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The reason for this guide is simple: global newspaper advertising revenue is expected to fall from $49.2bn in 2019 to $36bn in 2024.
But there's also an interesting pivot.
For the first time in history, The New York Times digital revenue was higher than the money brought in from print subscribers–during its September quarter in 2020. For the year, digital revenue was $598.3 million, a 30% rise.
And the trends seem to indicate that the reader-revenue model is the future for publications (long time coming).
This guide makes a case for adopting a reader-revenue model. And, will also guide you on your path to building one, diving into creating your revenue workflow.
Moving to a reader-revenue model seems to be reaping benefits for publications. Viewers have no problem paying for a subscription they can trust.
The Washington Post now has around three million subscribers. Wall Street Journal added more than half a million subscribers to take its total digital subscribers to nearly 2.5 million in the past year. Financial Times has more than a million subscribers.
NYT's revenue from digital subscriptions helped cushion an overall 26% fall in advertising revenue in 2020! Total ad revenue at The Times fell. Imagine having to say: "No ads? No problem."
That's what Zetland, a Danish publication, is saying. Zetland was established in 2016 and never ran ads. In Q4 2020, they grew 10.57%, which resulted in an annual MRR growth of 36.33%
They now have 20,000 subscribers paying $19 per month.
As an option, you can even diversify your revenue stream with other emerging trends like eCommerce, digital events, newsletters, and podcasts.
The pandemic seems to have accelerated the growth on all digital fronts.
Looking at eCommerce: online retail revenue hit $245.28 billion in Q4 2020, up from $185.70 billion during the same quarter the prior year. The Denver Post sells Colorado photos taken by their journalists. And the Seattle Times is selling a bunch of other merchandise.
The Washington Post's coronavirus newsletter has created new sales in the form of sponsorship opportunities with companies like Goldman Sachs, Slack, and Salesforce. In the US, 24% (68 million) listened to podcasts weekly in 2020 – up from 22% in 2019, with advertising opportunities likely to increase going forward.
As for live events, they were supposed to be the 2nd most expected revenue channel–behind digital advertising. But due to the pandemic, they ended up going digital.
Do you see the pivot? Publications now have reader revenue as the core revenue stream, cushioned by diversification.
Certain ingredients make a reader revenue model highly tempting for a viewer. Let's list them out.
Information is not enough. There's so much information available for free on the world wide web. How does your product stand out?
You need to do something with that information. You need to do analysis; you need to do curation. It needs to hold convincing theories, experiments, and complex data. You need to nail the UX and distribution.
In essence: you need quality journalism. Here are a few things to consider:
The seriousness of an emotional experience: emotions, feelings, identity, and values are vital parts of the quality of people's lives and their media experience.
Convenient UX: make it 'readable.' That means eradicating friction and confusion from the split-second choice between access and clicking away. Content should be readily available, wherever you are, and bonus points if it's available in digital and audio.
Diversity, serendipity, and joy: People don't always know what they want. Surprise them. Indeed, the news's key quality value is to be told what you didn't know or didn't even know you wanted to know? And to create diversity, you have to keep shaking up your assumptions and systems.
You must create quality articles. Quality is what goes viral on social media. And when that happens, your top of the funnel will be so broad that you can get viewers trickling down the funnel.
Tav Klitgaard, CEO Zetland, says: "We do split tests on everything, but pricing is hard. So I think there are three ways to do pricing. So one is to look at your competition, how they're priced. The other is to look at your production costs, how much do you need to charge? And the third one is what I call value-based pricing."
Cost-plus pricing is taking the total cost of producing your product and then adding a markup on top of it. The problem with this approach is that when you scale, prices will also increase (marketers finding new channels, new hires, etc.,)—making it hard to put markup in proportion to these factors. You might be pricing too little or too much.
Competitor-based pricing would be pricing your product based on how your competitors have priced theirs. You could factor in all your costs, put up a markup, compare that price with your competitors, and then readjust.
Then again, what if the competitor's prices you're comparing weren't based on proper research? As you scale, you need to ask your customers: "Hey, what's my product worth to you?"
Enter value-based pricing. Through value-based pricing, you'll be engaging with your customers to find your offerings' perceived value.
So once you get a few customers in through cost-plus and competitor-based pricing, start sending out those surveys that ask, "How much value do we provide to you?"
In a subscription business, the most vital aspect is to keep your customers happy. If you don't continuously invest in the relationship you have with them, they will churn.
It's the first step in any customer relationship––talk to them. And teach everyone on your team how to communicate with your viewers.
Listening is often the most critical skill in building relationships. On a call or through an email: ask them for their opinions. "What are your complaints or opinions about our brand? How can we make you love us more?"
Always try and surprise your customers by exceeding their expectations. Hold the quality of your content and brand to high standards. Show them what you stand for, and they'll love you more.
