It might be helpful to add some numbers to the last two articles and a sample scenario. This is (obviously) a simple example. Still, it illustrates the financial opportunity and how to consider the areas of value outlined in the last article, Value Modeling & Super Bundling—the “Value Threading” Methodology in Practice.
While a straightforward model, it does illustrate the impact of adding new subscribers and how churn impacts the compounding value of customer engagement. In this example, we are starting with a company with many customers with whom they are engaged as loyalty members. Some are moving to the subscription program. The model outlines how bundling might impact adding new subscribers and reducing churn. Supporting the financial assumptions are specific customer engagement use cases.
This model outlines three measurable areas of value.
- Adding subscribers
- Reducing churn
- Reducing cost
- Reduced transaction costs
- Lowering operational costs
The foundational assumptions are that bundling will offer:
1 – Reduce churn because consumers will have more flexibility, combined lower cost, and a simplified subscription experience. Each customer would move from managing many to one subscription experience.
2 – Personalized bundles are created for each specific customer, tailored to their needs.
3 – Interoperability & changes inside the bundle keep customers in the program.
4 – Bundles inherently move many transactions to a single bill & payment transaction.
5 – IT organizations benefit from using one set of APIs for Subscription management, thus eliminating the need for each service to have its own set of APIs and change management.
6 – Effective bundling requires owning the data and order management to drive AI-driven analytics and personalized bundles.
This example is based on an actual business case and assumptions. Yes, there are gaps to refine the model, including applying growth and the mix of products for each year. The assumption of a constant growth rate must be addressed for the final ROI calculation. Additionally, the margin numbers need refinement for actuals and promotional contributions to the bundles.
The base assumptions (currently generating 11%CAGR):
- This company has ~2 million customers as part of a loyalty program.
- They have converted 100,000 to a subscription package with three options.
- Each year, they can bring in 20,000 new subscribers to the program
- The current churn on that is 8%
The growth assumptions (grow to 16% CAGR):
- Reduce churn from 8% to 6% through more “personalized bundles.”
- We are adding more subscribers through the new offer availability.
- ~40% of the base subscribers will add the new services due to promotions and the benefit of subscriptions under management.
The 5-year measurable benefits:
- Increase growth rate from 11% to 16%
- Add ~$15 Million in gross margin
- ~$50 Million in added ARR
- ~50,000 more Subscribers in the program
Summary of ARR & Subscriber Growth
Baseline Growth Projections
Here is what the business looks like today.
This business generates an 11% growth rate and ~ a 30% gross margin. Here is the 5-year projection.
Key Metrics:
- ARR growth from $58,920,000 to $103,837,172 (11% CAGR)
- Subscriber growth from 100,000 to 176,234
The added products and services to be bundled are as follows:
Bundling Growth Projections
Key Metrics:
- ARR growth from $64,735,200 to $154,481,081 (16% CAGR)
- Subscriber growth from 100,000 to 238,635
Financial Summary of Expansion Opportunity
Summary Margin Expansion:
- Includes cost reduction & gross margin assumption
Key Metric:
- $15,089,080 in additional gross margin
- ~50,000 additional subscribers
In the final analysis, the question is how much investment is required for systems and how much to invest in growth. This would include promotions, commercial terms, a newly required SaaS platform, and the UI/UX work to stitch this together.
