By John Chisholm.
“The subscription business model is taking the world by storm. Subscription-based companies grow much faster than their traditional counterparts, the business tends to be less cyclical, the lifetime value of a customer is higher, and buyers seem to love them too.” Mark Stiving.
Subscription models are not new. John Warrillow in his book “ The Automatic Customer: Creating A Subscription Business in Any Industry” cites European map makers in the 15th century selling subscriptions to map updates. I wasn’t quite around to experience those map makers but I do remember my parents subscribing to products and services such as a daily newspaper, magazines and of course their landline phone. Many years ago I even took out a gym membership- once! As a lawyer we used to pay Xerox a small subscription fortune to maintain and service our office photocopiers.
Take a minute to think of what you might subscribe to now. Maybe your mobile phone service; any number of TV offerings such as Foxtel, Apple TV, Amazon Prime, Netflix, Stan, etc; music streaming services such as Spotify, Apple Music, You Tube Music; Gaming Services; Cloud storage; Microsoft Office 365; Salesforce; CRM’s; Zoom; Xero; password management services; gym memberships (not me); wine clubs (me). You might even subscribe to a new car, annual eye care or a concierge doctor service?
The subscription list is almost endless and increasing daily as both start ups and traditional businesses work out how to turn their business into a subscription offering.
Why is the subscription model so popular with both providers and customers?
Mark Stiving, a US pricing expert, in his latest book “Win Keep Grow” (a must read for anyone serious about considering a subscription model) lists no less than 7 reasons why buyers love subscription models:
Buyers buy the benefit not the product,
Subscriptions are logical and straightforward,
Subscriptions provide flexibility to grow,
Subscriptions reduce risk,
Subscription products are better,
B2B customers can more easily calculate return on investment, and
B2B accounting is more accessible and more beneficial.
And the reasons providers love subscription models according to Mark include:
Faster growth,
Higher lifetime value, and
Investors reward subscriptions
Stiving, together with other pricing gurus such as Tien Tzuo, and my VeraSage colleagues and hosts of weekly radio show The Soul Of Enterprise Ron Baker and Ed Kless, believe almost any business model can be transformed into a subscription model-even professional services.
Ron Baker in this easy to listen to Law Chat webcast interview with Simon Tupman titled The Firm Of The Future 2.0- Building Relationships By Subscription particularly emphasises that subscription models focus much more on not only monetizing customer relationships and the lifetime value of customers, but make those relationships the central core of their business model. Other billing and pricing models that are still primarily transaction focussed tend to only give lip service to service delivery and the client experience. And therein lies both the opportunities and challenges for professional firms-including legal and accounting firms-successfully adopting a sustainable subscription model in their practices.
If we take a step back a few years one can find many examples of law firms adopting a form of subscription/retainer type models but often limited to one part of their practice perhaps and/or limited in scope and time. The limitations of these models mainly came about not so much because they were not profitable nor beneficial, but moreover because those firms generally:
still adhered to a business model that leverages people x time x hourly rate and subscription models struggle to fit that model, and/or
the individual KPI’s in such firms emphasised and rewarded the “I” over “We”, so again do not incentivise or cope with subscriptions-notwithstanding there maybe significant benefits to the firm as a whole.
the individual KPI’s in such firms emphasised and rewarded the “I” over “We”, so again do not incentivise or cope with subscriptions-notwithstanding there maybe significant benefits to the firm as a whole.
Some of the more innovative practices in recent years have taken subscription models to a whole new level often adopting them exclusively or as a hybrid with other value based pricing offerings. Those practices tended to have been boutique specialists (subscription pricing like all forms of up front pricing works better with specialists than generalists) who have either got rid of the billable hour and time recording or never adopted them in the first place.
Owners of law firms in particular often bemoan the fact that when it comes time to sell their practices, the multiple $ offerings are nowhere near the value other businesses (including many bookkeeper and accounting firms that usually have higher incidence of recurring income) are paid. The prime reason for this? Traditional law firms do not have much if any recurring income and/or their practices are often people based rather than-or in addition to- systems and process based. As mentioned above and in the I books referred to, subscription businesses do attract higher sales prices and investment offerings-precisely because of their recurring revenues.
Why then wouldn’t law firm owners-especially ones that have niche, specialised practices- seriously consider what they could offer to their current and future (and maybe different and better?) clients by way of a subscription model? One only has to look at the recent Zoom Legal IPO behemoth and its focus on the future of subscriptions as evidence that there is demand for such a model in law. Or Jeff Bezos’s huge financial investment in US subscription based accounting firm Pilot. Summit CPA’s virtual CFO Services. Jon Tobin’s Counsel For Creators. Virtual brand strategy law practice K.Bennett Law LCC. Or the membership offerings of Legal Vision, the “Alliance” offering of Elevate Legal, trademarks firm Markster, or the communities offerings at View Legal.
Just like a move to value based pricing any law firm that is considering a move to a subscription based model, has to decide their purpose and strategy but also understand the 5 C’s of value being:
Comprehend value to clients.
Create value for clients.
Communicate the value you create.
Convince clients they must pay for value.
Capture value with strategic pricing based on value, not costs and efforts.
It goes without saying that it is impossible to even try and comprehend the real value any true professional could provide to a client without first having a value conversation with that client. Equally a professional needs to properly scope what they can and cannot provide under any subscription offering before they even consider a price(s).
While subscription models are scaleable the challenge for a traditional firm that leverages people x time x hourly rate is, as mentioned previously, changing the focus from individual measurements and rewards to measuring and rewarding firm wide performance, to incentivise and promote real internal and external collaboration.
Like all transformations this requires a paradigm shift to a different mindset and business model-one that genuinely does focus on customer relationships. Not all lawyers are willing to do this.
Are you?
About the Author
John Chisholm is a 3rd generation recovering lawyer, previously a partner, managing partner and chief executive of Australian law firms.
John established his own consultancy, John Chisholm Consulting, in 2005 to share his expertise and experience with professional firms who look to maximise their business performance. He now speaks, educates, facilitates, coaches and consults.
As a practising lawyer John was well placed to experience first hand both the benefits but also the drawbacks of the professions pricing their services solely by reference to time. He has worked with many professional firms (and their customers) around the world assisting them with both a mindset change, and the practical implementation and application of, moving towards a timeless pricing model.
In 2017 John co founded the Innovim Group with fellow VeraSage Fellows Liz Harris and David Wells, an international advisory practice that equips knowledge firms to transform for success by helping them to understand the value they create and how to capture that value with strategic pricing.
John is a Senior Fellow of the VeraSage Institute, an international think tank of thought leaders and innovators for professional firms, Adjunct Professor of Law at La Trobe Law School, Fellow of the College of Legal Practice Management (US) and Distinguished Fellow Centre For Legal Innovation (Aus) 2019-2020. He has written numerous articles, papers and blogs on timeless pricing and has presented and spoken to thousands of professionals on the topic.
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