Appreciate your loyal viewers. Thank them, gift out reward cards, coupons, or discounts. Make them feel you care about them––like a friend.
A subscription business also creates communities. But, you have to invest in growing and building that community. It's preferable to have a team that engages with the community—doing live events, virtual events, requesting feedback.
Additionally, WNIP suggests you also ask the following questions that could help newsroom leaders:
Who is consuming our work and why?
Is this audience different from who we would expect – and if so, how?
What are the issues and concerns that our audience needs information about?
Are there other people who would benefit from our work, and how do we contact them?
What is the best way to present our work so that our audiences can easily consume and, more importantly, understand it?
Your customers want to get to know you, and they also want to be heard. In a subscription business, you sell trust.
Your model should support a wide variety of subscribers. Some of them would like to read a few articles a month or pay to access certain sections. And then some would subscribe and pay you every month.
It's about having something for everyone. Focus on building trust and happy customers that upgrade in the long term.
So here are some common models:
Your viewers get to access a certain amount of free content each month. For instance, The New York Times and Wired offer around 4 or 5 free articles a month.
Viewers pay for specific sections of your publication. The New York Times uses this model for some of its non-news products––NYT Cooking costs $5 every four weeks, or $40 a year.
As the title suggests, this is a hard paywall, and none of the content you provide is free––viewers need to subscribe. The Wall Street Journal is an example.
This is a mix of the above three models. Some publications restrict access to specific content categories while implementing a paywall tied to the number of articles consumed. One example is Nexo Jornal.
A typical tech-stack consists of 4 parts. The idea here is to buy solutions with flexible APIs over wanting to build from scratch. Flexible APIs are efficient, cost-effective, and allow you to scale seamlessly.
The first thing you need to sort out is your payment mechanism. This includes a payment gateway provider to collect online payments. And a subscription management layer on top of the payment gateway keeps track of everything, including registered members, renewal dates, and payment information.
Up next, you need a CRM platform like Hubspot or Freshworks that can help with sales or marketing by keeping track of leads and their email information. You'll also need to add an email tool like Mailchimp or Mailshake for all your newsletters or other communications.
And then there's the content management system like WordPress or Drupal.
But, here's the caveat: If you happen to be on a black box CMS platform, your ability to experiment with different forms of content will be restricted.
For example, Zetland wanted to go all in on audio in 2017 and that would have not been possible if they had a black box platform. Today almost 80% of Zetland’s members chose audio over text and offering the flexibility to consume content in different formats has been instrumental in its growth
Having a black box CMS platform also restricts your ability to experiment with different types of products and territories will also prove to be complicated. Once you increase in team size, it's preferable to employ 1 or 2 developers who could build your distribution platform using flexible APIs.
And finally, you need to measure two kinds of metrics: content performance and revenue insights.
Google Analytics would be the most widely used tool for monitoring content. It's highly customizable and can give you all kinds of insights into viewer behavior.
For insights on revenue, check out RevenueStory. It gives you answers to a lot of questions. "Am I making more money than I'm losing?", "How long should my trial period be?", "What's the impact of my new pricing plan?" and all kinds of metrics like Quick Ratio, MRR, Churn, etc.
Well, you need to collect money from your subscribers. This is usually a complicated affair where you have to handle a mountain of complexities. Payment processing, compliance, subscription management, billing, invoicing and accounting, fraud management; the complexities go on.
But, the reason we're seeing the emergence of a reader-revenue model is quite simple: building a payment workflow is no longer a complicated and expensive ordeal. All you have to do is pick the suitable APIs.
We're going to break this section down into two vital aspects.
A payment gateway (or payment processor) does the most basic job: it authorizes and transfers payments between a customer account and a merchant account.
But ask yourself:
What if your payment gateway is down?
What if you want to change your payment gateway?
What if you want to reduce revenue churn?
What if you have a complex workflow that includes CRMs, helpdesk, marketing automation, accounting?
What if you want to tap into new markets?
What about compliance, currency, and different payment methods?
What about analytics that can show you the health of your business?
You need more than just a payment gateway. Running a successful reader-revenue model involves more than just collecting payments. Your billing system needs to scale alongside your business.
So let's find out what it would take for you to build your solution:
First, you begin developing the solution, testing and releasing the application, fixing the bugs, and maintaining the code's stability. Then you turn your focus on building lasting customer relationships and reducing churn, and experimenting with growth. As you scale, you need to start worrying about supporting the ever-evolving complexities in billing logic, accurately tracking and recognizing revenue, scaling across geographies, being abreast with security, changing tax and payments compliance, apart from providing ongoing support and maintenance.
Dizzy yet? Let's figure out what this costs.
So the initial cost + maintenance comes up to $289,000. This number will keep increasing as you scale.
