good to have because this can increase your overall unit economics and overall conversions. If 60% or 70% of your subscribers choose the main subscription, which is likely the monthly subscription, then there is about 20% to 30% that choose an alternative subscription period, such as annual subscriptions, for example. Then you can have close to 5% to 10% that are opting for buying the lifetime, which is a more expensive but nonrecurring type of purchase.

Which tools and services are must-haves for subscription-based apps to achieve their KPIs?

Full transcript of the podcast

Taha Karsli: Hello, everyone! Welcome to another episode of Mobile Growth Podcast by Mobile Action. I’m your host, Taha. Each episode, I’m joined by a Mobile Growth expert talking about their businesses, industry news, best practices, and advice to user acquisition at marketers. Today, I’m joined by a guest from a company which provides a subscription data platform for mobile-first companies. Today, I’m sitting down with Michael Stysin, the founder of Qonversion.io. Hi, Michael, welcome to pods.

Michael Stysin: Thanks for inviting me.

Taha: I know that what you’re doing with Qonversion is quite interesting. Qonversion is a platform for the subscription-based apps to grow their subscription revenue, basically?

Michael: Yes, absolutely.

Taha: If I were to ask you why apps are choosing to go with a subscription-based model rather than, let’s say, an easy in-app purchase model, ad monetization, what’s the benefit of a subscription-based app for their customer base and their own business perspective?

Michael: Of course, there are several different types of monetization, and first of all, you can just sell your app, so the user has to pay upfront when he’s downloaded that, but in this case, a developer is not incentivized to improve the app because he received all the money at the time a user downloaded the app. When the user downloads, a user basically has to pay upfront even if they didn’t have a chance to use that.

Regarding the advertising monetization model, it works quite well for some apps, but in general, it’s not the best user experience to see a lot of ads. To make significant revenue from the app, you do have to show a lot of ads. I think everyone has seen some apps cluttered with ads you can’t skip. You have to watch it for a long time, and it’s really annoying. The best monetization model, at least for apps with some visual services, is in-app purchases and in-app subscriptions.

Talking specifically about in-app subscriptions, I think it’s probably the best choice because, first of all, you can provide a free trial to a user, so he can experience all the premium features of your app, see for himself if it is a high-quality app, if he enjoys using it, and only after that make a conscious decision to subscribe and use the app further. Plus, another thing is the incentives alignment in case of a subscription business model.

As a developer, you’re interested in providing more updates to the app, to add new features, to provide customer support, and so on. The better you do your job, the longer the subscriber stays with you, and the more revenue you get. Basically, the incentives of the developer and of the end-customer align in the case of the subscription business model.

Taha: Absolutely, I agree that you need great customer support in order to have this process go really smoothly for your users. Another thing that I’d like to ask: Let’s say that I have this app where the main revenue model is a subscription and I offer a free trial to my users, but I see that out of 100 users who started the free trial, I get, let’s say, four paid customers out of the trial period. Let’s say 96% of them are canceling their subscriptions. What are some ways that you see on your side to increase that conversion and have a healthy trial to a subscription conversion rate?

Michael: I think there are several things to remember here. First of all, if people are unsubscribing during the free trial, if they don’t convert from a free trial to a paying customer, it tells you that there is something wrong with your product. You need to think about the onboarding experience, the customization of your app during the onboarding experience so that the end-user gets the best user experience during his free trial period.

If people are not converting, that means that basically, during the free trial, they were not convinced that the app is useful and it solves their problem. Maybe you have beautiful screenshots on the app store and some promises of a great product inside, but if the product is not there, then you won’t be able to retain the customers and convert from free trials. That’s the first thing to remember.

One of the things here is also customization of your app to your user needs. Basically, during the onboarding, you can gather the data from your customer. Let’s say you’re running a fitness app, during the onboarding, you can get data from this user such as his age, his gender, his fitness goals. For example, he wants to lose weight. What is his current weight? What is the target weight? What is his fitness level?

Using this data, you can customize the app experience, the training programs that you provide, so when he actually starts using the app, the programs make sense, they correspond to his fitness level, and so on. He has a good experience, and if he has a good experience during the free trial, the chances are that he will convert to a paying customer, so that’s what you should be doing.

On the other hand, of course, you also need to think about the pricing. Maybe the user doesn’t convert because the price is too high, and you do need to experiment with the pricing that you offer. You need to provide different subscription durations. For example, you can offer a monthly subscription and semi-annual subscription, and you need to provide discounts for a longer subscription duration, so the user has some options when he’s choosing to subscribe. Also, you just need to run A/B experiments and play with different prices. By the way, that’s what Qonversion offers: We do provide this A/B testing platform.

Taha: Got it. According to your experience, to provide a platform for apps, A/B test their subscription packages, I want to ask you something that I’m really curious about. Do you think that the trial periods, let’s say, if it is either three days, one day, or a week, or two weeks, how much does it affect the conversion to the paid users? Do you see a situation between, let’s say, the apps are offering a less amount of trial days, it’s more likely to convert to the paid customer, or is it the opposite of it?

Michael: From what we see, most of the subscription apps do provide the free trial first of all, so it’s definitely a good practice to provide a free trial. Regarding the duration of free trial, our data shows that a seven-day free trial might be the best option because three days could be not enough and a user might not have enough time to test the app, and might not be convinced to convert. Longer than seven days might be too much free time, so seven days looks like the best option for a free trial.

Taha: Other than that, how many packages do you think a subscription-based app offer to their users when they first onboard? I know that the apps can have several packages, but does it make customers a little confused and overwhelmed when they see lots of options before they onboard to the app to see what’s inside. Without seeing inside, do you think it is healthy to show all the packages and what’s best for them, or do you think it is more healthy to just offer them a package at a random level or in a level that app understands what kind of a user got onboarded and offers something that’s suitable for them?