The most effective way to achieve significant growth is to buy a solution. A solution that will take care of all your billing needs while you can concentrate on your core business: reader-revenue.
Chargebee can help you keep subscription management uncomplicated as you scale.
Here's how your company's reader-revenue workflow can look with Chargebee
Let’s break down what this means for you.
Chargebee can remove redundant manual work and automate your workflow, which includes:
Who needs to be billed
What subscriptions/products they need to be billed for
How much they should be billed
When do they need to be billed
How to collect payments
Upgrades and downgrades
Pausing and cancellation of subscriptions
Dunning process is the term given for payment retry in the event of a payment failure. Over 20% of a subscription business' revenue churn is involuntary churn due to payment failures. A few of the many perks of having this feature are:
Not having to check accounts for declined charges manually
Automatically retrying failed payments at the time, they're most likely to go through
Letting the customers know about declined payments
Easily keeping a track of all of these actions. This is especially true for subscription businesses with a high volume of transactions.
A 1% improvement in pricing results in an average profit improvement of 11.1%
Pricing is never a finished project. It's something you need to keep visiting and experimenting with. Why? There's always more than one competitor in the market, and everyone is trying to alter their pricing. If you don't keep up with the game, you might get left behind.
Let's take the example of Superfoods, a health food and supplements manufacturer based in Texas, USA. They needed a solution that could: drive a larger share of subscription sales, raise the average order value, automate renewals and reduce churn.
After implementing Chargebee, Superfoods grew its recurring revenue by 4x within one year. With Chargebee's help, Superfoods grew its customer base to over 200,000 subscribers.
Chargebee can help you with the billing infrastructure to launch, experiment, and iterate pricing structures in minutes. Not months.
From a strategic point of view, there is another fundamental advantage that a billing software like Chargebee has over a gateway. Recurring billing systems are designed to be integrated with multiple payment gateways and payment methods.
For example, in the United States, the most preferred payment method is a credit card. While in the EU it’s direct debit. As you try to enter more markets, you will need to offer a diverse set of payment methods. Chargebee supports recurring payments across 150+ countries.
The recurring billing system takes the responsibility to sync with your accounting system seamlessly. Everything from plans, add-ons, discounts, coupons, credit notes, and even ad-hoc charges need to get mapped correctly.
Chargebee can automatically calculate tax based on the region you are selling into - be it US sales tax, Australian GST, or EU-VAT.
Compliance with GAAP or IFRS is just as crucial for accurate deferred revenue reporting and revenue recognition.
Give the recipient a taste of the experience you reserve for customers. The gift recipient does not have to be the intangible, out-of-reach persona anymore. Automate welcome emails, reminders, offer emails, and convert them right from within Chargebee.
Earlier, we spoke about how analytics are important as a pulse check on your business. How else would you know the health of your business? A reader-revenue model makes it really easy to measure your metrics. All the very reason why a subscription business can plan their long term strategy.
Here’s some important subscription revenue metrics you’d need to keep an eye on:
Your monthly recurring revenue is calculated by taking into account all the active subscriptions.
There are two ways to calculate MRR:
1. Sum of all the money received from your paid subscriptions/customers.
MRR = Sum(Monthly Recurring Charge of all paying customers)
2. If you know your ARPU (Average Revenue Per User), you can then multiply it with the number of paying customers to find your MRR.
MRR = Average Revenue Per User * Number of paid customers
If your business revolves around subscriptions, this should be a fair representation of the money your customers will be bringing in. It depicts a business's health, something an investor will look at before investing in the company. That makes MRR the one number metric you should strive to be growing every month.
Annual recurring revenue is the revenue that a business expects to generate every year on a recurring basis.
It is relatively simple to calculate ARR. Here is the formula and everything you need to know about it. You can calculate ARR in two ways as well:
1. If you bill your customers yearly,
ARR = Sum (Yearly Recurring Charge of all paying customers)
2. If you bill your customers monthly, you can calculate ARR as:
ARR = (Contract Value) x (12/ Duration of contract in months)
ARR is a handy metric to understand two aspects of a SaaS business's revenue:
Revenue gained due to new sales and upgrades (expansion revenue)
Revenue lost due to customer churn and downgrades
When measured correctly, ARR is a good indicator of your business's health and forecasting future revenue.
ARPU refers to the revenue generated by a user over a specific period of time. ARPU is used interchangeably with Average Revenue Per Account (ARPA) and Average Revenue Per Subscription (ARPS) depending on how you price your customers.
Since it is a non-GAAP metric, there is no standard as to how this should be measured. For simplicity, we will refer to ARPU as Average Revenue Per User.