Michael: It really depends on the product, and the best way to figure this out is just A/B experimenting. You should try different options. I think, and from the data we see, it’s a good thing to have several options, but maybe you should make one option more prominent. After you have figured the basic pricing, and you understand that this pricing works for you, you should show more prominently one main subscription offer, but your end user should be able to see other options as well.

For example, some people just don’t like the subscription concept, they want to be able to make just a single purchase, and you might consider adding lifetime access with a one-time in-app purchase, but it should cost significantly more than your annual subscription cost. He has some options to choose from a short duration to a longer duration to even a lifetime access option.

Taha: Got it. According to your data, what’s the ratio between the users—of course, it varies from industry to industry, it depends on the product—but what’s the ratio of the subscriptions that is monthly and lifetime? Are users more likely to buy a lifetime access when they first onboard? Can you predict the answer? I’m really curious about the ratio of it.

Michael: Once again, it totally depends on the product and the options that you provide. I would say that market subscription is the most popular option and then the annual subscription. The lifetime is definitely not the best option, and you shouldn’t be trying to steer your end users to that option, but it’s something good to have, and this can increase your overall unit economics and overall conversions. If 60% or 70% of your subscribers choose the main subscription, let’s say the monthly subscription, then there is about 20% to 30% that choose the alternative subscription period, like annual subscriptions, for example.

Then you can have 5% to 10% that are opting for buying the lifetime, a more expensive but nonrecurring type of purchase. It’s entirely up to you. I would say that you should be very much focused on the quality of the product itself and on the nature of the product. Understand how frequently the user uses your product, and start there to figure out what is the best duration for subscription for this type of product.

One of the ideas here is to look at the competitors in this vertical. If you are building some specific app, the chances are it’s not something very unique, that there is some competition, and you should check out their pricing, their subscription durations to understand what works and what is currently available on the market.

Taha: Got it. I know that the subscription model is great for businesses who like to have a creditable revenue and  repetition. You can benchmark your data and have better conversions using tools like yours. I would like to ask you, from your experience with your clients, what are the challenges that occur for the subscription-based apps, rather than other revenue models like in-app purchases or ad monetization? What are the unique challenges for subscription-based apps?

Michael: As you said, on the one hand, the subscription business model provides simple ways to forecast your revenue. It’s easier to forecast your revenue if you understand user retention well, and it’s actually quite stable. If you have high-quality data for your historical users for the historical subscriptions, you understand your retention rates, it’s very easy to make an accurate forecast for the future, but the trick here and the complexity here comes from the fact that getting this data might be complex, and you do need this backend infrastructure, as I mentioned, server-side receipt validation, to gather this data to validate user receipts.

That’s where conversion and platforms like Qonversion come into place. You can either try to build this yourself, but I don’t recommend that; it’s very labor-intensive, and you have to waste a lot of resources, time, and focus to build this and then to support this. Or you can just take a solution like Qonversion, plug it with several lines of code into your app, and you are done with getting the data right. Once you have the data, it’s easy to make forecasts, and it’s much easier to figure out your customer’s LTV, let’s say, than for one time in-app purchases.

Taha: Other than tools like Qonversion, which provide this A/B testing capability to try out new platforms, what are some other tools and services that you see that typically subscription-based app companies tend to use in order to achieve their KPIs?

Michael: Integrations with other platforms and some retention and engagement tools like push notification. I agree with you, you do need a set of tools and a set of platforms to run successful subscription mobile apps. First of all, after you get the server-side receipt validation right and gather the data, you do need to set up user acquisition channels. I think the most obvious is Facebook ads. You need to install Facebook SDK into your app to be able to advertise your app on Facebook and Instagram—other advertising platforms like Google, TikTok, Twitter, Snapchat, whatever suits your app audience.

Then you need to measure your marketing. You probably do need to integrate either AppsFlyer or just Branch or other mobile measurement platforms to attribute your revenue to specific acquisition channels; that’s second. The third tool you probably do need is product analytics. There are several high-quality product analytics platforms like Amplitude, Mixpanel, but it can be quite costly by the way, and there are free alternatives like Yandex, AppMetrica, for example, which provides quite good data quality and is free.

The toolset is advertising, marketing measurement platforms, a product analytics platform like Qonversion to get the data right, and on top of that, you can add some other tools as well, but these that I just named are master tools.

Taha: Got it. Awesome. Last but not least, you launched the platform two years ago and now you’re in this phase where you’re growing, and I want to ask what’s next for the company and the product? What are your next goals for the rest of 2021 and for upcoming years?

Michael: Absolutely. We have a significant user base now. We are talking to our clients, we are getting feedback from them, and we are trying to develop our product based on our customer feedback. We see a lot of requests for better, more granular analytics inside our platform. We do provide a set of dashboards that allow customers to analyze their business and understand the drivers and performance of the business, but still there are requests for even more granular data.

Then we are working on these tools to engage customers and increase user retention. One of them, which is already available, is the push notifications that are triggered by server-side. For example, as you mentioned, a lot of trials are being canceled, and one way to increase conversion from trial to paid customer is to provide some custom communication to your users when they cancel a trial.

For example, they might be canceling a trial because the app is too expensive, and when a user cancels this free trial, you can send a push notification with a discount to this user if it was too expensive for him, to win him back immediately, and that’s something we already provide, but we want to add more flexibility to these tools to make them more customizable, more flexible for different types of events and different use cases.

Taha: Awesome. That was a great shift, Michael. Thanks for joining me today.

Michael: Thanks for having me. It was a pleasure speaking to you.