Here’s how you can calculate your ARPU:
ARPU (monthly) = Total MRR / Total Active Subscriptions (Users)
Understanding buyer personas: If your ARPU is low, it could mean that you are targeting too many low revenue customers, and you need to extract more value (revenue) from your product.
Running Pricing Experiments: Looking at your ARPU can indicate whether you have priced your product correctly. A subscription business with a low ARPU could be underpricing its product. It shows room for an increase in pricing and running experiments to see if people are willing to pay more for your product.
Add-ons and upgrades: Looking at ARPU can help you create a clear strategy for upgrades and upsells. It can indicate upgrade and downgrade trends, prioritizing features that you can then upsell to customers in a particular pricing plan.
The net dollar retention measures the net revenue leftover in a set period, considering the total revenue minus any revenue from downgrades or churn, plus revenue from expansion due to upsells, cross-sells, and upgrades.
NDR = [(Starting MRR + expansion — downgrades — churn) / Starting MRR] * 100%
Company A starts the month with $10000 in recurring revenue. Over the month, it adds $3000 in expansion revenue, $1500 in downgrades, and $500 in churn.
NDR = 110%
MRR = $11000
Company B starts the month with $10000 in recurring revenue. Over the month, it does not see any expansion revenue but adds $5000 in new subscriptions, $1500 in downgrades, and $1000 in churn.
NDR = 75%
MRR = $12500
By looking at the MRRs alone, you would say that Company B fares better. However, going by the NDRs, not so much.
Using NDR can let you know how the upgrades, cancellations, cross-sells etc., influence your revenue. It’s a lot more insightful than simply calculating MRR or ARR and helps you improve retention rate and reduce churn.
Put simply, the churn rate is the rate at which your customers are canceling their subscriptions. It is the percentage of subscribers who stop paying you.
Customer churn formula:
Number of customers lost during a specific period = The number of customers at the beginning of the period - The number of customers at the end of the period
Revenue churn formula:
Revenue lost during a specific period = The revenue generated at the beginning of the period - The revenue generated at the end of the period
Because a healthy annual churn rate for a subscription business is about 5 - 7%, which will translate into a monthly churn rate of around 0.42 – 0.58%.
The fundamental goal of a subscription business is to gain predictable recurring revenue. To do this, you need your customer to stick around. If you have a high churn rate, it's an indicator that there's something wrong with the underlying business.
Customer Acquisition Cost (CAC) and Lifetime Value (LTV) are important metrics for a subscription business to understand the underlying unit economics. Hence, the LTV/CAC ratio is a good indicator of how valuable your company is. A ratio of 3:1 indicates your customer's value is three times more than the cost of acquisition.
An enterprise customer can have a high CAC, but they'll also have a higher LTV since they tend to churn less. It makes sense to look at these enterprise customers, yet the CAC-LTV can help you uncover valuable revenue. For example, in the case of HubSpot, they had two personas: Owner Ollie and Marketer Mary. The former was the owner of a small business and did their marketing. While the latter worked for a slightly bigger company and was in charge of marketing. At first, they concentrated their efforts on Marketer Mary, which had an LTV of $11,125. But later, selling to Owner Ollie through a channel partner produced an even better LTV of $11,404.
As a subscription or saas business, you'll be spending some dime on acquiring customers through sales and marketing. But how much do you spend? For example, if the LTV of a customer you want is $100, and you're looking to hit an LTV/CAC ratio of 3:1, then you'll need to spend approximately $30 on an acquisition.
If your customers are worth three times the value of the acquisition, then investors are all ears. But the point here is not to parade this metric around. But to show the investors that "this company has a broad product-market fit and its strong LTV: CAC today is likely sustainable at similar levels over time."
If this was your first time looking at subscription metrics, it could be complex. It'd be pretty suicidal if you had to keep a check on these metrics on a spreadsheet. Hence the need for RevenueStory––an automated dashboard that seamlessly integrates with your business and can show you 750+ metrics.
Advertising revenues are declining, making the reader-revenue model the future for publications.
Reader-revenue can be cushioned by diversifying with other revenue streams like eCommerce, podcast, newsletters, and digital events.
A reader-revenue model's fundamental principles are a product that gives value, the right price point, and subscription relationships.
Use a revenue model that has something for everyone. And focus on building trust and happy customers that upgrade in the long term.
You can build a tech stack on top of your reader-revenue model that includes: payment mechanism, sales and marketing software, content management system, and analytics.
Running a successful reader-revenue model involves more than just collecting payments: you need an out-of-the-box subscription management solution––while you concentrate on building reader-revenue.
The most cost-effective and efficient solution is to buy a billing software with flexible APIs.
A subscription management software comes with features that can help you acquire more viewers and retain them.
You need to invest in subscription revenue analytics to stay on top of your growth; data is gold.
To learn more about Chargebee’s tailored and flexible membership management solution for publications: click here.